الخميس، 23 فبراير 2017
Here’s Why McDonald’s Wants to Sell You Sodas for Just $1
Oh, McDonald’s.
It’s sweet, really, to watch you try to lure us back in.
First it was gimmicks, like all-day breakfast or the recent “There’s a Big Mac for That” campaign. And sure, those tricks worked for a hot minute — until the novelty wore off.
But now, after years of trying to regain our attention while still periodically raising prices (can you even call it a dollar menu anymore?), McDonald’s is trying a new strategy.
Soon, the purveyor of delicacies such as the McRib sandwich will offer any size soft drinks for just $1. And for a limited time, McCafe items — all those specialty coffees and smoothies — will be just $2.
But Was Soda Ever the Problem?
OK, so I’m more than a little tempted by a $2 Frappé.
But the appeal of McDonald’s (for me, anyway) was not lost when the McChicken jumped from 99 cents to $1.19. Sure, to a Penny Hoarder, 20 cents is a pretty big difference — but the very occasional fast-food splurge isn’t enough to affect my long-term savings goals by any means.
Instead, I think the issue McDonald’s is facing is not a few cents here and there — it’s that we’re at the beginning of the end of the era of greasy fast food.
Give the People What They Want: Healthier Food
With grocery prices dropping, fast-food prices rising and people generally wanting to eat healthier, fast-food chains have seen pretty dramatic decreases in sales over the last few years.
And it just doesn’t seem like cheap soft drinks are going to be the pièce de résistance. In fact, soft drink sales hit a 30-year low in 2016.
However, vice president of marketing for McDonald’s, Adam Salgado, is optimistic that the lower drink prices will work to bring more customers through those golden arches.
“We know that there are budget-conscious consumers out there,” Salgado told Fox News. “Value will always be a part of our strategy.”
So will cheap sodas and smoothies be enough to drive McDonald’s sales back to a level the chain is comfortable with? Well, that remains to be seen.
In the meantime, McDonald’s is putting up a pretty good fight.
Your Turn: Will you take advantage of that $1 soda?
Grace Schweizer is a junior writer at The Penny Hoarder. No false pretenses here: She’s a slave to the sheer convenience of the McDonald’s Dollar Menu.
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Tax Benefits of Caring for an Aging Relative
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The Ultimate Guide to Filing Your Taxes If You Drive With Uber or Lyft
While you’re busy buzzing around town picking up your Uber or Lyft fares, don’t forget: The deadline for filing your taxes is right around the corner.
When you signed up to drive with Uber or Lyft, you became an independent contractor for the company. That means you’re self-employed. Yay!
It also means you’re responsible for your own taxes and all the paperwork that comes with it. Boo.
I’ve been working for myself (although as a writer) for a long time, so I can tell you how to file independent contractor taxes — it isn’t as bad as it sounds.
Of course, even if it was, it’s not like we have a choice, right?
So let’s get to it.
Gather Your Paperwork
In addition to hoarding pennies, I highly encourage Uber and Lyft drivers to hoard whatever paperwork you think might even possibly come in handy at tax time.
You can always toss what you don’t end up needing.
Before sitting down to do your taxes, go round up:
- Mileage logs
- Gas and car maintenance receipts
- Proof of insurance
- AAA membership documentation
- Car payment information
- Your vehicle’s license, title and registration
- Mobile phone payment documentation
- Receipts for tolls and parking
- Any additional Internal Revenue Service worksheets you may need
Track Down Your 1099s
As an Uber or Lyft driver, there are two types of 1099s you need to know about: 1099-MISC and 1099-K.
A 1099-MISC is a form companies are required to file with the IRS when it pays an independent contractor $600 or more during the tax year.
This income is not from rider fares, but instead covers stuff like driver incentives, referral programs or bonuses.
A 1099-K form reports the amount of money you received from rider fares. Lyft is very specific — if you earned at least $600 in gross receipts during 2016, you’ll get one of these.
This form reflects the total fare amount before Uber or Lyft takes out its commissions and fees, so be sure to deduct those before you calculate your total gross fares on your tax return.
You’ll find Uber’s breakdown of its commissions and fees on the Uber Tax Summary sheet you’ll receive with your 1099s.
Companies must file 1099s with the IRS by Jan. 31, so yours should already be available from Uber or Lyft now.
When you signed up to drive with Uber, you were given the choice between having your 1099s mailed to your address on file or or via electronic download. If you haven’t received yours yet, log into your driver account and check for a message from Uber for details on where to find it.
For Lyft drivers, accessing your 1099s is as easy as logging into your Driver Dashboard and printing them out
Decision Time: Standard or Itemized Deductions?
When filing your taxes as an Uber or Lyft driver, you can take a standard deduction that includes expenses associated with using your car for work — think fuel, insurance, maintenance and repairs.
Alternatively, you can itemize every expense you incurred during 2016.
Not sure which option is best for you? Bust out the calculator because it’s math time!
Begin by calculating your standard mileage for the year. If you know how many miles you drove for Uber or Lyft in 2016, the formula is easy.
The 2016 standard mileage rate when using your car for work is 54 cents per mile. (That figure went down on Jan. 1, 2017, so be sure to use the correct rate for the 2016 tax season to get the most bang for your buck.)
Next, crunch the numbers to see what happens if you itemize your individual expenses.
If you use your car “for both business and personal purposes, you may deduct only the cost of its business use,” according to the IRS.
