There are a lot of people working in the gig economy these days. You may think that your finances are straightforward and there is nothing to gain from hiring an accountant. But what if you’re wrong? [Read more…]
Expat Taxation in France
The French tax system might be confusing, but it is worth investigating if you want to make the most of your stay abroad. The French government levies a number of taxes on its residents, including expatriates. The good news is that most expats may decrease their tax obligation by taking advantage of advantageous tax treaties. [Read more…]
Pros and Cons of Self-Employment
The number of businesses that have started since the start of the pandemic has shot through the roof. People realized how short life can be and decided to take their earning potential and work-life into their own hands. Here are a few stats to illustrate the self-employment picture in the U.S.:
- As of 2019, the self-employed section of the population accounted for nearly 30% of total employment (Source).
- As of November of 2021, there are 9.9 million self-employed people in the United States.
- 96% of self-employed people don’t want regular jobs (Source)
Business structures
Sole proprietorship – There is no separate business entity. You are the business entity. That means your assets and liabilities are your assets and liabilities. Banks are more hesitant to lend to sole proprietors than they are for other entity types.
Partnership (LP/LLP) – An limited partnership (LP) has one general partner with unlimited liability and all the other partners have limited liability. Creditors can come after all of the general partner’s assets including things they personally own. Limited liability partners can only lose what they put in. A limited liability partnership provides limited liability to all partners. Profits are paid through on personal tax returns, except for the general partner – they must pay self-employment taxes.
LLC – Very similar to the LLP in terms of how profits, losses, and liabilities are treated. Profits are passed through to employees on personal returns. However, members of the LLC are required to file and pay self-employment taxes.
Retirement plan options
As a self-employed individual, you have a few options when it comes to retirement accounts – Traditional IRA and Roth IRA (available to everyone), SIMPLE IRA, Solo 410(k), and SEP IRA.
Traditional IRA and Roth IRA – Contribution limits up to $6,000 ($7,000 if you’re 50 and older). Withdrawals prior to 59 ½ are subject to a 10% tax penalty unless certain conditions are met.
SIMPLE IRA – available to employers with fewer than 100 employees. Contribution limits up to $14,000 ($17,000 if 50 or older). Employer match available.
Solo 401(k) – Contribution limit is $61,000 ($67,500 if 50 or older). Available to self-employed individuals and self-employed individuals that have their spouse as their only employee.
SEP IRA – Contribution limit is 25% of employee compensation up to $61,000.
Click here for more information about business retirement plans.
Be your own boss
You get to set your own hours and work with whoever you want to. There’s no one to tell you what to do and how to do it. For people that like to make their own schedule and like to go to the beat of their own drum, self-employment makes a lot of sense.
Earning potential
There’s no ceiling on your earning potential. You don’t have a salary range, you make what you make. You can make $10,000 or you can make $10 million. That’s a double-edged sword though, your effort determines your income. You will only make money if you work for it. Someone who isn’t a self-starter, should not be self-employed.
Costs
You have to pay for everything. Whatever the cost of business is for your sector or industry, that’s on you. Health insurance, you have to pay for that. There’s no business or employer that can foot those costs for you. Same with your retirement plan, a lot of employers offer an employee match. If you’re the business owner and the employee, ALL of your contributions are your responsibility.
Related reading:
6 Ways to Save Money When You’re Self-Employed
How to Be Self-Employed Safely and Wisely
Disclaimer:
**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
Selling Your Vehicle Via a Private Sale-Follow These Steps
When you’re looking to sell a vehicle, a private sale might be the most attractive option. Often, you have the potential to get a bit more cash by going that route, as the buyer isn’t necessarily going to flip the car for a profit. However, a private-party sale is typically more complicated than the alternatives. If you want to make sure you handle it correctly, here are steps to follow when selling your vehicle via a private sale.
Get a Value Estimate
The first step you need to take is to estimate the value of your vehicle. In many cases, it’s wise to get an inspection from a mechanic you trust. While it may cost a little money, they’ll be able to find any issues that you may want to address to ensure you get top-dollar. Otherwise, you can adjust your price based on the information.
