Get Rich With Index Funds

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Have you ever heard of the term, “Index Fund?”

Don’t feel bad if you haven’t, but if you fail to learn about this term today, you may be leaving tens of thousands of dollars on the table.

I assume that many of you are familiar with the term, “Mutual Fund”. You might not know exactly what it means, but you know that it is a type of investment that you can purchase within your 401(k), and this is absolutely correct. An Index Fund is actually not all that different in principle, but I definitely prefer one over the other. Here’s why:

 

The Difference Between a Mutual Fund and an Index Fund

Mutual funds and index funds are both investments that can be purchased to increase your current savings and are often used to beef up your retirement account for the many years that you have before that last day on the job. While both of these funds essentially serve the same purpose, they are actually quite a lot different.

Mutual Fund –  

A mutual fund is a managed account that often invests in a certain segment of the market.

For instance, there is most likely a fast food restaurant mutual fund that invests in McDonald’s, Burger King, Wendy’s, Arby’s, and many other fast food chains. The reason it is called a mutual fund is because it is mutually funded by many investors, allowing it to be affordable for each person. So, instead of having to buy one of each of these company shares for $50 a piece (which could easily total up to $1,000 with 20 company investments), you can purchase a small portion of each share (since all of the other investors do the same thing, which then totals enough money to buy whole shares) for a total of $50, instead of that $1,000.

Mutual funds are a great way to diversify your money when you don’t necessarily have a lot to invest. Also, many people believe that mutual funds are superior to individual investments because of the expertise of the fund manager and his/her team. Since they are constantly evaluating the market and its movements, investors believe that they can buy or sell stocks before the majority of stockholders even know there might be a problem or opportunity. If this is the case, then mutual funds are a great way to beat the market (meaning, earn a higher percent than the average stock market investor).

Index Funds – 

An index fund is similar to a mutual fund because it also is made up of a large number of company stocks and easily invested in because of the many investors involved to fund the overall account. However, instead of the fund matching a particular segment of the market, the stocks are purchased in order to imitate a particular Index (like the Dow, Nasdaq, or S&P500). In other words, index funds are set up to earn you the same amount that the average investor would, but with a very hands-off approach.

The Research-

Many people swear by their mutual funds and believe that their investments are earning them more than the overall market (meaning, they are beating the market). However, many studies reveal that this is often not the case. While the gross earnings may be higher than the market, there are many fees that need to be considered as well. The largest of these fees are the management fees (totaling 1% or more of your total fund value each year), and then there are some other front-end and back-end fees that are charged when entering or exiting your money.

On the other hand, since index funds are incredibly simple and do not require a large management team, the fees are very small (often less than 0.1%) and do not hardly affect your investment at all.

By investing simply and keeping my investments in index funds last year, I earned almost 30% on my money. That is massive! And, because I am not employing a team of people to try to beat the market, I am able to keep the majority of these earnings as well.

If you are looking to invest for your retirement, I would advise that you look into a few index funds. You’ll earn more and be able to worry less. It is a simple, easy, and effective way to invest.

How about you all? How do you have your money invested? Do you use mutual funds, index funds, or something else all together?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/epsos/8450504146/sizes/l/

Should You Pay Off Your Mortgage Early?

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Have you ever thought about paying off that mortgage faster than the typical 30 year term?

Is it a smart thing to do? What are the pros and cons of doing so? These are all great questions and should be considered carefully. Let’s dive into each of the positives and negatives of doing so, and then you can make a confident decision of what you want to do.

 

The Interest Expense 

When buying a house, most people put a little bit of money down, but then take out a 30-year loan for the majority of the remaining payment. If your loan percent is 4.5% or so on a $250,000 house, then you can plan on paying an additional $180,000 in interest. That’s right, you will pay a total of $430,000 on your $250,000 home.

This sounds like a great reason to pay the house off early, but many home-owners think that they can earn more than 4.5% by investing their money instead of paying off their loan quickly. So, they decide to keep the loan for its 30 year life, but invest a few hundred bucks in the market each month to build their retirement fund.

While this does make sense, many people don’t actually invest the money that they said they would. Instead, it goes toward a new boat or new car, which depreciates in value and often costs them much more in the long run than if they would have put the money toward their home mortgage. By putting extra money toward the home loan, you are guaranteeing yourself a 4.5% return, which isn’t amazing, but it’s something.

 

Mortgage Tax Deduction

Many people are advised to keep their mortgage because of its tax incentives. Because you are paying interest on your loan, the government will reduce the taxes that you owe each year.

It sounds all well and good, but this is how it really works. You pay in 4.5% on your home loan each year and because of this, the government will not tax you on this payment, which essentially pays you back 1% or so. In other words, you pay in $5,000 in interest each year to avoid $1,250 in taxes paid in. By doing the math, you are essentially still losing $3,750 on this deal. Do not buy a house and pay the interest just to avoid tax payments. It makes absolutely no sense.

 

Cash Flow

One of the best ways to get wealthy today is to increase your cash flow.

