When I woke up this morning and checked my email/bank account, I received a very pleasant surprise. Not only did I receive my regular biweekly paycheck from my job, I also received a deposit labeled, "ACH CREDIT IRS TREAS TAX REF ON 04/15." At first, I figured this was some sort of glitch since I had already received my federal government tax refund. Then, I remembered seeing a news headline that said that coronavirus stimulus package payments would be coming out soon...
All posts by Jacob A Irwin
Loans 101: Secured Loans Versus Unsecured Loans
The following is a guest post. Enjoy!
Many people right now are in a situation where money is tight. There are many people who live paycheck to paycheck who are simply unable to build up their savings. Some are barely unable to make ends meet, or they simply lack the financial literacy to make effective use of their money.
Living paycheck to paycheck, without a financial buffer, is pretty much like walking on a tightrope. The smallest misstep or bad luck could put you in dire financial straits with no good choices to get out of it.
Besides the best contingency plans, you can also consider taking out a loan. Loans can be a godsend for both the people who have no money, as is the case with an emergency.
But loans can also be double-edged swords. While they can get you out of a tight spot now, they may cause you to lose something of much greater value later on if you aren’t careful with how you handle loans.
The types of loans you can get play a heavy role in risk management both for you and the lender. A few factors to help you determine the type of loan you plan on getting are the following:
Collateral
The defining difference that sets secured loans from unsecured loans is protection. Secured loans involve property or equipment to be used as collateral, which the lender gains ownership of if the borrower defaults on his payments.
On the other hand, an unsecured loan does not require collateral from the borrower. You can then infer that secured loans are risky for borrowers and low risk for lenders, while the opposite is true for unsecured loans. This risk factor also influences the other loan aspects significantly.
Lien Usage
A lien refers to the right to keep possession of a property of a borrower until his debts are fully paid. As previously mentioned, secured loans require collateral while unsecured loans do not. A prime example of a lien is when car title loans are taken out, the borrower must leave his car’s pink slip with the lender until he is able to pay off the loan.
Interest Rate
The risk level of borrowers plays a big role in determining interest rates. Lenders affix high-risk loans with higher interest rates and lower interest rates for secured loans. Through higher interest rates, lenders are able to break even with the transaction.
Loan Amount
Borrowers who take out secured loans are able to get a significantly higher loan amount than borrowers who take out unsecured loans. Again, the key factor here is security. Lenders are more willing to lend a bigger amount because they’re confident that the buyer has every reason to make sure that payments are on time.
When a borrower defaults on payments in a secured loan, lenders are at least able to get something of value in lieu of money. When a buyer defaults on an unsecured loan, lenders are left with nothing, and thus they lose the money that was loaned. It’s pretty much like putting your trust in another person. You’re more likely to share more of yourself with a person you trust versus a stranger.
The Impact of Coronavirus on Our Household and Personal Finances
It seems like the coronavirus pandemic has impacted everyone a bit differently. My thoughts and thanks really go out to all of the hourly-paid, lower-income workers who still must continue showing up at work, dealing with mass volumes of people, and putting themselves at risk, all while earning much less than they deserve during this time. At least so far (knock on wood), my family has been pretty lucky regarding how the coronavirus has impacted us. Nevertheless, it has derailed us from our normal routines, and I wanted to share some of those impacts with you all today...
Is Grammarly Premium Worth the Money?
Grammarly is quite simply an awesome program. Automated spelling and grammar correction that Microsoft Office's built-in proofer application doesn't catch is a no-brainer for me. I've been a happy user for about 5 years now. About 18 months ago, I figured it was time to upgrade from the free version and give Grammarly Premium a try. In today's post, I'll share my thoughts about whether or not Grammarly Premium is worth the money...
My Personal Finance Journey – Phases, Rights, and Wrongs Over 10 Years of Blogging
I started this blog in January of 2010, meaning its now over 10 years old (or new, depending on how you look at things!) and in its 2nd decade of life. It was started at a time when my "day-job" was a little slow, and I found myself with quite a bit of energy and brain-power remaining at night. Starting this blog has been one of the best decisions I've made. Below are my reflections...