Unless you only use your vehicle when driving with Uber or Lyft and leave it parked the rest of the time, you’ll need to figure out what counts specifically as a work expense.
This is where all that paperwork you gathered will come in handy.
The IRS allows you to itemize “gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments).” Tolls and parking expenses are a separate but allowable deduction.
In many cases, you can also write off your smartphone, maps, business cards, and even gum or candy you hand out to your passengers.
There are some exceptions, though, so check with a tax professional to see if those Altoids you give out on Friday nights qualify as a deduction.
If you decide to itemize your deductions, hang on to all the receipts and paperwork you used to make your calculations in case Uncle Sam comes calling for an audit.
Consider Getting Expert Help
Figuring out all this tax stuff isn’t easy.
A lot of people hate doing their taxes. I mean, really hate it.
There’s no shame in getting expert to help you figure out how to get your taxes done.
You might even qualify for a bigger refund than you expected.
Why? Well, in addition to vehicle expenses, independent contractors often qualify for several other deductions, including payments for health insurance premiums and home office expenses. A tax preparer can help you work it all out.
Think of it this way. You could spend hours poring over the nuances of tax law — or you could turn it over to a professional and get back out there making money from Uber or Lyft fares.
A tax preparation service like TaxAct prepares and files your federal taxes for only $37. (H&R Block charges nearly $55 to prepare a filling for self-employed workers and TurboTax is as high as $90!)
That price even includes unlimited phone support, in case you want to discuss the specifics of your situation with someone.
Don’t Wait Until the Last Minute
Whether you do your own taxes or bring in someone to help, don’t put it off.
If you owe money on your taxes and miss the filing deadline, you’ll get hit with interest and penalties that will only make the situation worse.
Your turn: Is this your first year filing taxes as an Uber or Lyft driver? #TeamStandard or #TeamItemize?
Disclosure: This post includes affiliate links. We’re letting you know because it’s what Honest Abe would do. After all, he is on our favorite coin.
Lisa McGreevy is a staff writer at The Penny Hoarder. She likes bringing you this information, but she is not a tax preparer, and this is not legal tax advice.
The post The Ultimate Guide to Filing Your Taxes If You Drive With Uber or Lyft appeared first on The Penny Hoarder.
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Bummed About Your Finances? It Might Have to Do With Your Political Views
Roughly half of everyone who took a new Experian survey expect their personal financial status will improve in the next four years.
The notion that Americans are pretty evenly divided on matters of their personal financial health, or anything else really, isn’t really news.
But it gets really interesting when you sort the responses by political party.
This is Experian’s partisan breakdown of who believes their financial status will improve in the next four years.
- 77% Republican
- 44% Independent
- 19% Democrat
Now, before anyone starts reading too far into those numbers, consider this: Supporters of the dominant party in power typically have the most optimistic personal financial outlook.
A Pew Research survey conducted in June 2012 (during a Democratic presidency) found “72% of Democrats expected their finances to improve over the coming year, while just 13% thought things would get worse.”
Americans are Taking Post-Election Financial Action
Once the November elections ended, 55% of Americans got busy taking a variety of financial actions.
- 20% read news articles on how a new administration affects the economy
- 9% started a budget
- 6% checked their credit score
- 2% increased their retirement contribution
Surprisingly, only 1% of those surveyed sought out a financial advisor.
That number is so low it hurts my eyes.
It’s always a good idea to get occasional financial advice, whether it’s from a professional advisor or your favorite personal finance website (ahem).
Every Financial Improvement Helps — No Matter How Small
Small-scale changes like making a budget or checking your credit score are terrific ways to get — and keep — a handle on your money.
Some survey respondents took their post-election actions a step further and say they’ll “make a drastic financial change in the next four years.”
- 43% plan to get a better-paying job
- 43% will increase their overall savings
- 39% say they’ll decrease spending
- 33% plan to pay off debts or loans
- 31% will get a second job
Respondents who feel less optimistic about the future say they’re most worried about not having enough money for retirement, medical bills, or to support a family — all relatable issues for most of us.
Those respondents say they’ll cut back on expenses, downsize their homes, get a roommate, or borrow money when they start to feel the financial pinch. In other words, they’ll do the same things a lot of Penny Hoarders do when money is tight.
Experian’s survey began as a look at whether your political preferences determine your financial confidence. It concluded that, when it comes to money worries and goals, Americans are pretty similar, regardless of party.
Group hug, everyone.
Your turn: Do your political views affect how you feel about money?
Lisa McGreevy is a staff writer at The Penny Hoarder. She upped her 401(k) contribution after the election but still worries about her retirement fund. She’s probably hugging her cat right now.
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Drink Up! (Or Not): Are Cruise Drink Packages Worth the Cost?
I go on a lot of cruises.
So one of the questions people ask me most frequently is whether drink packages are worth the cost.
My answer? It depends.
Most cruise lines include basic beverages like coffee, tea and water with the fare because, honestly, they don’t want passengers falling over on deck from dehydration.
But when it comes to Frappucino lattes or finely aged port, you’re going to need to pony up some cash.
Coffee, Tea or Wheeeee!
A lot of cruisers enjoy a poolside drink (or more — ahem) or a cocktail with dinner. Others like to sip fancy coffees or chug soda all day.
Prices vary wildly by cruise line and drink type so it’s virtually impossible to list them all here.