If your vehicle is in exceptional shape, then you’ll have proof of that, too. That may help you secure a higher asking price, all because you went the extra mile to get the information.
Once you know the condition, you’ll need to assess the aesthetics. Wear and tear, scratches, dings, cracks, stains, and other issues all impact the value of the vehicle. The same can go for lingering odors, particularly smoke or pet-related smells.
As you find those types of issues, you can choose to address them or leave them. With the former, you’ll have a better chance of getting a higher price, so it could be worth the effort, depending on the potential cost.
After making those decisions, you can estimate the value. There are online calculators – including one by Kelley Blue Book and another by Edmunds – that can make that process easier. They’ll take the make and model into account, as well as the mileage and condition.
Run a Carfax Report
While running a Carfax report isn’t technically a necessity, it’s a smart move. Many prospective buyers will want to see the information on the report – particularly when it comes to accidents – so it’s wise to see what’ll show up before you attempt to sell. That way, if there’s a mistake, you can get it corrected before it impacts a sale.
Plus, if the report is accurate, you can let potential buyers know that one’s been run already. Then, you can show it to them when they come to view the vehicle.
Find the Title
You’ll need the title for the vehicle to complete a sale, so you want to make sure you have your copy available. Otherwise, you’ll need to order a replacement from your local licensing or motor vehicles agency.
Getting a replacement title can take time, particularly if you want to avoid an expedite fee. However, you can’t complete a sale without one, so you want to make sure you either have it or have one on the way before you proceed.
Gather Maintenance Records
If you were diligent about maintenance, getting copies of your records can help you sell for a higher price. In some cases, you can request reports from service providers, particularly if you had the majority of your maintenance handled at one place. Otherwise, you may need to find your receipts or after-service printouts.
Thorough Clean Your Vehicle
Having a clean, tidy vehicle will make it easier to sell. You’ll want to remove all personal property before you invite others into the car, including items in glove boxes, seat pouches, compartments, or similar places. Then, clean the vehicle inside and out, ensuring every spot is addressed along the way.
What you’ll use to clean may depend on the materials present. However, it’s often best to choose options designed specifically for vehicle materials. That way, you know that they won’t damage any surfaces.
Otherwise, you can pay a company to detail your vehicle. While this can cost a little bit, it may save you some time and energy. Plus, you’ll know that the job was thorough.
Once you’ve finished cleaning, only put back genuinely essential items. Usually, that’s limited to the registration, proof of insurance, and any manuals that came with the vehicle.
Check Your Fluids (and Consider an Oil Change)
Before you sell, you’ll want to take a moment to top off any fluids. Ensuring the coolant, brake fluid, windshield wiper fluid, and oil are all where they should be makes a difference, as buyers may check those to estimate how much care you’ve given while owning the vehicle.
In some cases, going forward with an oil change – even if it isn’t time for one – is a smart decision. That way, it’s fresh and topped off, and there’s a new filter, which buyers may appreciate.
Replace Worn Windshield Wiper Blades
If your windshield wipers don’t fully clear rain from the windshield, replace them before you list the vehicle for sale. Otherwise, if you take buyers on a test drive and the weather isn’t on your side, it could make for a poor experience. If that happens, you may lose the buyer or get a lowball offer.
Contact Your Insurer
While some prospective buyers may have their own insurance that covers them during test drives, others may not. As a result, you’ll want to confirm with your insurance company that others driving your vehicle are covered under your policy while they’re behind the wheel. If that’s the case, find out if there are any conditions, just to be safe.
Take Multiple Photos
Once all of the steps above are done, it’s time to take photos for your listing. If your car is in running condition, take it to a location that will serve as a nice backdrop. Then, photograph the exterior from at least eight angles, showing the entire vehicle. If there’s damage to disclose, you may want to take some close-ups, too. That way, you can be upfront about any issues.