With more cash each month, you have more opportunity for investing and can then increase your overall wealth much faster than your neighbor down the street (who is making payments on everything you see in his yard). To do this effectively though, you basically need to reduce your cash flow to nothing for a few years while paying off your mortgage debts. Many choose to keep their mortgage and stock up their reduced cash flow (after they pay their mortgage) each month. In the end, the difference may be negligible, but I believe that there is much more power in that large cash flow only a few years later when your mortgage payments are gone. Just think of how much cash you would have each month if you no longer had to pay your mortgage!

 

My Biased Opinion

I’m sure you already know my opinion of whether you should pay off your mortgage or not. Over the last couple of years, I have reduced my consumer debts from $45,000 down to zero, have saved up $15,000 for emergencies, invest over 15% of my income, and am now working to eliminate all of my mortgage debt ($54,000) by the end of this year.

If I can accomplish this, I will owe absolutely nothing to anyone which means I can freely give as much as I want and invest as much as I want – all before the age of 30. With absolutely no payments, do you think I could become wealthy in the next 40 years of my life? Absolutely! And, if you begin working toward debt freedom, I believe that you can soon be wealthy as well.

How about you all? Do you think it’s best to pay off your mortgage as soon as possible, or only pay the minimum required and save the money for later needs?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6808984167/sizes/l/

Health Care Showdown – Head-to-Head Comparison of an ObamaCare Plan vs. My Employer Plan

The following post is by MPFJ staff writer Travis.  Travis is a customer blogger for Care One Debt Relief Services, and also appears weekly at Enemy of Debt.  Travis candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.

A man has his current health care plan dropped by his provider. 

When he explores what options are now available to him, he finds for similar coverage the premium is much higher, as is the deductible.  Another person claims to have been uninsured for years due to the cost, but now they are able to afford quality health care.

These two types of stories have been reported over and over again in the media over recent months as the The Affordable Health Care Act, more commonly called ObamaCare, continues to be a hotly debated topic.

I currently have health care through my employer, who offers choices for medical, dental, and vision care.  I do pay out of pocket each month for that health care, but my employer picks up a large portion of the tab as part of my benefits package.

As the ObamaCare debate has raged on, I have often wondered what I could get for health care through my state’s government exchange site.  This is where I would turn should my employer decide to drop health care from my benefits package, or if I would have a career change and become self-employed.  I thought it would be a fun exercise to go through the motions of exploring my options, and then comparing to what I currently have through my employer.

 

My Current Plan

First, let’s take a look at some of the high points of my current health care plan

 

Medical:

Annual Deductible (individual/family):                $1181/$3543

Routine/Preventative Services:                               No Charge

Other Office Visits and Outpatient Surgery:       No Charge

Urgent Care and Walk In Clinics:                            15% Out of Pocket, No Deductible

Inpatient Hospital and Surgery:                              20% Out of Pocket, After Deductible

Emergency Room:                                                         20% Out of Pocket, After Deductible + $150 copay

Prescription Drugs / Generic:                                  20% Out of Pocket, of discounted cost / $24 maximum

Prescription Drugs / Brand Name:                        20% Out of Pocket, of discounted cost / $90 maximum

 

Dental:

Annual Deductible:                                                       None

Maximum Annual Benefit (per person):              $500

Routine Exams, Xrays, Cleanings:                         No Charge

Minor Restorative Care (fillings):                           20% Out of Pocket, of negotiated fee

Major Restorative Care (root canals, etc):        Not Covered

 

Vision:

Annual Eye Exam:                                                        No Charge

Frames (once per year):                                             $120 allowance, 20% off remaining balance

Lenses (standard):                                                        No Charge

Contact Lenses:                                                             $120 allowance, 15% off remaining balance

 

MNSure Plan

Then, I visited MNSure, the Affordable Health Care / Obamacare website for the State of Minnesota. 

I plugged in some rudimentary information about my family and it listed 16 different medical plan options.  The options were labeled as Platinum, Gold, Silver, or Bronze, with the coverage, options, and price decreasing respectively.  There were NO platinum options available in my area, which I thought was very strange given that I live in Rochester, MN, the home of one of the best medical facilities in the world:  The Mayo Clinic.

For the sake of comparison, I chose the Medical Applause Gold has plan, which was the top rated Gold plan offered.

Here’s the highlights of that plan:

 

Medical:

Annual Deductible (individual/family):                     $1300/$3900

Routine/Preventative Services:                                    No Charge

Other Office Visits and Outpatient Surgery:             30% Out of Pocket / co-insurance after deductible

Urgent Care and Walk In Clinics:                                  30% Out of Pocket /co-insurance after deductible

Inpatient Hospital and Surgery:                                    30% Out of Pocket /co-insurance after deductible

Emergency Room:                                                               30% Out of Pocket /co-insurance after deductible

Prescription Drugs / Generic:                                         30% Out of Pocket /co-insurance after deductible

Prescription Drugs / Brand Name:                               30% Out of Pocket /co-insurance after deductible

This plan was medical only, and did not cover any dental care.  I had to look separately for a Dental Plan.  I selected a plan that was fairly close to the coverage I have through my employer.  Ironically, it’s the plan that I had for years through my employer (Delta Dental) but is no longer offered.