Here are some baseline individual prices on popular beverages to help you calculate how much you could spend on drinks per day:
- Soda — $4
- Latte — $4
- Domestic beer — $6
- Mixed drink — $10
- House (okay, ship) wine — $12
You can certainly buy sodas, Americanos or cocktails one at a time. But if you plan on ordering more than a couple during the course of a day, it might make more sense to buy your beverages in bulk.
Oh, yes — I’m talking about a drink package.
How Do You Wet Your Whistle?
While some cruise lines offer them as part of the ticket price or as a promotional deal to entice customers, drink packages are typically something you’ll need to purchase at extra cost.
Whether cruise drink packages are a bargain for you depends on how much you drink and and what kinds of drinks quench your thirst.
Give Me All the Drinks
If you love a variety of both boozy and non-alcoholic drinks, then an all-inclusive package is the one for you.
From fresh-squeezed orange juice and specialty coffee in the morning to fine scotch and umbrella drinks at night, these packages cover pretty much everything.
Carnival
Price: $49.95 per person, per day, if you buy before boarding. It’s $54.95 per person, per day, if you buy on board. Both packages include a 15% gratuity.
The CHEERS! package includes any alcohol on the ship that’s priced $50 or lower per serving. It also includes smoothies and virgin frozen drinks, soda, juice, specialty coffees and teas, a variety of bottled waters, even energy drinks to keep the party going all night.
CHEERS! also snags cruisers a 25% discount on bottles of wine and champagne, cocktails priced over $50 and tickets to beverage classes and seminars.
Disney
Sorry, Disney cruisers, you’re out of luck. This line doesn’t offer an all-access drink package.
Norwegian
Price: $79 per day, plus an 18% gratuity.
The Ultimate Package includes soda, beer, wine, spirits, and cocktails priced $15 or less.
Royal Caribbean
Price: $55
Royal’s Deluxe Package includes juice, soda, premium coffees and teas, bottled water, beer, wine and cocktails priced up to $12.
Cruisers with the Deluxe Package also get 40% off bottled wines up to $100 and 20% off bottled wines over $100.
Just Wine, Thanks
If you prefer vino over mixed drinks, a wine package may be right up your alley.
Carnival
Carnival’s wine package prices are based on the length of the cruise. On trips six days or less, prices range from $77 to $114 for three bottles, depending on the brand labels you choose. On trips seven days or longer, the price range jumps up to $193.
Disney
Like Carnival, Disney’s wine package prices are based on the length of your cruise. Classic Packages range from $89 to $199, while Premium Packages will set you back anywhere from $136 to $309, depending on the kind of wine you choose.
A 15% gratuity will be applied to all packages.
Norwegian
Instead of a stand-alone wine package, Norwegian rolled vino into a $59 per day combo package that also includes beer and soda. An 18% gratuity will be applied.
Royal Caribbean
Bummer, wine lovers. Royal doesn’t currently offer any packages exclusively for wine.
Here for the Beer
Not many cruise lines offer beer-only drink packages, but cheer up! They don’t ignore beer lovers all together.
Carnival
Carnival doesn’t currently offer any beer packages, so its CHEERS! program might be the best option.
Disney
If you pay $14.95, you’ll score a snazzy souvenir mug you can refill with 21 ounces of beer for the 16-ounce price at any bar on the ship.
Norwegian
There’s no beer-only package on Norwegian, but you can snag the beer, wine and soda combo package for $59 per day.
Royal Caribbean
Royal doesn’t have beer-only packages, but many ships in its fleet offer buckets of beer for a discount off the per-bottle price.
For the Non-Booze Cruisers
Teetotalers need love too. Check out these non-boozy packages for kids and people who prefer to skip the sauce.
Carnival
The Bottomless Bubbles unlimited soda package for adults is $6.50 per day. The price drops to $4.95 for passengers 17 and younger.
Bottled water is available for purchase and delivery to your stateroom. A 12-pack of 16.9-ounce bottles is $4.50.
Disney
Soda, coffee, tea, hot chocolate, milk and juice are available at no cost from any dining area on the ship. Complimentary soda is also available at the teens-only lounge.
Norwegian
The Adult & Teen Soda Program is $7.50 per day. The Children’s Soda Program is $5.50 per day for kids 12 and under. Both options include a nifty, souvenir thermal mug.
Royal Caribbean
Soda packages are $8.50 per day for adults and kids and include a cool souvenir insulated cup. Large and small cases of Evian bottled water are available for delivery right to your stateroom starting at $39.
For the DIYers
Most cruise lines allow passengers to bring a limited amount of wine, champagne or non-alcoholic beverages with them when they board.
Each line has its own policies, so be sure to check with them before you arrive at the port to find out what’s permitted and what’s not.
Carnival
- 12 12-ounce cans or cartons of non-alcoholic beverages like juice, milk and soda
- One 750-milliliter bottle of unopened wine per adult
Disney
- 2 bottles of unopened wine or champagne (no larger than 750-milliliter) or six 12-ounce beers
Norwegian
- Passengers may bring their sealed bottles of wine but will be charged a corkage fee per bottle: $15 for a 750 milliliter bottle or $30 for a 1,500 ml Magnum bottle
Royal Caribbean
- Two bottles of unopened wine or champagne (no larger than 750 milliliters).
Pros and Cons of Cruise Drink Packages
If you’re still on the fence about whether to get a beverage package, consider your ship’s itinerary.
If your trip is port-intensive, you won’t be on the ship most days to use your package, so it may not be worth the expense.