Since you don’t want the license plate to show in the images, you’ll need to blur the information using photo editing software. If you don’t have access to that, either cover the plates with a plain sheet of paper or remove them for the photographs, uncovering them or putting the plates back on immediately after.
For the interior, you just want to generally show the space with a picture or two. Then, get a few close-ups of any features you want to highlight, as well as any damage you’re disclosing.
Write Your Ad
Once you have the photos, it’s time to write the ad. You’ll want to cover the basics – such as the make, model, and mileage – as well as highlight features that’ll interest buyers and support your asking price.
If you’re not sure where to start, you can review currently active ads for inspiration. While you don’t want to copy what others say, it could give you an idea about what to highlight and how to format your ad.
Be aware that you may need to change up your ad for different platforms. Some sites give you more room for text than others, for example. As a result, you need to consider what works best on each platform you’ll use, ensuring you create an ad that will resonate with those specific users.
Place Your Ad
Once you’re confident in your ad, it’s time to place it. You can use low-cost resources like social media, Craigslist, or CarGurus if you prefer. An ad in a local paper may also be wise, especially if you’re in a larger city and it’ll show online and in print.
Putting a “For Sale” sign in your car window may also help. You can either list a contact number on it or point someone to an online ad. However, the latter isn’t easy to capture while the vehicle is moving, so keep that in mind.
Deal with Buyers
If your ad and images are enticing and your vehicle is well-priced, buyers will likely reach out relatively quickly. In most cases, it’s wise to favor written communication, such as text or email. That way, you can easily track what was shared in each conversation.
Initially, you want to ensure that the prospective buyer has a driver’s license. You may also want to ask if what they’re looking for in a car. That way, you can find out about any potential dealbreakers in advance.
It’s also wise to ask if they’re purchasing a vehicle for themselves or for someone else. In some cases, the latter is a red flag, particularly if you can’t speak with or meet the actual buyer, as that could be a sign of a potential scam or upcoming robbery attempt. However, there are some situations where it isn’t usually a concern, such as a parent purchasing a car for a teenage child.
Finding out when they want to buy and how they intend to complete the purchase is critical, too. If you need to sell quickly, a buyer that has to wait might not be a great fit if you’ve got other interested parties reaching out. If the buyer is using a loan, that can take time and may fall through, so you’ll need to decide if you’re willing to wait or take the risk or if you’d rather focus on cash buyers.
After you know how they intend to pay, you’ll need to arrange a meeting with the buyer. If they refuse, trying instead to pay by wire transfer and use a service to pick up the vehicle, that’s likely a scam. Insist on an in-person meeting in a safe area. Many police departments will allow people to meet in their parking lots, so you may want to reach out to your local one and see if that’s an option, as that’s one of your safest bets.
Handle Test Drives
Let others know where you’ll be, and take a friend or family member with you if possible. That way, if the buyer wants to test drive the vehicle, you can have someone already in the car, making it harder to steal. Confirm the buyer’s details before beginning, taking a picture of their driver’s license and sending that to another person not at the deal, as well as confirming it with the DMV.
If your contact comes to the meeting with another person, only let the buyer you’ve been communicating with in for the test drive. Have them follow a pre-determined route, sticking to main roads that are well-traveled to reduce the risk.
Keep a friend or family member updated as the test drive goes forward, letting them know when you pass various landmarks. That way, someone has a clear idea of where you’re at on the route.
After completing the loop, speak with the buyer about their interest and discuss next steps. Some may be ready to move forward with a purchase. Others may need to think about it. Either way, outline what’s to come and, if you’re showing the car to different buyers, let them know, ensuring they aren’t surprised if it sells before they decide.
Complete the Sale
Once you’ve found a buyer, it’s time to wrap up the sale. You’ll usually end up negotiating the price. Know what your bottom dollar is before having the conversation. Then, go back and forth with the buyer, ensuring you don’t agree to an amount below that number.
If a buyer doesn’t offer a fair price, don’t be afraid to walk away. If your price is reasonable based on the condition of the vehicle, it’s better to move on to another buyer than get bullied down too far.