College or Trade School: Which Should You Choose?
If you’re a high school student, you might be wondering whether college or trade school is the right option for you. The answer to that question can be hard to find...
Is That $5 Coffee Burning a Hole in Your Wallet?
The following is a guest post by Bo. Bo writes about personal finance at The Dollar Blogger. When not writing, Bo enjoys traveling and trying out exotic foods with his wife. His dream is to retire at the beaches of Aruba. Enjoy!
How’s it going, everyone? There’s an argument going on in the personal finance realm of the internet about coffee. Expensive coffee, that is.
One side says that spending $5 a day on coffee is costing you a fortune given time and that you should cut this expensive habit out of your daily lives. The other side says that it’s just $5, and you should focus on bigger wins when it comes to savings, such as negotiating bills with your service providers. This crowd usually states that we all have our guilty pleasures, and to deprive ourselves of every single one would drive us mad.
In this post, we’re going to talk about both sides of the argument, and then I’m going to make my case for saving the $5 instead of burning it. Let’s go!
Continue reading2020 Income Tax Planning
After finishing up and filing our family's 2019 taxes two weeks ago, I've turned my attention to planning for 2020 taxes.
I like to run these planning calculations 2-4 times (~ March-April, Aug-Sep, and November) throughout each tax year for the following reasons:
- Utilize/leverage the tax codes and loopholes as a path to building wealth.
- Avoid tax penalties through underpayments (i.e. making sure I'm withholding sufficient amounts of federal and state income tax from my paychecks throughout the year).
- Prevent surprises at 2020 tax return filing time by needing to pay large amounts of taxes due.
- Prevent large over-payment of taxes, essentially providing the government with an interest-free loan until getting a tax refund almost a year later.
2019 Personal Finance Review and Reflections
2019 was an action-packed year.
Welcome Son # 2!
We started the year off in the midst of caring for our 2nd son, Thomas, who had just been born in mid December 2018. It was a special time because both of my parents had retired and were able to come help us take care of things for about 6 weeks before and after Thomas was born.
Career Change
At my "day-job," things continued to go well. Although my vacation days were limited due to taking time off after Thomas was born, we were thoroughly enjoying our family day-trips to hike, snowshoe, and have fun in the Front Range Mountains of Colorado. Life was comfortable, and we settled into a lovely routine after living in Colorado for close to 5 five years.
Fast forward to the March time frame, I started to get clues that my opportunities for career development and advancement might be limited. Still, I continued on, trusting that things would get better if I continued to work hard. Then, in June, it became clear that I wasn't going to be able to advance my career in the timeline that I desired.
So, I had a tough to decision to make, and made it...
After the job searching and interview process, which lasted most of the summer months, I found a great new position in the Raleigh, North Carolina area doing gene therapy downstream process development.
Moving To North Carolina
The majority of Q42019 was consumed by selling our home in Colorado, moving across country, buying a house in North Carolina, and starting my new role. Lots of changes on personal, personal finance, and professional levels to say the least! However, they have all been good changes! 🙂 We do miss the Colorado mountains but are looking forward to getting out to the NC mountains once the coronavirus goes away.
Net Worth Growth
Although filled with immense changes, 2019 was quite good to us financial.
Our combined family net worth (including home ownership/loan) increased 15%, and our liquid net worth (not including home ownership) increased 45%.
These seemed to be driven largely by two factors: 1) a favorable stock market increase and 2) the "on-fire" Colorado real estate market having increased the value of our home by 40-50% from when we purchased it in late 2014. Because of our home sale, we were able to convert those theoretical earnings into cash-account and mutual fund account savings. We also purchased a home in North Carolina for less than we sold our home in Colorado (even though our NC home is 10% larger inside and has 3x the yard size).