One exception: Drink packages are usually valid on private islands owned by the cruise line.
There are a few pros and cons to think about that may help sway your decision in one direction or the other.
Pros
- A fixed cost means no huge surprise bar tab at the end of the cruise.
- Access to a variety of drinks, brands and flavors to indulge whatever you’re in the mood for at the moment.
- Try new drinks risk-free. If you don’t like it, you’re not out the money for a beverage you’re not going to finish.
Cons:
- It’s easy to fall into the trap of feeling like you have to “get your money’s worth,” so you might end up drinking more alcohol or calorie-laden soda that you usually do.
- Some of the well and house alcohol is, to be honest, complete crap. It can range from kinda lousy to outright undrinkable.
- The really expensive stuff isn’t usually included, so if your heart is set on quaffing Johnny Walker Blue for a week, expect to pay extra for it.
- Certain cruise lines, like Carnival and Norwegian, require that when one guest in a stateroom purchases a drink package, every adult staying in that stateroom must also buy a drink package.
- Some unlimited drink packages aren’t so unlimited after all. For example, Carnival passengers are limited to 15 alcoholic drinks per day.
Skip the Tricks, Not the Tips
A few more things to keep in mind:
- If you’re tempted to be tricksy and smuggle prohibited beverages on board or secretly share a drink package with someone else, take my advice. Don’t do it. Passengers try all kinds of weird stuff to get around paying for drinks on their vacation, but cruise lines have seen everything. Assume they’re on to you too.
- Most drink packages include a built-in gratuity for your servers. If you can afford to tip an extra dollar or so on every drink you order, you’ll be doing the hard working servers a huge favor that’ll almost certainly be reflected in extra-special service.
- Read the fine print before you buy (and before you’ve had your first drink). That’s where you’ll find the final word on costs and fees, along with other important information like whether the stuff in the mini bar is included in your package (probably not).
A final note: The packages and prices I’ve listed here are merely a guide. They change all the time, so please check with the cruise line directly before you cruise for the most up to date information.
Happy sails!
Your turn: Have you ever bought cruise drink packages?
Lisa McGreevy is a staff writer at The Penny Hoarder. She has around 28 insulated souvenir cups from her cruises so she clearly digs a drink package when she sails.
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31 Days to Financial Independence (Day 28): Handling the Long Valley
“31 Days to Financial Independence” is an ongoing series that appears every Thursday on The Simple Dollar. You might want to start this series from the beginning!
Last time, we took a deep look at tactics that a person might use when handling a personal crisis. Things like a death in the family, a car breakdown, a job loss, or a personal illness can have a real impact on a person’s finances, so we looked at how a person on the road to financial independence – particularly people on the beginning stages of that path – can handle a life crisis.
Today, we’re looking at something completely different, a topic that isn’t often handled by “financial turnaround” guides, but a topic that I consider absolutely vital.
It’s the long valley.
The long valley is merely a term I use to describe that long period between the end of the “honeymoon” phase and actually approaching your final goal.
During that initial “honeymoon” phase, the changes you’re making in your life to achieve that goal seem exciting. You’re engaged with the life transformation that’s happening. You’re reveling in every small success. In short, you feel like someone newly married on their “honeymoon” – joyful and happy with this new chapter in your life.
During the final approach, you’re full of a lot of anticipation. That big goal you’ve been working for is now in reach and you can almost taste it. You’ll often start cranking up your efforts to get over that final hurdle just a bit faster. If you’ve ever seen someone start to raise their pace near the end of a marathon, you know what this is all about.
But what about that leg in the middle? You don’t have that “honeymoon” vibe, nor are you close to your goal. Instead, you’re in the “long valley,” where the freshness of the start is well behind you but the big goal is still far off on the horizon.
Most grand goals fall apart in the long valley. They start off like a house on fire, but when that newness of the change wears off, you’re left with a long and unexciting path, a path that’s often not the easiest path. There’s a lot of work ahead, a lot of tough choices to be made, and with a very long path trailing off into the future, it can feel really disheartening.
This happens all the time with financial turnarounds. People are thrilled at first with the initial impact of all of the changes they’re making. Often, they were in the midst of a real financial struggle and those initial changes gave them some much-needed breathing room. The immediate stress in their life took a nosedive.
Then, over time, the newness wears off. They start to miss some of their old “treats” and old routines. They feel disheartened by the distance between where they’re at now and where they want to be.
And so, slowly, things begin to fall apart. They go out for a treat, and then another. The drops become steady, then they become a trickle, then they become a flood. The original goals are all washed away and the old routines are back in place, and a few months later that person is left wondering what happened to all of their nice financial progress.
The biggest key to long-term financial success is to figure out how to get through the “long valley.” If you don’t have a plan for how to handle that valley, it’s extremely likely that you’re going to meet failure when the “honeymoon effect” wears off.
Exercise #28 – Handling the Long Valley
What can you do, then? How can you make the “long valley” manageable, when the newness and excitement of a goal has worn off and you’re facing a long path full of obstacles?
Here are a dozen strategies that will keep you on the path through the longest of valleys.
Automate as much of your financial life as possible. If you’ve gone through the typical “honeymoon” period with a financial turnaround, you’ve likely made a number of moves that will have reduced your bills. Maybe you’ve paid off a few debts. You may have lowered the interest rates on some debts, too. You might have made some energy improvements to your home or cancelled some of your subscriptions.