With the price settled, it’s time for payment and title transfer. Make sure the buyer shows up with the agreed-upon payment amount and type. Be wary of personal checks, as those may not clear. Instead, stick with cash, cashier’s checks, or money orders, as those are far safer.
Only sign over the title after payment is received. After that, the vehicle belongs to the buyer. Deposit your payment immediately and contact your motor vehicle department to record the sale with them. Reach out to your insurer, too, removing the vehicle from your policy.
Have you ever sold a vehicle using a private sale and want to tell others about your experience? Can you think of any other steps a person should take along the way? Share your thoughts in the comments below.
Read More:
- What Are the Most Expensive Cars to Maintain?
- Refinancing Your Car-Here Are the Pros and Cons
- What Is the Smartest Way to Buy a Car?
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
Finance Lessons Learned from the Pandemic
The Covid-19 pandemic changed life for two years and there are definitely still elements of what life was in the world today. No doubt there were some terrible things that happened. People lost their lives and their jobs. But there were also positives that came out of it. We’re going to highlight the lesson we can learn from this pandemic, particularly some personal finance lessons we can learn.
Working from home
This new type of work does not apply to everyone and I don’t like leaving people out, but this needs to be talked about. Working from home and articles about it took over during the pandemic and continue to be discussed.
Working from home, at least from some of those articles and studies, appears to be a net positive for employees and employers. Let time commuting, less overhead costs, more productivity thanks to no commute, increased job satisfaction, and improved work-life balance.
Thanks to the work-from-home setup, people who were able to do that moved out of the city or rented an Airbnb for an extended amount of time. In either case, those people were, likely, able to reduce their housing costs by moving to the suburbs or giving themself a little vacation/change of scenery.
Savings rate
A lot of people saved money during the pandemic thanks to stimulus payments. In April of 2020, the personal savings rate for Americans was 33%. In March of 2021, the personal savings rate for Americans was 26.6%.
The savings rate has fallen since then but is still above 12% which is higher than it was before the pandemic (less than 10%).
Stimulus payments
According to the National Bureau of Economic Research (NBER), most Americans either saved or paid down debt with the majority of their stimulus payments. 40% of the stimulus payment was spent, 30% was saved and another 30% was used to pay down debt.
Personal finance lessons
I think there were a lot of personal finance lessons that can be learned from the pandemic. Here’s a list of them below:
People saved more money
The future was very uncertain so people were more conservative with their spending and less conservative with their savings. That mindset shouldn’t change. The future, in principle, is uncertain. We do not know what tomorrow holds, so saving for a rainy day/goals/retirement is very important.
You don’t need to spend money to have fun
At the very beginning of the pandemic, you couldn’t go anywhere. Quarantine and lockdown orders came in right away. Instead of getting together in person, people utilized Facetime, phone calls, and Zoom. I, personally, had group Zooms with family members where we played and had conversations like we would if we were in person.
Diversification is important
Early in the pandemic, the market tanked. We lost over 30% in six weeks. Granted, it came right back up not long after, but that might not always be the case. If you don’t have time to ride out the ebbs and flows of the market, it’s important you get your asset allocation right. Talk with your adviser to make sure your investment matches your time horizon and risk tolerance.
Get rid of debt
You never know when your job and your ability to earn can be taken from you. Some people lost their jobs, some people were furloughed, and some people just weren’t able to go to work. If you don’t have an income, the only other part of the balance sheet you can affect is your expenses. Get rid of your debt. That’ll help you reduce your expenses in case that happens (you can also save more).
Protect your loved ones
Get life insurance. A lot of people passed away during the pandemic. If you contribute income to your household, you need to make sure you financially protect the people that rely on your income.
