Wealth Creation

Is Wealth Creation a Boring Pursuit?

Posted on 18. Jun, 2013 by Money Cactus.

As strange as it might sound, the thought of investing in some nice sensible bonds or a cozy little term deposit is pretty attractive these days. There used to be a time when I wouldn’t consider any investment avenue other than property, but I had good reason for it, it had worked extremely well for me in the past.

I was exceptionally fortunate with my first property purchase and saw rapid growth, naturally I wanted to replicate that and continued along the same path expecting the same result. After a couple more purchases things really started to slow down, so much so they actually went backwards.

Fast forward a few more years and I’ve come around to other forms of investing and can fully appreciate the benefits of diversification. These days, I even pay attention to the way my superannuation is invested, which was something I never used to be interested in.

I think I’m geting old

As much as I’ve tried to hurry things along over time, I’ve realised more and more that wealth creation is a distance event – a marathon rather than a sprint. I still don’t like the pace, but often the progress is incremental, which means that fine tuning the investments you have can make a big difference over time.

Sure big things like reviewing your home loan interest rate will make a difference, everyone does that (or at least I hope you do). But I’ve found that doing the little things often makes the biggest differences, even when it doesn’t feel like it at the time.

Things like choosing the right investment option for your pension, or tying up loose money in term deposits or fixed rate bonds are a good way to earn interest and continue to accumulate financial wealth.  It sounds completely boring, which is why a lot of people just don’t do it, but making the effort to take even the smallest actions is a truly heroic thing to do.

Boring can be fun

It might sound like hype, but don’t discount the benefit of being able to find motivation in the mundane. Leaving things undone is easy, getting them done when they look and feel so inconsequential is actually a huge achievement that will pay off significantly over time.

Adopting the right mid set can make a huge difference. I’ve often found that researching something I wanted to buy, so thoroughly that I exhaust every avenue, ended up being better than any thrill of buying to fulfil my need for instant gratification. Taking the same approach with investing has led to similar results.

Going big on an investment might give you a buzz, but it generally isn’t sustainable. Finding ways to tweak the areas you do have control of can produce the same feeling if you approach it the right way. Testing an offset account against a term deposit from reliable banks like the Halifax and others can be just as engrossing. Alternatively, you might like to try strategically splitting your savings between different investment options and tracking them closely to see which is working best over a period of time before lumping it all together again.

There is no need to micro-manage your investments forever, but understanding how investments work and what your money is doing for you is incredibly useful (and a lot of fun). Ultimately the result is more than just interest earned, it is knowledge gained.

How well do you know your investment options?

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We’re Separating – What Happens to Our Credit Card Debt?

Posted on 01. Jun, 2013 by Money Cactus.

This is a guest post by Kimberly Rotter

More than half of all marriages in the U.S. end up in divorce. If you’re currently experiencing the demise of a relationship, your credit score might be the farthest thing from your mind. But joint accounts are the single biggest cause of credit damage after a divorce, according to credit expert John Ulzheimer, so it’s in your best interest to understand how the separation will affect your finances, your credit score and your financial future. Intelligent financial planning can help you avert a financial nightmare on top of the emotional stress caused by the relationship woes.

What happens to our accounts?

Separate accounts do remain separate, but what happens with the debt held in separate accounts depends on where you live. In community property states, both spouses are responsible for all credit card debt, even if was incurred by only one spouse. Also, you could be held responsible for your spouse’s separate credit card debt if it was incurred for the benefit of the couple or the family (vacations, for example). In most cases you will not be held responsible for your spouse’s separate debt incurred after the date of your separation. But if the charges were incurred for necessities, such as groceries purchased by a non-working spouse, you could be held responsible for the debt even in separation, and even on a separate account. Separation and divorce can be very complicated and messy.

Joint accounts do not become separate, even upon legal separation. In some cases, separating couples can obtain a court order that sets forth payment responsibilities. A court order, however, does not guarantee payments will be made. As long as your name is on the account, you are responsible for the debt according to the terms and conditions that govern the account, no matter who makes the charges.