Savings Rate
Throughout the year, I like to track our savings rate to gauge how efficient we are being with our personal finances. I define this as the amount we squirrel away into cash savings, mutual fund, and retirement accounts expressed as a percentage of our take-home income (meaning after taxes, etc).
Because of the sale of our home mentioned above, we put a lot of money into savings in 2019. In fact, we put more into savings last year than I will earn this year in gross salary. For 2019's calculations, I made an exception to the way our savings rate is calculated by including the net money we received from the sale of our home in Colorado as take-home pay." Calculating things this way, our savings rate was 62%. Not bad! 🙂 Some people like to celebrate how much money they spend. I like to celebrate savings!
Outlook for 2020
Barring unexpected changes, things look pretty on the personal finance front.
My new role/company offers really good benefits at reduced out-of-pocket costs for employees, so that greatly boosts my take-home salary. Our largest monthly fixed expenses are our mortgage and tuition for our two sons' daycare (which, surprisingly, costs more than our mortgage payments).
Now, It's Your Turn...
How did 2019 treat you all financially and/or personally?
Share your experiences by commenting below!
Portfolio Rebalancing During Market Downturns
For the past 12 years, I have been a believer and practitioner of an investment strategy employing modern portfolio theory, asset allocation, and passive investing through low-cost index mutual funds.
Since obtaining my bachelor’s degree and entering the workforce in 2008, I have maintained an asset allocation consisting of 70% equity and 30% fixed income. For the most part, maintaining this allocation has involved selling equity and buying fixed income (rebalancing), since the stock market has experienced a very nice run-up in that time. I haven’t yet personally experienced a significant decline in the market until recently.
It’s often said in personal finance literature that an investment strategy is only as good as one’s ability to stick to it in good times and bad. Thankfully, I can still report that I’m plenty comfort with my investment strategy in a “bad” time.
Portfolio Analysis / Rebalancing Frequency
There are different schools of thought in the personal finance world regarding the frequency with which someone that uses a passive investing strategy should assess their portfolio, tally up their net worth, and rebalance back to asset allocation targets if needed.
For the past 10 years or so, I have employed the approach of analyzing my portfolio once per month (12 times per year) and rebalancing back to my allocation targets if needed. Typically, rebalancing has only been needed 1-2 times per year, so not that much in the grand scheme of things.
With the coronavirus now being a part of our daily lives, we’ll have to see if this monthly analysis frequency results in an uptick in rebalancing. I am not sure yet what I would define as the limit of TOO much rebalancing, especially if trades are being made in tax-advantaged locations within commission-free environments (like my portfolio at Vanguard).
My Recent Portfolio Rebalance Experience
Yesterday, on target with my monthly schedule, I analyzed my portfolio. And, due to the recent market downturn, I had to rebalance since my fixed income allocation had risen to 39% (outside of the 30 +/- 5% allowable banding I’ve established).
Listed below is a summary of my findings/actions:
- As would be expected from portfolio design, my fixed income holdings (cash, short term bonds, TIPs) were unchanged in value from the previous month.
- However, every equity asset class (international, small-cap, small-cap value, large-cap value, REIT, emerging markets) had all decreased ~ 20% from the month prior.
- There didn’t seem to be a single equity asset class that was hit harder than any of the others.
- To re-establish my target asset allocation, I sold 9% worth of TIPs and short-term bond fund shares in exchange for emerging market, small-cap value, and large-cap value index fund shares.
- The equity fund types were selected due to having the lowest % asset allocation among my equity holdings.
- My small-money experiment with Harry Browne’s Permanent Portfolio that I started in 2012 is still going strong. True to its form, the Permanent Portfolio does provide stability compared to more equity-heavy portfolios, as it only declined 3% compared to the prior month. However, as I noted in my post, the shelter from declines also comes with the cost of missing out on potentially large market increases.
- My overall portfolio value decreased by only 11-13%, meaning that my cash and fixed income holdings are doing a good job of stabilizing portfolio value.