Related reading:
5 Personal Finance Tips from the Pandemic
How to Regain Control of Your Finances Amid the Pandemic
How to Save Money on Your Post Pandemic Vacation
Disclaimer:
**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
Investment Property Insurance: 5 Things To Know
Generally, insurance cover aims to protect you from eventualities and restore order in your life or business after a sudden catastrophic event. In this context, property insurance broadly covers real estate holdings. [Read more…]
What To Do With Your Old 401k
When you leave your job and you have a 401k, there are a few things you can do with it. You can leave it there, you can cash it out, you can roll it into an IRA, or you can roll it into a retirement plan with your new employer. So what should you do with your old 401k?
Theoretically, you have four options.
Withdrawing your funds
If you are under the age of 59 ½ and you withdraw the money, you’ll have to pay a tax penalty on it. UNLESS, you meet some of the exceptions: medical expenses, your first, primary residence (up to $10,000), health insurance premiums while unemployed, distributions from an inherited IRA, pay off an IRS tax levy, higher education expenses, as well as a few others.
If you don’t meet any of those criteria and you’re under 59 ½, you’ll have to pay that penalty. It’s not worth it. UNLESS you’re using that money to pay off a credit card. Credit card interest rates are usually well above 10%. So if you’re saving yourself from paying a 27% interest rate, theoretically, you’re making a 17% return on your money (27–10=17). But this calculation doesn’t account for taxes so you might come out even, or behind.
95% of the time, it makes the most sense to pursue other options.
Keep it where it is
Some people will leave their old 401k with their previous employer. I think a lot of that has to do with laziness, but it could be a good, rational decision as well. The primary factor has to do with cost. What are the expenses of the 401k? Typically, if it’s a large employer and/or a large plan with a lot of assets, the fees are going to be low.
That might be a good reason to leave it. The plan might also have good investment options. If the fees are reasonable, or at least average, then the investment options might be reason enough to stay.
Roll it to your new employer
Nine times out of ten, I’ll have people roll their old 401k into their new one. If they’re able to. Some employers don’t allow income transfers. Having everything with one firm makes managing it so much easier.
The only time I don’t think it would be appropriate is if the new firm has high fees, but it’s also important to compare the new fees to the fees of the alternative. That alternative is rolling it into an IRA at a separate firm.
Roll it into an IRA
As an independent financial advisor, this option is best for me, but not typically best for the client. If you take a standard fee for a financial advisor (1.00 %) and compare it to the standard expense paid by a 401k participant. Employers with 2,000 employees pay below 1% and employers with 50 or fewer employees pay 1.25%. Here’s some more info on that.
That might be the case if it’s a small plan. The large plans, however, can have ALL IN fees of around .5%.
As is the case with a lot of things in the finance world, the answer is not black and white. You need to compare and contrast your options and then make a decision. Here are things to consider: cost, investment options, ease of management, and customer service. How do the fees compare? What are the investment options? Do you have everything in one place and is it easy to make changes? Can you get in touch with someone if you have problems/questions?
Related reading:
7 Tips to Get the Most Out of Your 401k v/s Pension
401k Withdrawal Taxes and Penalties
Is your 401k Hurting you or Helping you?
How 401k Fees Impact Your Retirement
Disclaimer:
**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
When Should You Use Your Emergency Fund?
Many people spend a lot of time setting money aside to build a healthy emergency fund. In some cases, this might cause them to hesitate to use the cash even if the situation seems to justify doing so. In others, they might be tempted to use some of the money to treat themselves on occasion. Even if they aren’t facing an actual financial emergency. By understanding when it is and isn’t wise to use that cash. You can make smarter choices about your finances. If you’re wondering when you should use your emergency fund. Here are some times when tapping into that cash reserve is warranted.
Living Expenses After a Job Loss
One of the main reasons to have an emergency fund is to pay for living expenses if you unexpectedly lose your job. In this case, the cash is a functional safety net, allowing you to continue paying required costs while you plan your next career move.
Similarly, using an emergency fund to pay for living expenses after a reduction in hours or another situation that results in a pay cut is fine. It allows you to stay afloat while you either wait for your hours to go back up or find something new that provides you with a better income.