Those changes result in a significant reduction in your regular bills each month. The money that comes from those reductions in expenses forms the bedrock of your financial progress going forward.
The catch, of course, is that if you falter in the long valley of your financial journey, that money will be spent on things that aren’t in line with your big goals. The most powerful safeguard you have against that kind of faltering is to automate your goals.
If you’re saving for retirement, automate a payment to your Roth IRA or bump up your contribution to your 401(k). If you’re trying to achieve debt freedom, set up an automatic extra debt payment each month. Those payments should roughly equal the total amont that you’re saving due to your positive financial moves during the “honeymoon.”
For example, let’s say that you cancelled several subscriptions and memberships and bills that added up to an average of $120 a month and you paid off a debt that had a $100 per month bill coming in. That’s $220 a month that’s saved. You can set up an automatic contribution of $55 per week into a Roth IRA, which will slurp that $220 a month gradually out of your account. You’re never tempted to spend it because it really never has a chance to be spent.
The nice thing about automating your bills is that you remove your conscious choice from the equation when it comes to deciding whether to add money to savings or to make an extra debt payment. It just happens automatically – you don’t have to think about it. In fact, you have to make a conscious choice to turn it off, something that most people won’t want to do unless things are dire.
To put it simply, automation “locks in” your good financial moves. It takes the money that you’re saving through the cancellation of bills and paying off of debts and other smart moves and automatically puts it somewhere worthwhile.
Put lots of minimal effort money saving strategies into place. One of the biggest challenges in the “long valley” is the idea of consistent effort. People often begin to falter when they see that their life going forward is going to be a constant flow of extra effort all of the time. It can feel like a big drain on your life.
That’s why financial choices that require no additional effort or minimal additional effort beyond that initial action are really good choices. If you can do something once and it continues to save you money – even at a trickle – going forward, then it’s probably a really good move.
Almost all energy saving strategies fall into this group. When you replace your light bulbs with LEDs, you’re doing it once, but the energy use falls permanently and you feel it with lower energy bills. When you install windows that insulate your home better, you feel it going forward with lower energy bills. Caulking your windows and installing weatherstrips at the edges of drafty doors fall into this category, too.
Cancelling memberships often falls into this category, too. Cancelling the auto-renewal on an unused gym membership takes only one action, but then you’ve eliminated a constant drain on your finances.
The goal here is to find things that will save money that really only require one significant one-time effort. It’s very easy to sustain those changes. It’s much harder to sustain changes that require a constant input of effort.
Don’t completely abstain from treats. During a “financial honeymoon,” people often completely deprive themselves of all treats and splurges because they’re giddy with a sense of financial success. That’s a mistake that will completely destroy you once you enter the long valley.
Sure, you can choose to skip treats during your “financial honeymoon,” but that should never become the norm. Instead, what you want to seek is a better balance. You do want to throw away some of the low-reward treats – things that really aren’t adding much value to your life – but the high-reward treats should actually stay in your life.
For example, I still love buying books sometimes. I still love buying notebooks and journals and pens. I still love buying a board game every once in a while. I still love going out to dinner with my wife. And I do those things.
The thing is, I don’t do them as often as I used to. Instead, I’ve simply spread them out so that they individually become bigger treats. It’s sweet when I get a new book or a new board game. I also find myself focusing more on the experience I get from having those things and using them rather than the burst of pleasure I get from buying it. For instance, I consciously redirect my desire to buy a new book to instead look at the unread ones on my bedside stand. I redirect my desire to buy a game to the ones on my shelf that are unplayed or have only been played a time or two.
Don’t abstain from treats. Instead, simply be more selective with them.
Actively build a fresh social network out of people who make wise financial choices. Most of the social network I have now is made up of people who have made good financial choices. My three closest friends (besides my wife, of course) are people who managed to pay off their home and all of their student loans in their thirties and are now saving for big goals like retirement or financial independence.
Surrounding myself with those people makes it much easier to make good financial choices. I can actually feel the difference if I happen to spend more time for a while hanging out with people who are less conscious of their financial decisions. I find myself desiring more stuff and considering things like new car purchases, whereas I don’t normally think about such things.
The truth is that you really are the average of your five closest friends, and thus your five closest friends should be cultivated carefully in order to represent people who have attributes that you want to have. Your friends should be the kind of people you want to be, in other words, and if you want to be someone on the path to financial independence, then you should try to build close friendships with people on that same path.
How do you find people like that? You look in places where such people would congregate. You’ll find them in community organizations. You’ll find them in book clubs. You’ll find them at volunteer events. You’ll find them at meetups. Look for social events that don’t require spending money just to get in the door. Look for social events that are also centered around doing things beyond merely socializing.
In other words, you generally won’t find people oriented toward financial independence hanging out at the coffee shop or the bar every night. You probably won’t find them at events that cost a lot of money to get into. That’s not to say there aren’t a few people at such events who are financially minded, but that financially minded folks tend to avoid such events and look for other options.
Chart your progress over time. One of the most powerful motivational tools I’ve ever found for keeping myself on a positive path is to chart my progress over time. I find a number that represents my continued success and focus on tracking that number.
For my own financial journey, that number is my net worth. I find a great deal of value in tracking my family’s net worth each month. Net worth, for those unfamiliar, is simply the total value of all of our significant assets – our house, our savings accounts, our investment accounts, our automobiles, our valuable possessions – minus the total value of all of our debts (right now, that’s zero).
