Posted on 20. May, 2013 by Money Cactus.
Acquiring the best possible deal on your expenses, be they personal or business, means having the option of shopping around. And nothing is more frustrating to the frugal business manager than having only one option when making a purchase.
For years, that was the case with electricity. The firm or cooperative that set the poles and strung the wires was also selling you the electricity.
Fortunately, that is changing. Now it’s more than just good utility management that can cut your electric bill. Much like long distance became a free-for-all (remember 10-10-321 and all those dime-a-minute providers?), electricity can now be purchased from a supplier of your choice.
So if you’re an individual or business in, say, Archer City, Texas, you won’t necessarily be acquiring your electricity from whatever entity connected your service.
No, a change in provider won’t mean new lines strung to your meter. Instead, your share of the power that has energized the grid in your area will be bought from the firm you have chosen.
The process of selecting your provider is well covered by others from the dollars and cents perspective. You should consider associated fees, length of contracts, contract renewal policies, and the other issues involved.
But to see the entire picture of what you’re doing, there are a couple of other points you might consider as well.
Who’s Got Green Juice?
No, not some wheatgrass health drink, but who’s got electricity that’s generated in a cleaner way? Currently the fossil fuel system still provides the cheapest energy, but if you want to vote green with your checkbook, you might be interested in paying a little more as a show of support. This can also be a strong marketing angle for energy firms.
Who Provides Non-Electrical Help?
Many rural cooperatives have a tradition of providing energy-saving tips for customers. Their non-profit structure means there is no incentive for them to sell more electricity than the customer will truly use. If you are interested in having some assistance with weatherproofing your home or office, or in learning unique ways to save, you might like to seek out a provider that does that.
Who is on Solid Financial Footing?
Research the firms you’re considering and find out which ones are most likely to remain solvent over a long period of time, or at least over the length of your commitment to them. The aforementioned 10-10-321 is still afloat despite bargain pricing, so try to find an electrical provider that stands to do the same.
Who’s Ready for What’s Next?
You should also investigate which providers are positioned for change. Deregulation is continuing throughout the country, and a provider that is situated to increase its customer base will be more likely to save you money with its growth.
Additionally, be wary of committing to a firm that is likely to be crushed when bigger competitors enter your market.
Utilities are not a fixed cost. You can manage usage and efficiency, and now you can shop out your patronage to the best provider available. Look at both the cheapest and the best fit before signing up.
When did you last review your electricity provider?
Image by Tom Haymes
Posted on 16. May, 2013 by Money Cactus.
Finding the best rate for your mortgage can be a challenge. This is true whether you are purchasing your very first home, or refinancing your existing one. In order to protect your investment, it’s important to have some basic level of understanding about how mortgages work, as well as the differences in adjustable and fixed interest rates.
The best way to protect your home is by ensuring you receive the best mortgage possible for your situation and understanding the options that are available to you – comparing through a service like www.ratesupermarket.ca is ideal, but the next best method is to call around and get quotes by phone. However, the first step is, gaining knowledge and doing research – do you know what type of mortgage you have? If not, you may be swimming in dangerous waters.
Understanding Your Mortgage
The first step toward securing the best mortgage rate is to understand your mortgage. Basic types of mortgages include:
Hybrid Adjustable Rate Mortgages: These have a fixed payment in the first few years and then turn into an adjustable loan. They will be designated by numbers such as 3/27, where the first number designates the number of years the loan is at a fixed rate and the second is the life of the loan.
Adjustable Rate Mortgages (ARMs): This is a mortgage that has an adjustable rate when initiated.
Fixed Rate Mortgages: These have a fixed rate for the entire life of the loan.
Tips for Ensuring the Best Rate
Once you have determined what is available and which option best suits your needs, you need to ensure that you are receiving the best possible mortgage rate. In order to obtain the best rate, use the following tips:
Know your credit rating. A lower rating can raise your mortgage rate by a substantial amount. If your score is low, you should work to increase it prior to applying for a mortgage.
Determine how much of a mortgage payment you can realistically afford, and make considerations for fluctuating rates.
Consider opting for a shorter term. When you choose a 15 year mortgage, you may be able to also achieve a lower rate on your mortgage. It’s important to note, however, that while the interest rate will be lower, the mortgage payment will be higher since the term length of the mortgage will be substantially shorter.
Get several different quotes. This can be done easily through the use of websites that allow you to do side-by-side comparisons, which is beneficial if you are buying or refinancing.
Evaluate the associated fees and not just the rates. This includes title fees, closing costs and points, which are essentially pre-paid interest.
Adjustable mortgage loans may, at times, result in higher rates. This then translates into higher interest expenses and a higher monthly mortgage payment for the same amount of money that you originally borrowed. Due to these types of fluctuations, it can be difficult to develop a monthly budget since payments can—and often do—vary.
What Factors Impact Your Rate?