 

Dental:

Annual Deductible:                                                             $50

Maximum Annual Benefit (per person):                     Data Not Available

Routine Exams, Xrays, Cleanings:                                 No Charge

Minor Restorative Care (fillings):                                 80% coinsurance

Major Restorative Care (root canals, etc):                50% coinsurance

Maximum Out of Pocket Individual:                           $700

 

Vision:

I could find NO information about Vision Care on the MNSure Website.  None. Zero.  Zilch.

 

Cost / Premiums of Plans:

Then I gathered the cost of the programs.  I noticed while doing my taxes that an amount was listed on my W2 stating the amount my employer kicked in for my health care.  I took that amount and divided it by 12 (months) to get my employer’s monthly contribution to my health care.  Then I added to it my payroll deduction for health care to get the final monthly cost of my employer based health care.

Employer Based Healthcare Monthly Cost:         $1746.61

MNSure Based Healthcare Monthly Cost:           $1316.30

 

Plan Comparison:

Medical:

It’s fairly obvious that the medical coverage through my employer is leaps and bounds better. While both plans offer preventative care at no charge, my current healthcare plan provides immediate coverage on the most common types of health care needs such as urgent care, ER visits, and prescription drugs.  All of these are subject to the deductible for the MNSure plan.  Even once the deductible is met, my current plan provides better coverage.

Dental:

Both plans provide bi-yearly cleanings and exams at no charge.  My current plan provides better coverage on minor procedures such as fillings, but the Delta Care provides better coverage on major procedures.  Plus Delta Care has a maximum out of pocket limit.  This is one of those times when it’s really hard to judge which one is better.  For day to day life, my current plan is better, but if a major dental situation arose, we would have a large bill to deal with.

Vision:

I couldn’t even find information about vision care on the MNSure website.  So, my current plan wins by default.

Cost:

My care through my employer is quite a bit higher per month.  I don’t actually see this as an out of pocket expense because my employer foots the bill for most of the cost, but we need to compare total cost for an apple to apple comparison.  Is an extra $450 a month worth having vision care and the better medical care?

If I were footing the bill all by myself, I would say “No.”   That’s over $5000 a year annually, and our out of pocket expenses for health care wouldn’t come anywhere near that if we had to purchase healthcare completely on our own, and had the option between these two plans.

 

Final Thoughts:

I learned several very important things by doing this exercise.

• The healthcare I have through my employer is really good.
• The true cost healthcare is crazy expensive!
• I would likely make much different choices if I had to foot the full bill for my healthcare.
• The government sponsored websites may not give all the options you need (where’s the vision care??)

While I gained some really great insight into my current healthcare, as well as the options available through the government exchange, I didn’t really gain any insight as to whether ObamaCare has really been a detriment to people who had previously been purchasing healthcare on their own.

How about you, readers?  Do you purchase your own healthcare? What has your experience been when choosing your healthcare after the implementation of the Affordable Healthcare Act?

Image courtesy of photostock / FreeDigitalPhotos.net

A Review of My 2013 Income Tax Results and 2014 Tax Planning

This past week, I received my completed 2013 federal and state income tax return documents from the accountant. After making one correction due to some confusion on whether my Solo 401k contributions were deductible or not, my taxes were successfully e-filed a few days later.

In general, the results were very good, as I felt like I leveraged the tax code to the best of my ability in order to maximize wealth. As has become my habit over the past few years, I feel that by analyzing some of the finer details/numbers, I can better plan for how to approach my tax planning for the 2014 year.

Specifically, the questions I am interesting in answering are as follows:

• How much of my un-taxed income should I be saving each month in order to pay taxes when the time comes?
• What would I predict my marginal tax bracket will be in 2014?

 

2013 Income Breakdown

My 2013 gross income can be broken down in to the following components:

• 3% from dividends, capital gains, and interest from investments (meaning that I can likely ignore this contribution for planning purposes since it is so small).
• 71% from untaxed fellowship/wage income for my work as a graduate student.
• 26% from Schedule C self-employed business income.

 

2013 Deductions

Since the standard deduction was greater than my itemized deductions, I took the standard deduction of $6,100 for 2013.

After subtracting the 1 personal exemption I get for myself (with no kids, filing as a single person), I arrived at a taxable income that was only 77% of my original gross income that I started with.

 

2013 Federal Taxes

Having established my taxable income, my total personal federal taxes were computed. Next, self-employment taxes were added on top of the personal taxes.

This resulted in my total Federal taxes owed for 2013 being ~14% of my overall gross income.Nice! I am surprised this percentage is so low!

If we calculate this based on my AGI or taxable income, the percentages become 14% and 18%, respectively.

 

2013 State Taxes

For my Virginia State Income Taxes, the form starts out with my federal AGI mentioned above. From there, the VA standard deduction and my personal exemption reduces my taxable income to 90% of my overall gross income.