I have been calculating our net worth every month since 2006. Almost every month, it has gone up; the only months where it hasn’t have involved huge unexpected expenses or big dips in the stock market. Knowing that our net worth is going up each and every month is a really powerful motivator for us to stay on our current path. I know that when I look at those long term numbers, especially when I see our negative net worth in 2006 and 2007 as compared to our obviously positive net worth today, I feel a ton of pride in our progress. I also feel a lot of pride during any month when our net worth goes up, especially when it’s going up significantly more than what I can attribute to the stock market.
Depending on your goal, you may want to track a different number. Maybe you just want to track your total debt. Perhaps you want to simply track your savings for a down payment. Maybe it’s something else entirely.
Whatever it is, start tracking it somewhere. On the first of each month, write it down. Keep it in a Google document so you can access it wherever you are. You’ll find that looking at the positive progress of those numbers fills you with a surprising amount of pride and joy, and you’ll also find that you don’t want to let down your streak of positive months. It’s a great mental motivator.
Don’t focus on the distance from your goal, but on your distance from your origin point. Often, goals that revolve around financial independence have huge numbers associated with it. You might want to have a million dollars in savings before you retire, and when you compare that number to your current savings and the amount you can put away each year… yeah, it feels overwhelming.
A much better approach, especially early on in your trip through the long valley, is to not focus on the goal, but on the growing distance between where you’re at now and your starting point.
Let’s say you start with a net worth of $0 and your goal is $1,000,000 in total net worth. After the first month, your net worth is $1,000. If you’re looking at the end goal, wow, that looks like a long way to go. It’s easy for it to be disheartening.
Look back instead. You went from nothing to something. You now have a positive net worth. That’s something that probably hasn’t been true for you for many years.
Now, look at the next month. Maybe you managed to increase your net worth to $2,200. Looking ahead to $1,000,000 is painful. But look back instead. Two months ago, you had nothing. Now you have enough to live on for a month – yeah, it might be tight, but you could do it. Not only that, it’s speeding up! It’s accelerating! Your net worth grew more this month than last month! You’re improving, you’re making good moves, and here’s the proof of it, right here!
In general, it’s much better to compare yourself to whichever end of your journey that you’re closest to. As you approach your goal, it might even be useful to simply track the distance between where you’re at and the goal and watch that distance shrink each month.
Maybe in several years, you have a net worth of $700,000 and your goal is still $1,000,000. That means your distance left to go is $300,000. The next month, your net worth grows by $4,000. You now have a net worth of $704,000 … but your distance dropped to $296,000. You’re closing in on that goal! By percentage, the distance to your goal is going to shrink at a faster rate than your net worth is going to grow.
Directly wrestle with your negative thoughts. You’re going to think negative thoughts during that journey. There are times where you’re going to feel that the progress is just too slow, that it’s just not going to happen. You’ll have a bad month – often for reasons outside of your control – and you’ll feel like it’s time to just throw up your hands and give up. You’ll be tempted by some silly unnecessary thing and it’ll happen during a moment where you’re not feeling quite so positive about your goal. You’ll make mistakes. It will happen.
Rather than letting those negative thoughts fester and become destructive, tackle them head on. Give them some real, deep thought. I find that journaling helps a lot with this. I write down my negative thoughts and then slowly and intentionally look for holes in that negative thinking.
Journaling may not be the best way for you to do it, but this kind of deep reflective thought is one of the best ways to destroy negative thinking. If you just keep putting off those thoughts instead of taking them on and cutting them down, those thoughts will just build and build until they become overwhelming and you convince yourself to abandon your goals.
Don’t let that happen. When doubt and sadness and temptation creep in, address them directly as soon as you can. Give real thought as to the reasons behind your goal and whether your tactics make sense. Give real thought as to whether that self-criticism makes sense, too. Dig into your temptations and figure out if they’re real or if they’re just short-term whims calling out to you.
Quite often, time spent in reflection cuts through those negative feelings and thoughts like a hot knife through butter. Reflection makes it so much easier to stay on the path when you’re in the long valley. Consider incorporating some kind of daily deep reflection in your own life, whether it’s journaling or focusing on those questions while commuting or exercising.
Next time, we’ll take a look at what you can do when your goals start changing.
Related Articles:
- Five Strategies for Handling Slow Progress Toward Your Goals
- The Power of Cutting a Goal in Half
- Finding Something New on the Long Financial Journey
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Trump: National Budget a 'Mess' but Says He Has a Plan to Fix It
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Barclays profit trebles but PPI payouts hit £6.5bn
Profits at Barclays increased dramatically in the last year, although the bank continues to pay out large amounts of payment protection insurance (PPI) compensation.
In its annual statement published today, the bank said that by the end of 2016 it had paid out a cumulative £6.46 billion in compensation to customers who had been mis-sold the product.
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Get expert investment tips in March’s Moneywise, on sale now
Whether you’ve got £50 or £50,000, March’s Moneywise magazine is bursting with expert tips to to grow your money.
The latest issue, which includes a free guide to individual savings accounts (Isas) to help you decide what to do with your savings before the end of the tax year, goes on sale in WHSmith stores from today for just £3.95.
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What the Heck is a HELOC? Here’s Exactly What You Need to Know
The first time Laura Agadoni used a home equity line of credit — aka a HELOC — was to finish the basement in her suburban Atlanta home.
Whenever she had to pay contractors, she used the $20,000 line of credit.