Just make sure you focus on genuine necessities if you’re using your emergency fund for this reason. For example, shop grocery sales or use coupons to limit food-related spending. Avoid unnecessary car trips to save fuel. Forgo dining out and cut back on other kinds of optional entertainment. That way, your money will last as long as possible, giving you more time to determine what comes next.
Additionally, access any other resources that you may have available. For instance, you may qualify for unemployment if you’ve been let go, laid off, or had your hours cut. Make sure you apply for unemployment even if you aren’t sure your situation qualifies. If it turns out it does, you’ll get a bit of an income boost, allowing you to use less of your emergency fund.
Vehicle Repairs After a Breakdown
While you should plan for routine vehicle maintenance in your budget, unexpected issues may warrant using your emergency fund. Even if you are diligent about maintaining your car, that doesn’t mean you’re guaranteed to avoid breakdowns, flat tires, or similar problems.
If something unexpected happens that puts your vehicle out of commission and having a car is essential to your day-to-day, using your emergency fund to get it back up and running is reasonable. Just make sure you get a competitive price on the work by shopping around and getting several quotes from reputable repair shops, ensuring you don’t have to spend more than is necessary.
Home or Auto Insurance Deductibles
In a similar vein to the point above, using your emergency fund to pay a home or auto insurance deductible is typically appropriate. Usually, you’ll only owe a deductible after an unexpected covered event, like a vehicle accident or fire at your house.
Since paying your deductible allows you to get the required repairs, using your emergency fund to handle it isn’t a bad idea. Just make sure you get quotes for the work and that your insurer pays its share, ensuring you don’t have to come further out of pocket than necessary.
Emergency, Must-Have Medical Treatments
Even if you have insurance, the cost of emergency medical treatments can be incredibly high. Since accidents or sudden illnesses aren’t something you can typically predict, using your emergency fund to handle any of the resulting costs isn’t out of line.
However, you may not want to default to this option if it isn’t necessary. For example, if the bill is large, many hospitals offer no-interest payment plans. In that case, you may be better off using that arrangement, allowing your emergency fund to earn interest while you pay down the debt over time.
Travel Costs Associated with Family Emergencies
During certain kinds of family emergencies – like a sudden, serious illness or death – you might need to head to another city or state without notice. If that’s the case, don’t hesitate to use your emergency fund to cover the cost if you can’t manage it otherwise. That way, you can get where you need to go fast.
Just remember that recreational travel doesn’t fall in this category, even if you’re planning to see family along the way. With that, you’re better off saving up the money you’ll need separately, ensuring your emergency fund is intact in case you end up needing it.
Emergency Home Repairs
While regular, expected home maintenance costs shouldn’t come out of your emergency fund, you might need to tap that cash if an unexpected issue arises. For example, a pipe bursting, refrigerator breaking down, or a similar problem needs to be addressed quickly, so using your emergency fund can make sense.
As with other repair or replacement-oriented emergencies. You may want to shop around to ensure you’re getting a great price. That way, you can use as little of your emergency fund as possible. Just make sure that you don’t sacrifice when it comes to quality. As it’s better to get a solid repair or replacement than go with a cheap solution that’ll just result in an issue in the near future.
Critical Technology Replacement
While some technology you own may be primarily for entertainment purposes. Other kinds of tech might be essential. For instance, you might need a capable smartphone or laptop for work, or your children may need a computer to handle their homework.
If a genuinely essential piece of technology breaks down or it has catastrophic damage. Consider using your emergency fund to replace it. However, only do so if it’s legitimately a must-have for a purpose other than entertainment. If it’s solely for amusement. Then you’re better off setting money aside out of your budget and using that to cover the cost once you’ve got the money gathered up.
Emergency Care for Pets
Like people, pets can experience unexpected health issues, including acute illnesses, injuries, and more. While you shouldn’t use your emergency fund for routine pet appointments. Using the money to handle an unexpected, urgent pet health matter is fine. It ensures you can get your pet the help they need right away. Thus, increasing the odds that they’ll survive the incident and live a healthy, comfortable life afterward.
