Make car payments to yourself!

 

How much should you spend on a car?  For most of us there are really only two hard questions.  Is it reliable?  Is it safe?  A vehicle that's not reliable will likely cost you more in the long run and not just in repairs, but you may miss work, be stranded in unsafe places.  Safety is important too as transportation doesn't do you much good if the price is serious injury or death.  Everything else is luxury.   

A car you use on a regular basis is a depreciating asset, aka it loses value.   If at all possible, you don't want to borrow money on something that loses value.   So (with a few exception that involve you driving as part of a business) you should never borrow money to by a car unless it's the only way to get reliable and safe.  It can be ugly or boring it may not have the neat stuff you want.  You don't need that.

If you don't have a car yet or you have a paid for car you are in the best position.  Start making car payments, but not to the bank...make them to yourself.  If you don't already have one, I recommend opening a high yield online savings account.  There are a lot of really good ones out there that have low or no minimum balances and great rates compared to the national average.  By earning interest paid to you and not from you, your car will actually cost you less than what you pay for it.  Inversely if you borrow money for a car, you will end up paying a lot more for it.    

If you borrow $20,000.00 for you new ride and you get an aggressive 3 year loan at 5% interest you will pay an additional $1,579.05 in interest.  That's also a steep monthly payment of $599.42.   Say you can keep that same rate, but get a much lower payment on a 6 year loan, now your payment is only $322.10!  A lot more tempting, but remember this thing is losing value with every mile you log.  Your depreciation will outpace your loan paydown and it will cost you $3,191.10 in interest.  That will buy a lot of chocolate ice cream!  

Do yourself a favor and make car payments to yourself and drive off the lot with a paid for car!  

 

 

What if I paid a little extra on my mortgage?

What if I paid a little extra on my mortgage?
Mortgages, like many things in the U.S. are something thought as a necessity to have a home. On a practical basis most of us don't have 100-400 thousand dollars lying around to just buy one and saving up that kind of money while paying rent will take a long time on most incomes with most rents.  However in most U.S. states there is not a pre-payment penalty for paying just a little extra each month.  It can add up over time!


The power of extra payments:  For example if you just paid $10 per month extra on a $150K 30 loan at 4% interest you would save $3,243.31!!  The earlier you can pay extra the greater the payoff.  If you only made one extra payment of $100 and you made it on the first payment for the same loan above you would save $230.25 on your mortgage, more than doubling the investment.  If you made that one payment half way through, the savings would only be $82.03. 

I can't afford to pay extra: Where can you get that extra money.  Most of us have something we could give up if we are willing to make a change.  Do you have cable?  Spotify? Netflix?  These things are great, but if you can live without them for a while it could have a huge impact on your financial future.  What about a $4 cup of coffee everyday?  Maybe you still need the caffeine fix, but if you drop that to a $1 cup you could put an extra $90 per month against your mortgage (over $1000/yr).  In the example above this would save you $23,276.24 over the life of your loan and you would pay it off about 6 years earlier!  Look around at your spending, especially the small every day/week/month type of things and you will be surprised what you might find!


Click https://bit.ly/SlowWeathMortgageCalc to download the Calculator.

Check out this video to show you how to use it!

Should I get an HSA?

The HSA (Health Savings Account) is a relatively new vehicle for savings; it was introduced in 2003.



What these plans do is create a tax free way to to pay for medical expenses.  They work very similarly to an IRA the money you add to one is deductible from your income at tax time and better still if you use the money for qualified medical expenses then it is not taxed when it comes out as well.


What is great about the HSA:
 
1.  Unlike an FSA(Flexible Spending Account) you keep what you don't use.

2.  It stays with you.  If you change or even lose your job you still have you HSA.

3.  If you are retirement age you can use it like an IRA and make non-medical withdrawals and only pay taxes on a regular income (no early withdrawal penalty)  if you use it for qualified medical expenses then it's tax free like have a traditional and and IRA in one!

4. In many cases your employer may make a match or contribution to your HSA.

5. Most HSA plans have an investment option, so if you can start young this could be a considerable mount at retirement.

6. Like IRAs you can make catch up contributions once you are 55 or older.

What is not so great about the HSA:

1. To qualify to use one, you can only have a high deductible insurance plan.  So the first thousand + or so of expenses has to come out of pocket or out of what's been contributed to the plan.