Having obtained my VA taxable income, my 2013 total state taxes owed was calculated to be 5% of my overall gross income. If we calculate this based on my federal AGI or federal taxable income, the percentages become 5% and 6%, respectively.

 

2013 Total (State + Federal) Taxes

If we put everything together from both state and federal taxes, we can find something useful for planning purposes going forward:

• I paid a total tax amount for 2013 equal to 19% of my overall gross income.
• My marginal tax bracket was 15%.

 

2014 Estimated Tax Payment Schedule

One of the nice things that my accountant does do for me each year is to calculate/prepare my estimated taxes for the following tax year (so 2014 was prepared during the 2013 tax preparation round).

For both the Virginia and federal estimated taxes for 2013, the accountant scheduled my payments to be approximately equal to the total tax I owed for the 2013 (only differ by some small rounding amounts used).

 

Target Question # 1 – How much of my un-taxed income should I be saving each month in order to pay taxes when the time comes?

For 2014 tax planning purposes, the important question I have at this point is what percentage of my un-taxed fellowship and un-taxed self-employment income should I be saving to pay the tax man this next year?

On one hand, I do have the requirement that I need to pay the scheduled estimated taxes set forth by the accountant, primarily based on my 2013 tax amounts. This part I really can’t change.

On the other hand, I am guessing that my overall UN-TAXED income will be lower in 2014 compared to 2013. While I predict that my un-taxed self-employment income will be roughly the same, my un-taxed fellowship income in 2014 will be 2/3 what it was in 2013 since I will be finishing my PhD by August. After which time, if I can hopefully find a job, I will transition in to being paid as an employee, where taxes are taken out of my paycheck ahead of time.  What this means is that by paying my estimated taxes per the scheduled amounts set by my 2013 taxes, I will likely be overpaying them this year. Of course, when I do start working as an employee, I could definitely crank up my exemptions so that my employer withholds less taxes each paycheck.

So, where does this all leave me?

Overall, I think the best course of action is to continue saving money to pay taxes based on the un-taxed gross income I realize/track on a month-to-month basis. The amount that I will save for taxes will continue to be 20%, based on my 2013 total tax owed being ~19-20% of my gross income. This will help me most accurately match my real taxes that I will owe overall for the year. 

 

Target Question # 2 – What would I predict my marginal tax bracket will be in 2014?

Another very important and related topic is trying to make a prediction for how my tax bracket will change, if at all, assuming that I can successfully obtain employment in the last 3rd of this year.

If I utilize my 2013 tax return gross income amounts as a starting point, only add up my fellowship income for 2/3 of the year, and add in an approximate amount I will make in my new job the last 3 months of the year (assuming starting in October 2014), there is really no chance for me to make it in to the 15% tax bracket if I assume I will file individually.

However, since I’m getting married later this year, I will be able to file my 2014 tax return jointly with my fiance. Adding her income for 2013 on top of mine and then subtracting out the generous filing jointly standard deduction and 2 personal exemptions (1 for each of us), I predict that we will have no trouble getting in to the 15% marginal tax bracket for 2014.

This is good news, as it means 1) full steam ahead contributing to my Individual Roth 401k, and 2) saving 20% of my un-taxed income is still an appropriate amount to be saving. 

If you’re interested in seeing the 2014 tax brackets, standard deductions, and personal exemption levels, I would recommend taking a look at the following article on Forbes.com.

How about you all? What lessons did you learn from your 2013 taxes that you will carry forward in the next year? 

Have you ever calculated what % of your gross income you pay in state + federal taxes?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/judgmentalist/9351909/sizes/o/in/

Is Supplemental Health Insurance Worth Having?

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

With the rollout of Obamacare well underway, and the major changes in healthcare it’s bringing, is supplemental health insurance worth having? On the surface, the answer would seem to be no. After all, Obamacare seems to be moving us toward a single payer health care system, much as most other countries in the world have. That would seem to leave the little room for any other forms of coverage. But for the time being, it’s worth investigating.

 

What is supplemental health insurance?

You’ve undoubtedly seen those semi-annoying AFLAC duck commercials – and that’s about what we’re talking about in the way of supplement health insurance. There are other companies that offer such coverage, but AFLAC is the biggest. This isn’t meant to be a recommendation, but rather a demonstration based on the largest provider in the country.

AFLAC provides supplemental coverage that is tied to specific injuries and illnesses. Some examples of the coverage they offer includes:

• Accident
• Cancer or specified disease
• Hospital confinement indemnity
• Hospital confinement sickness indemnity
• Hospital intensive care
• Lump sum cancer
• Specified health event
• Short-term disability
• Dental and vision

AFLAC offers a lump sum payment in the event that any of these situations take place. It is meant to be an insurance payment over and above basic health insurance. Unlike traditional health insurance, AFLAC pays benefits direct to you, so that you can disperse it in any way you see fit. It’s primarily meant to be extra cash in the event of a medical emergency.

The cost of the coverage is relatively low. For example, you can buy a plan for less than $100 per month, that will pay you benefits equal to thousands of dollars for the covered illness or injury. Most typically, policies are offered through employers.