Delaying divorce

Separation and divorce generally lead to a steep rise in expenses for both people. As a couple, you made one mortgage or rent payment; as exes you must pay two. As a couple, you were covered by your spouse’s employer-sponsored health insurance policy; upon divorce, you lose that coverage.  For these and many other reasons, many couples delay divorce and may even continue to live together.

Realize that some people become surprisingly spiteful and vicious during divorce. If there is any chance your spouse might deplete marital assets or willfully spend money that belongs to both of you, delaying divorce could be quite costly.

Tips for handling debt in separation

1. Document the status of your marriage and your debt. Follow your state’s laws with regard to legal separation so that there is no question regarding the date of separation and other details that could affect finances. Obtain a current copy of your credit report and the most recent statement for each asset and liability account in order to document the status of your finances at the time of separation. Use real-time data by accessing your accounts online and printing up-to-date activity.
2. Separate all accounts. As soon as possible, and even while the final outcome of the relationship is still unknown, separate all accounts. Freeze joint credit card accounts that have a balance; close joint accounts that have no balance. If one person is responsible to pay off the balance on any joint account (and is willing to acknowledge and accept that responsibility), transfer the account to that person only. Have your name removed from the rental lease if you move out of the home.
3. Agree on a budget. Stay-at-home spouses are especially at risk of financial difficulties, and should act early and assertively to protect themselves by working out agreements on the budget and bills. If you suspect any lack of cooperation, move forward with divorce proceedings quickly.
4. Separate assets. Set up separate bank accounts and start contributing separately to joint expenses. Use joint accounts only for joint expenses, and only after you’ve both contributed the agreed-upon amount each pay period or month.
5. Put everything in writing. Avoid faltering memory and disagreement caused by further degradation of the relationship. Write down every detail with regard to finances and include both spouses’ signatures.
6. Monitor your credit. It’s imperative that you remain aware of any debt that you are jointly or solely responsible for, and that you continue to make payments. Even if your spouse is responsible for paying the debt, if he or she chooses not to your credit will quickly suffer.

Working together toward financial agreement is the best thing you can do during this trying time to protect both of your credit scores and histories.

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How to Get Other People to Fund Your Project

Posted on 28. May, 2013 by Money Cactus.

This is a guest post

If you have a side project that you’d like to launch, but you don’t have the money to do so, you might like to consider Kickstarter.

Kickstarter is a funding platform that allows you to present your plan to the world. State how much it would cost to see the plan come to life and maybe someone likeminded will decide to invest in your project. It’s an idea that has helped creative independents and unknowns see their projects become a reality.

And the best part of it, you’ll find all sorts of projects on the website – everything from films, games, and music to art, design, and technology. If you have a niche idea, this could be the funding platform for you. It helps you avoid taking out large loans or gambling your lifesavings on Jackpot Capital in an attempt to win your project investment. But beyond that, if public interest is high, you have a good indication of how successful your project might be.

Every project creator sets their project’s funding goal and deadline. If people like the project, they can pledge money to make it happen. If the project succeeds in reaching its funding goal, all backers’ credit cards are charged when time expires. If the project falls short, no one is charged. Funding on Kickstarter is all-or-nothing, the website says.

The fundraising platform has proven so successful that even successful actors have turned to Kickstarter to conjure support for their independent films. The move has been controversial with the likes of Zach Braff, someone who can clearly afford to float his new venture, calling on the public to assist.

The company has come forward in support of the celebrity projects stating that thousands of new people have been brought to Kickstarter due to the celebrity projects. These are people, they argue, who have not only supported these big projects but also unknown artists too. It’s brought lots of attention to the site, they say.

The great thing about the website is the abundance of small projects. Some projects have set a goal of just a couple thousand dollars but support has far outweighed the goal; one project earning 1604% of their target.

The website allows unknowns with ideas to have a chance – determined by the public, their future consumers – at achieving their goals. If you have a niche idea, what have you got to lose?

Have you investigated Kickstarter?

Image by Scott Beale

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Saving on Electricity: It’s About More Than Just the Best Price

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

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Protecting Your Wealth by Making Sure You Have the Best Mortgage Rate

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.

Image by 401(K) 2013

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