While the housing market is showing signs of improvement, mortgage rates have continued to fluctuate dramatically, which is why it’s a good idea to take your loan officers advice as to when you should float or lock your interest rate.
This advice is likely to change daily due to the changes in the financial markets. Understanding the factors that will impact your mortgage rate is also an important aspect in determining what you must pay from month to month. Some of the most impacting factors include:
- Your credit score
- The Federal Reserve: Interest rates decline when the U.S. Treasury purchases securities or debts in order to help the economy.
- The type of loan you have. The loan’s rate will be directly impacted by its type. For example, ARMs will have changeable interest provision in the contract, which means that the rate adjusts as global conditions change.
- How much you are borrowing. The less equity you have in your home, the higher your interest rate is likely to be.
Receiving the best mortgage rate and protecting your home is dependent on your specific situation. If you have a good credit rating, you will be able to obtain a better rate. Using the tips here will help you achieve the best mortgage rate for your home purchase or refinancing, which in turn will ensure you can afford your payments and that you will not be off-guard if your adjustable loan rate increases.
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Posted on 13. May, 2013 by Money Cactus.
Income protection insurance (which is also sometimes known as PHI – permanent health insurance) is a way to ensure that you still receive an income should you become unable to work for a prolonged period of time due to illness or injury.
What you may not be aware of, however, is the incapacity definition on which the plan would pay out. For example, with some income protection policies, the cover will only pay out if you are unable to do any occupation. So, you may no longer be able to carry on in your current role but you may be able to do something else – which means the policy would not pay out.
As income protection is designed to protect you throughout your working life, ensuring your cover will actually pay out should you become unable to work due to injury or illness is important. Income protection insurance specialists Drewberry have a useful tool on their website (the Occupation Definition Calculator) that allows you to calculate your risk class, so you can make sure you have the most appropriate cover for your occupation.
There are typically three definitions that you may find within a policy:
- Own occupation: this is the highest level of cover which pays out if you become unable to work in your current job. For example, if you are a surgeon who loses some of the feeling in your fingers due to illness or injury and are no longer able to carry out your occupation, the policy will pay out – even if you are fit enough to do a desk job.
- Suited occupation: this cover will pay out if you become unable to do your own job or a similar one that suits your qualifications. So, if you are a qualified surveyor out on site visits and you become unable to do this due to illness or injury, if you can still do something else in the office that is suited to your qualification level, then the policy will not pay out.
- Any occupation: this policy offers you the lowest level of protection and will only pay out if you become too ill to do any kind of paid work. So, using the two examples above, if you could no longer be a surgeon or a surveyor but were able to do something else as paid employment, even if it didn’t suit your qualifications, you would be expected to do this and the cover would not pay out.
Using Drewberry’s Occupation Definition Calculator will enable you to see the most likely type of definition you will be able to get that relates to your occupation. This means that you can choose the protection that gives you the highest level of protection. If you already have income cover, then you can use the calculator to double check your existing policy wording to ensure you have the most appropriate cover.
While it is recommended that anyone taking out income protection chooses the “own occupation” definition, this might not always be possible as some very risky occupations cannot qualify for this definition.
Seeking advice from an independent income protection insurance broker will enable you to get the most appropriate protection depending on your occupation and other risk factors.
Do you have income protection?
Image by Robin Pronk
Posted on 29. Apr, 2013 by Money Cactus.
You know it is really sad (and a little scary) to see so many companies struggling at the moment. It is big news where I live in Australia and some well known companies have disappeared after falling into financial trouble that they just couldn’t get out of.
Recently a local company called Spring Gully Foods found themselves in this very situation. They are a fourth generation family-run business that had been trading for over 65 years selling pickles, jams and chutney and doing quite well out of it. Until one day, when sales just seemed to stop.
Over a period of 6 weeks the company sales dropped a staggering 60%, leaving them $3 million in debt and unable to pay their creditors. The only option available to them was to enter into voluntary administration and have a company voluntary arrangement drawn up to find ways to pay their debts.
I can’t speak for the company, but I expect it would have felt like the situation was hopeless and just couldn’t be salvaged. It is difficult to think of anything positive when things are dire and you feel like you are sinking further and further into debt.
How to make the best of a bad situation
As with many other companies that have gone this way, the news was there to tell the story. The Managing Director of the company was interviewed and put out an emotional plea for the community to help by buying their products.
As it turns out, this was a critical tipping point. Instead of merely asking for people to help them, the Managing Director went a step further and asked people to help keep Australian products alive.
Very smart move.
I don’t really know if it was intentional or not, but to his credit he didn’t play the pity card, he played on a much stronger emotion – loyalty. Not just loyalty to his company, but loyalty to a country and the products that it produces.
That is when the magic happened.