There is one very important caveat when it comes to supplement health insurance – including AFLAC – it is not traditional health insurance, and not meant to replace it. It will not cover basic expenses, such as hospitalization, major medical or prescriptions. In addition, hospitals and other healthcare providers will not accept it as health insurance for the purposes of admission or rendering services.

What are some situations where you might want to consider having supplemental health insurance?

 

If you have high deductibles

Health insurance plans have been getting progressively more expensive over the years, and Obamacare is no exception. As a result, many people have been taking the Bronze plan since it’s the least expensive of the Obamacare options. It has the highest deductible, and can expose you to out-of-pocket costs up to $6,350.

If you have taken the Bronze plan – or still have a high deductible existing plan – you may want to consider supplemental health insurance as a way of covering the deductible. Since major illnesses and accidents are likely to trigger full payment of your out-of-pocket, supplemental coverage can provide thousands of dollars to minimize the damage.

 

If you’re in a line of work where accidents are likely

Some occupations are simply more dangerous than others, and that’s where supplemental health insurance can be a major advantage. If you’re in occupations, such as construction, elevator repair, and many of the trades, that carry higher risk of accident or injury, supplemental health insurance may be an excellent move.

 

If you typically have no liquid savings

Not everyone is proficient at saving money for a rainy day, despite the sage advice provided by personal finance blogs. If this describes you, having a health insurance supplement could be well worth having, even if you don’t have a maximum deductible base health insurance plan. The lump sum benefit you would receive from supplemental health insurance would avoid the necessity of having to set up a payment plan in the event that your out of pocket costs run into several thousand dollars.

 

If there’s a family history of certain diseases

If there is a definite history of certain types of diseases in your family supplemental health insurance could become quite cost effective. This is especially true if the pattern is more pronounced. It can sometimes be not a question of if, but when a certain disease will happen, and having a supplemental health insurance plan specifically for that disease would come in handy.

It’s not so much a matter of certain common diseases, such as cancer and heart disease, appearing occasionally in your lineage. It’s more that the incidence of the disease in your family occurs well in excess of normal levels. A supplemental health insurance plan could lead you to be better prepared in the event that you are stricken with it. Even if you never need it, just having it can give you greater peace of mind.

 

If you have no other coverage

Okay, soon enough we will all be required to have health insurance coverage, or face fines for not having it. But I think it’s safe to say that, fines or not, there will still be plenty of people who will no be covered. If you’re one of them, supplemental health insurance should be a strong consideration.

Supplemental health insurance certainly won’t cover all of your healthcare needs. But it will provide a lump sum supplement that will help to pay at least some of your medical expenses. And sometimes people have expenses beyond direct medical costs. For example, if you are self-employed, commissioned, or a contract worker, a major medical event could result in lost wages. The cash that you receive from supplement health insurance can help you to pay your bills.

Supplemental health insurance isn’t for everyone, and as noted above, it is not actual health insurance. But if you are in any of the above situations, you may want to consider purchasing a plan.

How about you all? Do you have or have you ever considered purchasing supplemental health insurance? Why or why not?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/scenicplaces/5136982667/sizes/n/

How Can Tax Lien Sales Increase Your ROI?

This is a post by MPFJ staff writer, Jeff. Jeff writes about Sustainable living and finances at his website, Sustainable Life Blog. Jeff really enjoys traveling with his wife as much as he can, to wherever he can.

There are a lot of investment options out there: stocks, bonds, p2p lending, and more.

Some people advocate a simple portfolio with a mix of socks and bonds that changes depending on your age, and others suggest keeping it ultra simple and investing in just 1 broad index fund.

Those are some of the more popular options, but they are not the only things out there that will help you get a decent return on your money. I’ve been looking into different ways to get a better return on investment (ROI) with low risk for the past few years and I think I’ve finally found a favorite: tax liens.

 

What is a tax lien?

Every year, property owners have to pay a tax on the property they own, at a rate set by the government. The rate varies by the use of the land (for instance farm land is taxed at a lower rate than land with an office building on it). As we know, the taxes are used for things like schools and roads. Most people who are still paying a mortgage do not need to worry about this tax, as it is paid out of the escrow account that a portion of their mortgage payment goes to every month. If you own your home outright though, you’re on the hook for paying your property tax.

When people forget to pay their property tax or they can’t afford it and don’t pay it, the government puts a lien on the property. This lien becomes first debt paid in the event of a sale of the property (if one were to occur).

 

How can this help my returns?

You’re probably thinking this is great but how does it help me? Well, the government needs money to do the things it wants to do over the course of a year, like inspect buildings and fix roads. They expect a certain amount of money from property taxes each year to do those things and when some people don’t pay, they won’t have enough money to do what they need to do for the next 12 months.

The government solves this shortfall by selling the tax liens to investors. The government also promises a certain rate of return to the investors for their troubles. Where I live (Wyoming) the rate is 15%, and in Colorado the rate is prime plus 9%. By doing this, the government gets their money to operate for the fiscal year, and the investors get a very healthy ROI.