2. You can't combine and FSA with an HSA.

3. There aren't as many providers for the HSA as there are IRAs and such so the fees tend to be a bit higher.

How much should I contribute to my HSA?:

If possible contribute the maximum the IRS allows. You can check their website to see what those limits are.  The limits include employer contributions.  For starters, premium for your high deductible plan will cost a good bit less than your low deductible.  At the very least contribute the difference in your premium.  If you are younger and healthier chances are you will keep it.  Pay for as much of your medical expenses as you can without the HSA, especially if you are young.  Your future costs will likely be much higher.

Should I choose HSA?:

If you know you are going to have a lot of medical expenses and you don't have the available income to cover the higher deductible then go with a more traditional plan.  Otherwise the HSA is the way to go for a more prosperous future and to build wealth slowly!

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Simple savings plan for starting off

 

When I was in college I had a very simple savings plan.  I used cash for all my spending (easier then than now) and when I would get change I would throw it in a bag.  Usually by the end of the year I would have around $75.

When I started working and using plastics (credit\debit cards) to make purchases instead of cash, I had to make some changes.  First let me preface this, if you have credit card balances or student loan balances, focus more on getting those paid off first before worrying about major savings.  Once you get up to about one paycheck worth of savings then focus on the debt before you build it up much more.

The basic plan I recommend for starting off is easy.  Keep your checking account with an even amount of money.  Depending on your comfort levels you can set this to be an even $5 at the lowest up to an even $100.  I recommend starting at $10 since the math is easy.  So every time a transaction hits your checking account move an amount into savings that will make the checking balance divisible by ten.  You may want to set a minimum balance for your checking of about a weeks expenses so you always have fast money to cover.  This may not be as necessary if your savings is in the same bank as checking and can do an instant transfer.  For example you pay your credit card and now have a balance of $736.42, move $6.42 into savings so your new balance is $730.

As your income grows and you are able to budget better.  You may want to change to setting a maximum value for your checking account to around three weeks of typical spending.  When you get paid whatever is over the maximum amount move to savings.  Be sure to remember in both scenarios, if you have a big expense that requires you to dip into savings, move that money over and don't pay overdraft fees! For example if you set your max balance to $1,500 and after getting paid you have $1,732.46  then move $236.46 into savings to keep your max balance at $1,500.

There are lots of different savings strategies to do, some are better than this one, but I think it's an easy one to get started.  The most important thing is to have a plan.  I hope this helps and feel free to leave comments about savings strategies that have worked for you!

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Review of TopCashBack.com

A good way to save a bit more $$$ in your daily life is to use a cashback site for your shopping.  The simple explanation of how this works is that a website works as an affiliate to drive traffic to a vendors website.  If this results in a sale then the affiliate earns a commission for driving that traffic to the retailer.  Cashback sites will pay you a portion of that commission.

There are several to choose from but in my initial research I liked Top Cashback the best and it has been a winner so far.

How do you use it?

First you go to their website https://www.topcashback.com/ and go through an easy sign up process.  You don't have to register any cards with them.  Then when you want to shop for something go to they topcashback website first, find your retailer and click the "Get Cashback Now" button and shop at the website as you would normally.  Once the transaction has been confirmed (this usually takes about a day) it will show up on your dashboard with an estimate of when it will be payable.  Overall I have found the estimate dates to be a bit inconsistent.  Perhaps over time they will become more accurate.

What's good:
 

1.  The site is pretty easy to navigate. 
2.  The cashback rates are pretty nice, you can combine these with a cashback credit card and increase the saving.
3. Payout is easy and responsive. No minimum!
4. You get several payout options.  Directly to you via bank transfer or paypal or to a gift card.  The gift card can be a better option as most have an additional bonus of 3-10% for using the gift card option.
5. There is a referral program.  If you use one of the links on my page https://www.topcashback.com/ref/sjdavisiv then I get a $10 referral bonus and you can too if you refer someone else.  At times there are promotions when using a referral link will also get the person signing up a gift card. 
6. Occasionally they have a promotional event that can let you win cash without a purchase.  

What could be better:

1. It takes a while to actually get a payable for your cashback and it varies a fair bit from the retailer.
2.  Many of the cash backs are up to a certain percent, but what you are getting may be a lower amount.
3. Some retailers such as Amazon only offer it for certain departments at a time.  

How I recommend using it for slow wealth building:

Don't spend more than you would normally, but use it when you were going to make a purchase anyway.

If you have credit card, student loan, or auto debt, use your earnings to pay that down quicker (if you are in a loan that does not have a pre-payment penalty).

If you have no debt or just a mortgage apply it to the mortgage or put it into a lending or brokerage account or use a robo investor such as Betterment or Wealthfront and enjoy the benefits of compounding returns!

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