“By doing so, we added value to our home using the equity in our home,” she said.
Most recently, she used a HELOC to help buy an investment property. She’s using the rental income to pay off the debt.
“I like the flexibility of having a big line of credit available to me in case I need to or want to use it,” she said.
So, what the heck is a HELOC anyway? It’s a good question and one that a lot of homeowners — even those who already have HELOCs — are asking.
A recent survey conducted by TD Bank found that many borrowers didn’t fully understand the details of their HELOC or misunderstood the terms of their line of credit.
Get informed and read on to learn more about HELOCs.
What is a HELOC?
A home equity line of credit (HELOC) is just that — a line of credit. Think of a HELOC like you would a credit card: You use it to make purchases, and then pay for those purchases later.
Unlike a credit card, which is unsecured debt, a home equity line of credit is secured because it’s backed by an asset with value: your house. When you make your mortgage payment each month, and as the market value of your home goes up, you’re building equity. A HELOC allows you to borrow against that equity.
Once you’ve been approved for a HELOC, you can borrow as much or as little as you need. This is what sets a HELOC apart from a home equity loan, in which the bank lends you a lump sum. With a HELOC, you don’t borrow it until you need it.
How Do Lenders Calculate Your Line of Credit?
Typically, lenders use your loan-to-value ratio to determine the size of your HELOC, according to Casey Fleming, a mortgage advisor for C2 Financial Corp. and the author of the book “The Loan Guide: How to Get the Best Possible Mortgage.”
Many banks will only offer a HELOC that keeps your total loan-to-value ratio at or below 80%. Some, such as the Pennsylvania State Employees Credit Union, will go as high as 90%.
Loan-to-value is easy to calculate when you just have a mortgage. Simply divide your current loan balance by the current value of your home. A loan balance of $100,000 for a home that’s appraised for $200,000 means you have a loan-to-value ratio of 50%.
If you want a HELOC, you’ll have to factor that amount into your loan balance. If you wanted to take out a $25,000 home equity line of credit, you’d have a total loan balance of $125,000 on a home valued at $200,000. Your new loan-to-value would be 62.5%.
In this scenario, if the lender will let you borrow up to 80% loan-to-value, you could be eligible for a $60,000 line of credit.
Lenders may also factor in your debt-to-income ratio, meaning how much debt you have compared to how much money you bring in, Fleming said. They may also look at your credit score.
A note: You’ll likely pay some of the same fees you paid for your first mortgage. According to the Federal Trade Commision, you could be on the hook for a new appraisal, title search, application fee and other charges.
Some lenders, such as Chase, will charge you an annual fee (Chase’s is $50). You could also see a prepayment penalty or an early closure fee if you close the line of credit within a certain number of months. Sound Credit Union in Washington, for example, charges a $345 fee is you close your HELOC within 24 months.
Of course, these fees can add up fast, so be sure to get a sense what your HELOC will really cost you before taking the plunge. And don’t forget to shop around to see who can offer you the best rates and the lowest fees.
How Does a HELOC Work?
Once you’ve been approved, you can start using your line of credit as you need it. This period is called the draw period and typically lasts between five and 10 years. During the draw period, many lenders allow borrowers to make interest-only payments.
Once the draw period ends, you cannot borrow more money and enter the repayment phase. You may be required to make a large, lump-sum payment on the outstanding balance (known as a balloon payment) or begin making monthly payments toward principal and interest, depending on the HELOC’s original terms.
Some borrowers are unprepared for the repayment period and may be surprised when their monthly payment goes up because they’re also paying principal, not just interest.
Of course, maybe you want to keep your line of credit and extend the draw period. Many lenders will do this, so long as your home still has enough equity and your financial health hasn’t tanked. Typically, a lender will “pay off” your old line of credit by simply extending you a new one, says Fleming.
What About Interest?
Most HELOCs have variable interest rates, which means they go up and down based on a financial index, typically the prime rate. Some banks will add a few percentage points, called a margin, to the prime rate. The current prime rate is 3.75%.
Many HELOCs also have interest rate minimums and maximums. Fleming said it’s typical for a rate cap to be set at 18%, though he noted that the prime rate hasn’t been in the double digits since the 1990s.
HELOCs typically offer lower interest rates than other forms of credit, said Jeffrey Hensel, a hard money lender at North Coast Financial Inc. The national average for credit card rates is roughly 15%, according to CreditCards.com.
“Another pro of HELOCs is that the borrower is only charged interest on the amount of funds currently taken out of the credit line,” Hensel added. “When the borrower deposits the borrowed funds back into the credit line, the interest stops accruing on that amount.”
How Can You Use a HELOC?
You could use a home equity line of credit to pay for anything, but that doesn’t mean you should. One of the most common uses for HELOCs is to finance home renovation projects or pay for major home repairs. A HELOC can also serve as a backup to your emergency cash fund.
They are sometimes used to pay down debt with higher interest rates, though not all experts agree on whether this is a good idea.
“I see this as a tool for people with a good or excellent (financial) track record,” said
Philip Lee, a Massachusetts-based wealth manager for Financially In Tune. “I caution against borrowing money if there is a fundamental issue with credit or spending. If people have spending problems, the use of a HELOC may simply make the situation worse off.”
It’s also probably not a good idea to buy a car, finance a vacation, or pay for other short-term items with a HELOC, advises Ryan Frailich, a financial coach and planner for Deliberate Finances.