 

How can I find tax lien sales?

Usually, each county will have their own sale of tax liens. For Wyoming they are usually in August or September. I’ve looked at some larger areas that will have the lien sales once a month. The easiest way to find out about when yours is would be to Google “your county tax lien sale”, or you can call the county assessor or county treasurer’s office.

The best part about these is that you don’t have to only buy them in your county! You can go to any counties sale and try to purchase them if you want to. I’ve been to sales in 3 different counties.

 

What are the downsides?

There are not many downsides to this. As my dad always says ” the wheels of the government turn slow but they grind just fine”. What he means by this is that the government always gets their money. What this means though is that you (as the investor) have downside protection.

In Wyoming, if you purchase a tax lien at a sale, they will notify you if the taxes are not paid the next year and give you the option to pay those as well. If you pay for 4 consecutive years, then you can begin legal proceedings to take ownership of the property. I have not gotten to this point yet, but I understand that it also takes time.

 

Bottom line for tax lien sales:

Where I live, you can get 15% interest for the years that you pay the lien if the property owner pays you back. If you pay for 4 consecutive years and are not paid back, you can begin proceedings to take control of the property.

I guess the ultimate downside is that you get stuck with a piece of property you don’t want, but in my mind that’s a small downside.

So, how about you all? Have you ever invested in a tax lien sale before? If so, how did you like it?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/666_is_money/6036913933/sizes/l/

How Much Are You Willing To Spend On A Hobby?

The following post is by MPFJ staff writer, Grayson Bell. Grayson, who runs the finance blog Debt Roundup, is a fan of personal finance, brewing beer, and working on cars.

Having a hobby is an important part of life. As schedules and days get jampacked with activities, you should remember to take time for yourself every once in a while. I realize this could be hard to do, but it really does do wonders for your mindset. Hobbies are a great way to break away from the time crunch and enjoy life a little more. Just don’t overdo it and spend too much time on your hobbies, as that can become unproductive.

Though hobbies allow you to break away from the daily grind, they can also cost money. There are a handful of great hobbies which don’t cost any or very little money, such as reading or hiking. No matter your favorite hobby, you might have to part ways with some of your hard earned money to enjoy them. This begs the question “how much are you willing to spend on a hobby?”

 

The Hobby Breakdown

I have had quite a few hobbies over the years. Some were inexpensive and others cost me a pretty penny. After my son was born, I decided to focus my attention on the hobbies that gave me the most enjoyment. Here are my three favorite hobbies that I still partake in today.

Playing Hockey

I have been a hockey player for close to 15 years. I started playing after I realized that soccer wasn’t keeping my interest any longer. Hockey is a sport that I love and follow. I have played both ice and roller hockey for different leagues and teams across my home state. It has really been an enjoyable experience and continues to this day.

I currently play hockey in an adult league almost every weekend. I have been in the league for 5 years and I really enjoy it. The fees to play are relatively low at $60 per season. I have all the required equipment and don’t have to buy any new gear each season. The $60 is well spent in my opinion as I get a high level of enjoyment out of playing, interacting with other players, and getting the exercise.

Brewing Beer

Brewing beer is an awesome hobby, but it can be expensive. I have written about my fascination with brewing beer and why I do it. When I talk with others that have thought about it, I can usually get them to try it out. Any hobby that allows you to create something from scratch and enjoy it later is a winner in my book.

The best part about brewing beer is the networking. Well, that, plus drinking the beer! The home brewing scene is large in my state. I have met and interacted with many dedicated homebrewers. The passion and drive of these individuals is what motivates me to brew the best beer I can. Not only have I gained friends, but experience as well.

The big downside to brewing your own beer is cost. It can be expensive to get started brewing beer. There are kits at some stores that can get you started, but they tend to have a weak flavor profile. If I am going to take a month to create a drink, then I want a full bodied taste. It cost me about $120 to get started with my first batch. Each consecutive batch costs me about $30 for 40 finished beers. These costs all depend on the beer style and ingredients involved.

Working on Jeeps

My passion for mechanics has grown strong over the years. I learned to work on cars from my brother, who has a great skill with most machines. Once I got out of college, I decided to start working on cars to not only to increase my knowledge, but also pursue an interest. It was the “two birds with one stone” type of scenario.

In the past 5 years, I have had three Jeep Wranglers at my disposal. I bought two from Craigslist and another from my brother. The Craigslist Jeeps were bought, fixed up, then sold for a profit later down the road. This wasn’t a business for me, but more of a challenge to see if I can fix them. One Jeep came to me completely dead. I bought it for a low price, which made me feel like I stole it. The price was ridiculously low. The reason was the owner had no idea what was wrong with it and didn’t have the funds to fix it.

I swooped in, bought it, and two weeks later it was purring like a cat. Yes, the two weeks in between were long and tiring for me, but they were also rewarding. I ended up rewiring the entire Jeep, but the end result was quite fulfilling. I paid cash for two Jeeps and financed another one as an experiment, which was paid off in less than four months. I still own one today and plan on keeping it for some time. My total between three Jeeps is close to $15,000.