The story was picked up all over the country. It was talked about on television, broadcast on radio and written about in newspapers. People began sharing the story on social networks like Facebook and the company fan page had thousands of new ‘Likes ‘ overnight. Shoppers flocked to supermarkets and bought Spring Gully products in bulk, almost clearing entire stocks.
The week that followed was the biggest sales week in the company’s history. Local supermarkets joined in buying additional products and making them more visible on shelves. Product sales totalled more than $1.5 million and offers came in from interested parties wanting to buy equity shares in the company.
How to keep your company alive
Fortunately for Spring Gully Foods the future looks a lot brighter. They still have some work to do in order to work their way out of administration and begin trading as a company again, but I think they should get there if they continue to remember what helped them get out of trouble in the first place.
The fundamentals of any business are the same, no matter what the size. You need to serve a purpose in some way, that is a given, but more than that you need to continue to remind your customers why they need you.
It really isn’t enough to just make pickles and expect that people will continue to buy them. Your pickles need to come with an emotional trigger that make people want them over anyone else’s. If you can create a feeling, or connection with people then your customers will look for you no matter where you are.
P.S. This doesn’t just apply to a business, the rules apply just as much if you are an employee of one (let me know how you have taken this approach yourself in the comments below).
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Posted on 24. Apr, 2013 by Money Cactus.
I hate paying for life insurance, or any insurance really. It bothers me that I’m giving away money for something that (I hope) I will likely never use, but these days the risks outweigh the rewards of foregoing this expense.
That doesn’t mean I’m happy about it though.
Fortunately, things that bother me usually also motiviate me in some way. In the case of life insurance, I was motivated to find ways to ensure I was covered without paying large sums of money, so I did some homework.
Unfortunately I did the homework around the same time that my wife and I had our first child, which meant that I wasn’t completely on the ball and ended up paying for it in a major way.
Today I want to share what I learned and show you how my mistake ended up helping me work things out and will hopefully help you too.
Do I need life insurance?
Up until I was about to become a father for the first time, I hadn’t given life insurance, disability insurance, or even income protection much thought at all. I’m not really sure why I hadn’t thought much about it, I guess I just assumed like many others that nothing would happen to me.
One day that all changed. At some point during my wife’s pregnancy I came up with the rather ill informed idea of purchasing another investment property. It was an ambitious move that I’ll tell you all about another time, but very soon after the paperwork was all signed I felt the weight of my decision and realised the need for protection of some kind.
My big mistake
As is often the case, the brokerage I was dealing with for my property purchase also had people that could help me with life insurance (I should have really known better). Before I knew it, my wife and I had some rather impressive coverage all structured through our new superannuation (pension) scheme, with very little work required by us.
It took a few months for the haze to clear after our child was born and to realise just how much the new insurance was costing us (the draw-back of it not being an out of pocket expense), but I eventually woke up and realised my error.
While the insurance was being paid by our retirement funds at no direct cost to us, it had basically halted all growth and would mean a much smaller retirement amount over time.
As you can imagine, there is plenty of help available when you are trying to arrange new life insurance, but there isn’t too much offered when you are trying to undo it all and start over without incurring further costs. I can tell you there was A LOT of paperwork.
Reducing the cost of life insurance
The one good thing that came out of the mess was that I learned a lot about the types of insurance I could access, how they could be structured and what I needed to look out for. Armed with this information I was able to identify a superannuation scheme that could offer me what I needed:
- Significantly lower costs than the one we were using
- Cover for income protection*, life and disability insurance (many don’t provide all of these together)
- The ability to increase my coverage based on my personal situation (some have limits)
* In my case the income protection only lasted for 2 years at 75% of my wage. I could have taken additional protection through another provider, but it would have been an out of pocket expense. I’m happy at the moment because I know 75% of my wage is enough to live on and I’m pretty confident I could do something about work with a couple of years (optimist?).
It doesn’t seem like a lot to ask for, but believe me there can be some significant differences in costs and some schemes will not provide full cover in all areas (particularly life insurance). My advice is to shop around, find something that looks reasonable to you and compare it with other alternatives offered by your bank or private health provider to get a good feel for what is about right.
It is pretty tough to go past using your superannuation scheme wherever possible though, here’s why:
- It’s often cheaper because they purchase insurance policies in bulk
- Your premiums are paid from your super account, not your after-tax income
- You can get decent cover for you and your family, without having to find it in your budget
- Some funds will accept you for cover without requiring a health check
I know that I’m giving you my Australian perspective here, but the research I’ve done tells me that structuring your life insurance is completely possible through a 401K if you live in the States, or similarly through your pension scheme if you live in the UK (shout out to my international friends ).
If you haven’t looked into using your superannuation / pension as a way to ensure you are covered without footing the bill directly out of pocket, then why not do a little investigating of your own?
Let me know if you fund your life insurance this way, or have a better strategy of your own.
(P.S. the lessons learned from my investment property saga will coming up in the near future – stay tuned!)
Image by kag2u