Have you ever tapped your emergency fund for any of the reasons above? Do you think there are other times when using your emergency fund is a good idea? Share your thoughts in the comments below.
Read More:
- How to Create an Emergency Fund Without Much Extra Cash
- Everything You Need to Know to Set Up Your Own Emergency Fund
- Ways to Come Up with the Money You Need During a Financial Emergency
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
How to manage your finances with peace of mind and being happy
The long months of lockdown and restrictions have triggered a strong desire for freedom in people’s minds, pushing them more and more towards completely new activities to be enjoyed to the full, with gusto and fun, without any kind of limitation. This is not an entirely unexpected reaction: if one of the most venerable principles of physics is still valid – to every action there is an equal and opposite reaction -, after months and months of draconian restrictions and measures that even affected people’s freedom of movement (even in their own neighbourhoods, effectively confining them to their homes), each individual, faced with the timid reopening that each country began to grant, inevitably felt a strong desire for freedom, manifesting it also through the selection of new activities and pastimes capable of triggering a strong feeling of freedom, personal redemption and, ultimately, rebirth. [Read more…]
Student Loans – Do you have too much?
I had this question posed to me and I thought it was interesting, I also think I have a different response than most people would, so let’s talk about it. Do you have too much borrowed for student loans? Does a dollar amount define the answer? Or is it situational?
Current student loan debt dilemma
To illustrate what the current student loan debt landscape looks like, I’d like to show some statistics.
- Since 1970, the average student loan debt has increased by 2,807%. After adjusting for inflation, the average student loan debt has increased 317%.
- The current average student loan balance is $37,113.
- Total student loan debt is currently $1.75 trillion and grows 6 times faster than the national economy.
- Those aged 25-34 are most likely to hold student loan debt, but people aged 35-49 hold the greatest proportion of debt – $600 billion.
- Over 25% of borrowers owe more than $100,000
Student loan debt is a problem. I do believe it’s a manageable problem though. At least, it’s manageable going forward. Which brings me to my next point and the answer to the proposed question.
Situational answers
Here’s my no answer, answer. It depends. Some students will borrow over $100,000, but they could go to school to become a doctor, dentists, lawyers, or engineers.
Another question to ask is what school are you going to? Is it necessary for you to go to a big school that costs $50,000 per year? I think in most instances, probably not.
I think those are the two biggest questions that help answer the “how much too much” question. What are you going to school for and what school are you going to?
I think that the push to go to college to get an education is cyclical. Obviously, there are professions where it is very much needed, but there are others where that’s arguable. I also think that there’s been a lot of innovation done in the educational space that has provided legitimate alternatives to your typical college education. As with most things, however, only time will tell.
What are your post-graduation plans?
Do you anticipate you’ll earn a lot of money? Does your profession have a track record for medium to high earning potential? That is definitely a factor to consider. You could have your sights set on going to college already, but answering those two questions will help you decide what type of university to go to (online, state-run, private, etc.).
Mathematical answer
There’s a percentage answer, there’s not really a dollar amount answer because it’s relative to your income. Lenders, specifically, want to see your debt to income ratio below 43%. So if your projected income to debt ratio is above that number, then you need to think about alternatives.
How much is the average starting salary in your industry for your position? If it’s $50,000 per year, that’s where you start. How much student loans will you have when you graduate? Using the national average, it’s $37,113.
Breaking it down. Your monthly gross income is $4,166.67. You plan to pay off your student loans in 10 years and your interest rate on that debt is 8%, so your monthly payment is $450.28. Your debt to income ratio is roughly 11%.
If you’re looking for a home to purchase, the proposed mortgage will get added to that monthly student loan payment to help calculate your new debt to income ratio, so pay attention to that as well.
Related reading:
Is it a good idea to pay off student loan debt quickly?
Simple solutions for repaying student loan debt
The pros and cons of refinancing your student loan debt
Disclaimer:
**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com
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