 

My Reasoning

Many ask me why I spend so much on my hobbies. My simple answer is that I feel the money is well spent. My return on investment is high. If you love investing or business, then you know that ROI accounts for something. I calculate the ROI on hobbies by measuring my happiness. You typically won’t get money back with your hobbies, but they can make you happy. That is how you can measure it. I also look at what my hobbies can teach me. I have learned a valuable skill with working on cars. I can use that skill anywhere. The other two just bring me joy and that is all I need after a rough day. An escape from a stressful world can be immeasurable.

OK, now you know how much I spend on my hobbies. What about you? How much are you willing to spend on a hobby or hobbies?

***Photo courtesy of http://cdn1.debtroundup.com/wp-content/uploads/2014/02/brewing-beer.jpg

The Five Hottest Housing Markets in 2014 – How Does Yours Stack Up?

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Back in January The Motley Fool did one of those five hottest real estate market lists that media outlets like to run. You don’t need click through to the link, here’s the list – it‘s based on projected price gains for 2014:

1. Vallejo, Calif. — 23.9%
2. Stockton, Calif. — 22.7%
3. Merced, Calif. — 21.4%
4. Modesto, Calif. — 21%
5. Yuba City, Calif. — Projected gains of 20.3% in 2014
6. Orlando, Fla. — 10.1% (The hottest market outside of California)

I’m of the opinion that most of these highest this, lowest that, worst this lists are more interesting than useful. After all, though the top five on the list are all expected to see price gains of more than 20%, it hardly matters to the rest of us unless we’re in those high flying markets.

More relevant is what’s happening in your own area. Over the past two or three years, the real estate market has been a mixed bag. Many areas have done little more than stabilize (at reduced levels) since the real estate collapse, and a few have even continued to decline. Others have seen modest price recoveries, but not back to their former peaks.

The hottest housing markets, it seems, are taking place in what were some of the worst hit markets during the price crash. Notice that all of the top areas are small market cities in California? They all got clobbered during the crash (Stockton in particular). The strongest market outside California is Orlando, another hard hit market. In fact, California and Florida in general were at the epicenter of the meltdown. After taking such heavy price declines, they’re natural candidates for impressive rebounds – though none have fully recovered their peak market prices.

Let’s forget about the five hottest markets, and zero in on the housing market where you live. Would you say your local market is booming, treading water – or somewhere in between?

 

How far did prices fall after the market peak in 2006?

A common characteristic of each of the markets on the list is that prices fell by at least 50% from the market peak in 2006. This at least partially explains the spectacular rebounds – there‘s simply more room to go up.

Not all markets fared as badly as those in California or Florida. Some experienced only modest price declines during the collapse. How bad did prices get during the real estate price collapse in your market? Anything close to a 50% decline?

How has price appreciation been in your market in recent years?

If you bought your house after the price collapse, say around 2009 or 2010, any price appreciation since has improved your net worth. But if you bought (or did a cash out refinance) around the top of the market, in 2006 or 2007, the value of your home may not have fully recovered to its peak levels. And depending upon where you live, you might still be “underwater” on your mortgage.

How is the situation in your local housing market? Have you been seeing steady price appreciation in the past two or three years?

How does your current value compare to 2006 or when you bought your home?

It’s fair to say that rising house prices over the past few years signal a recovery in the housing market. However for many people, full recovery won’t be considered until prices return to pre-crash peaks.

Has the market in your area returned to the price levels of 2006? If not, about how much of the price decline has been recovered since? Or do you live in an area that has more than recovered to 2006 levels?

How quickly do you think you could you sell your home?

It’s possible that we could focus all attention on price gains as a barometer of the strength of the local market. But just as important is how quickly you could sell your home if you need to.

To a large degree, house price appreciation has been driven by the lowest mortgage rates in history. The lower mortgage rates are, the more house people can afford to buy based on their incomes. That is more a function of price level, rather than on how quickly a house can be sold in a given market.

How long does it take to sell a house in your area, and how much does price level affect how quickly that can happen? Within the same market, there can be a boom at one price range, and a bust at another.

I can tell you that where I live, house prices have recovered somewhat, but they’re doing so on very low sales volume. I live in a neighborhood with 66 houses, and not a single one of them is up for sale. In fact, only one has sold in the past 12 months. There aren’t nearly as many houses for sale in the entire area as there were before the crash.

If you had to sell your house quickly, how long would it take based on market activity in your area?

Do you have enough equity in your home to purchase a new one?

This may be the most telling indicator of a housing recovery. What has hurt the housing market in the past few years has been the fact that current homeowners don’t have enough equity to be able to trade up to a higher-priced house. I suspect that factor is having a material effect on low sales volume in my area.

What is your personal situation? Do you have enough equity in your home right now to enable you to come up with the down payment on a trade up house?

We can look at national or regional statistics all we want, but they may not tell us the true state of the housing market in our own areas. Hopefully, the answers to the questions above will provide a better picture as to what’s really going on.