Unlike a home renovation project, which will add value to your home, these items begin depreciating immediately or have no value. You could be paying for a new car long after you stop driving it, for example. And, if you don’t have the cash now, what’s to say you’ll have the cash to pay down your HELOC debt once the repayment period starts in 10 years?
“If you’re borrowing against your home for consumer goods, you’re negating that big benefit (of home ownership) of forced savings,” Frailich said.
Home Equity Loan vs. Home Equity Line of Credit?
As we discussed above, in addition to a home equity line of credit, you can also get a second mortgage in the form of a home equity loan. With a loan, you’re looking at a lump sum, a fixed interest rate and monthly payments that won’t change over the years.
Home equity loans are used for similar reasons, typically home renovation projects, paying off debt with a higher interest rate, etc. If you know exactly how much you need to borrow, and you have the money to make regular monthly payments of both principal and interest (on top of your first mortgage), you might go with a loan instead of a line of credit.
There are no surprises with a home equity loan, which allows you to plan out your monthly expenses well into the future. With a HELOC, many homeowners get used to 10 years of interest-only payments and then feel a squeeze when they have to start paying principal and interest after the draw period ends.
“You want predictable payments, and a schedule of repayment and have the cash flow to support it,” Lee said.
A home equity loan is also good if you don’t want (or can’t handle) the temptation of available credit — once you get your lump sum, that’s it.
Always keep in mind that both HELOCs and home equity loan can be risky, because if you can’t make your payments, you could lose your home. In fact, experts are predicting a wave of foreclosures in the coming years because so many people used HELOCs during the most recent recession. A RealtyTrac analysis found that more than 1.8 million homes with HELOCs opened between 2005 and 2008 are now seriously underwater.
So make sure you thoroughly consider all your options or consult with a financial expert before using a HELOC to pay for things.
Your Turn: Would you consider using a HELOC?
Sarah Kuta is an education reporter in Boulder, Colorado, with a penchant for weekend thrifting, furniture refurbishment and good deals. Find her on Twitter: @sarahkuta.
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Why Coworkers and Politics Don’t Mix
When is political chatter appropriate in the office? As Trent explains in a recent Reader Mailbag column, never. This is true even if you’re reasonably sure that everyone on your team has similar views. It’s just plain unprofessional.
Maybe you’re unconvinced, however. In that case, it’s useful to consider exactly why talking about politics at work is a bad idea:
It stresses people out.
An APA survey prior to the election found that 28% of younger workers reported being stressed out by workplace political discussions. One in five of all respondents said they’d avoided a coworker because of their political beliefs. Obviously, this is not a recipe for a calm, collaborative work environment.
Working with people means that you’re going to experience conflict at some point. By cutting politics out of the picture, you can focus on the conflict that’s truly necessary – and that produces results for the company.
You can’t be sure what people really believe.
Let’s say you work in the reddest red state, at a company where most employees appear to have consistently conservative political views. Talking about politics should be OK in such a homogeneous environment, right?
Not so fast. Even if you’re all registered with the same party, you probably don’t agree on every single issue in the political landscape today. For one thing, there are too many issues; for another, there’s no such thing as a large group of human beings that feels exactly the same way about multiple topics.
Finally, you can’t really be sure that your colleagues all agree. There may be some quiet folks in the group who prefer to keep their opinions to themselves. That’s a professional, respectful attitude to take. Don’t punish them for it by making them uncomfortable in the lunchroom.
Teamwork depends on feeling like a team.
To work together effectively, you have to feel like you’re on the same side. Realistically, you understand that you’re not going to hold the same views on politics as all of your colleagues. But there’s a difference between knowing your private views may differ, and hearing that your coworker thinks you’re wrong about things that are important to you. It’s hard not to feel separate from the team when you’re constantly being reminded of your divisions instead of your common ground.
It makes you look less professional.
Etiquette exists for two reasons: to ease social interactions by making everyone comfortable, and to demonstrate who knows how to behave.
Workplace etiquette has long held that people should not talk about politics at work. If you violate that taboo, you’re not only making your colleagues wish they’d decided to work from home today. You’re also sending a signal to your team – and your boss – that you don’t understand how things are done. That doesn’t make you look like someone who’s in control of their career.
Loose cannons don’t get ahead. Think of it this way: If you were in charge of promotions, would you choose someone who makes their coworkers nervous?
You could flip out.
Just talking about politics at work is unprofessional enough, but if you persist, you run into another potential pitfall for your career: You could get angry enough to behave badly, and that’s sometimes
hard to come back from.
Politics, like religion, is personal. Put yourself in the position of discussing topics that are deeply important to you, and you risk flying off the handle. That won’t help your argument or your career.
Regardless of our views, we tend to hold them pretty strongly. It’s easy to go from a civilized conversation about differing views to an all-out screaming match, even if you’re normally even-keeled. Your best bet is not to take the risk.
Related Articles:
- How to Salvage a Bad Day at Work
- Everyone Knows Stars Are Born at the Company Holiday Party
- Don’t Be the Kobe Bryant of Your Office
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Co-op Energy to up prices by 5% - but prepayment costs will fall
Co-op Energy customers on its standard variable tariff will be hit with average price rises of 5% from 1 April – but prepayment customers will see their bills reduced.
Price comparison website uSwitch says the 5% average increase will add £58 a year to the average dual fuel bill, taking average prices from £1,121 a year to £1,179 a year.
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