Feel free to offer your input on any or all of the questions above as they relate to your own market.

***Photo courtesy of http://www.flickr.com/photos/59937401@N07/5474453551/sizes/n/

$125.92 – Community and Charity 10% Monthly Blog Income Give Back # 30 – March 2014 Edition

The 10% give back giveaway fun rolls on for the month of March.

In case you missed the first 29 editions of the 10% Blog Income Give Back, after doing some thinking at the beginning of October 2011 about what direction I want this blog to grow and evolve towards in the future, I decided that any income made from this blog would have more significance to me at a personal life values level if I knew that a portion were being given back to the following places:

• 1) The readers – Obviously, without you here to read my articles and interact with my ideas, there would be no blog in the first place (let alone blog income). As such, it is only fitting that you receive a portion of any blog income.
• 2) Charitable organizations – If you’ve read my blog before, you know that I’m a big believer in donating a portion of my money to charity. Each year, I donate between 5-10% of my income to the National Multiple Sclerosis Society as part of the Bike for MS fundraiser that I do. Beyond the good that is done by donating your money, getting used to contributing to charity is also a good practice to emulate the actions of affluent individuals (T. Harv Eker discusses this in his book, Secrets of the Millionaire Mind, which I would definitely recommend reading if you have a few hours).

Because of these considerations, I’ve decided that each month going forward, I’m going to give away 10% of my net (after-tax) blogging income/profit to My Personal Finance Journey readers (5%) and to charity (5%). Listed below is a summary of the results we’ve achieved together thus far through this give back effort:

• After each calendar month passes, I’ll tally up my net blog income and determine what Dollar value correlates to 10%.
• So far, I’ve been very happy with the success of the October 2011 – February 2014 give backs. Listed below is a summary of what we’ve accomplished so far with the give back effort.
  • Current total given to charity = $2,466
  • Current total given to blog readers = $1,162 

So, that’s the overall flow of things and a brief recap of what’s happened so far with the give back initiative. Now, let’s get in to the specific details for this month’s (March 2014) giveaway.

 

Details of March 2014 10% Blog Income Giveaway

 

How to Enter the Giveaway – Deadline to Enter is 11:59 PM, March 31st, 2014

Like previous months, I’ve decided to use the RaffleCopter giveaway management tool to handle sign-up facilitation for this giveaway, so simply go through the steps listed in the widget below to enter the running for the prize and accumulate entry points.

There is no limit to the amount of points you can earn. If you refer 10 subscribers – your name will have accumulated 170 entry points! Or, if you link to the giveaway more than once, you can accumulate those 10 entry points multiple times. You can also share other My Personal Finance Journey articles via social media sites once per day. In the event of a tie, I will be using a random number generator to select the grand prize and runner-up (2nd place) prize winners.

Important instructions: After you complete an entry method, make sure to click and fill out the “I Did This” or “Enter” button in the widget so that I have a record of your points.

a Rafflecopter giveaway

Remember, the deadline for entries will end at 11:59 PM, March 31st, 2014 (~2.5 weeks from today – the start of the give back). Good luck to you all! Please contact me if you have any questions. After the deadline for entries passes, the grand prize and runner-up prize winners (one with the most points and second most points accumulated, respectively) will be contacted via email to receive their prizes.

***Photo courtesy of http://www.flickr.com/photos/promanex/3382448536/sizes/o/

The Basics of Common Stocks

If you’re new to the world of personal finance and investing, one of the first and seemingly most overwhelming topics you likely will encounter is investing in the common equity stock market shares of publicly traded companies.

While overwhelming at first, if you simply arm yourself with an understanding of the basics of common stocks and a few facts about the stock market, you can set yourself up for greater long term success.

What is a Common Stock Market Share?

Simply put, owning a share of common stock means that you own a portion of the equity of a publicly traded company.

Naturally, the next logical question to ask after this definition is, “What is equity?” Essentially, equity is what remains of the company’s assets after all of the debt (liabilities) is paid off. This is elegantly represented with the accounting equation, Assets – Liabilities = Equity. Therefore, as a shareholder, you have a claim on the company’s assets after all debt holders are paid off. Since companies have valuable assets, the stock market shares also have residual value, and you hope that this value will increase, making you money. All that make sense? Good!

Another thing to know about is how common stock issuing benefits the company itself. By issuing additional shares of stock (selling to investors in exchange for money), the company garners additional funds it can use on the other side of the accounting equation to buy new assets or pay off debt.

Facts About The Stock Market

The stock market is a very interesting animal. Listed below are several statistics:

• Total amount invested in the global stock market = $15 trillion
• Number of publicly traded companies = 5,008 in the USA alone
• Average number of daily stock market transactions = 682 million shares on the NYSE
• Average long term stock market return = ~ 10 % annually

Conclusion

In today’s economy, you will no doubt encounter and enter the world of common stock investing at some point in your personal finance history. While it can be easy to feel overwhelmed by all the financial media, knowing a few of the basics will set you up on the path to success.