Today marks the first Fourth of July when state residents can legally purchase fireworks, business has been booming at fireworks shops, which have benefited from the recent law change.Greg Marino, general manager of Phantom Fireworks, said that knowledge of the legislation has been slow but residents are embracing their new-found freedoms.“We’ve definitely noticed an increase in the Pennsylvania customers,” Marino said. “We’re busy overall [...]
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الثلاثاء، 3 يوليو 2018
What ‘So Money’ Host Farnoosh Torabi Wants You to Know About Credit Scores
Better question: Are you sick of hearing us tell you over and over how important it is to check your credit report and know your credit score?
It may seem like we’re beating a dead horse, but the truth is, you can’t ball on a 450 credit score, and we’re committed to putting more money in your pocket so that you can be the baller you’re meant to be.
A survey released by the Consumer Federation of America and VantageScore suggests the advice is working. The percentage of respondents who said they’ve obtained their credit scores in the past year rose from 49% in 2014 to 57% in 2018.
Credit expert Farnoosh Torabi, who hosts the “So Money” podcast, says she isn’t surprised.
“There’s been momentum building ever since the recession,” she told The Penny Hoarder.
News coverage of rising interest rates impacts lending, which trickles down into people’s credit lives and wallets.
Another aspect fueling the rise is easy access to credit scores.
“I’ve been covering personal finance for all of my career, and back in the late ’90s and early 2000s, there was no go-to place to get your credit score as a consumer,” Torabi said. “But now, there are more ways to access it.”
Great, You Know Your Credit Score. Now What?
Knowing your credit score is nice and all, but it means very little if you don’t do anything about it.
But you all are doing something about it.
The number of people who’ve checked their credit score has increased, and so has the number of people taking steps to increase their scores, according to year-over-year findings from Chase Slate’s 2017 credit outlook survey.
These steps include paying off debt, keeping credit usage low and making an effort to pay down credit statements in full.
We can all agree it’s easier to take the initial steps to improve your finances when you know what’s going on and exactly what you need to do.
A Lot of People Are Still Confused About Credit
The Consumer Federation study showed large majorities could correctly identify three key factors used to calculate credit scores:
- Missed payments, 86%
- High credit card balances, 81%
- Personal bankruptcy, 79%
But significant minorities incorrectly thought that age (41%) and marital status (38%) are used in this calculation.
“Some people think the older they are, the better their credit score will be,” Torabi said. “I think they confuse that with the length of their credit history.”
A lot of people also incorrectly believed tax liens (64%), medical collection accounts less than 6 months old (62%) and civil judgments (63%) are used to compute credit scores.
Most people knew steps to take to improve your credit score, but little more than half (56%) knew all of them.
Here’s Why Credit Scores Are So Important
“Largely we think of credit scores and their ties to qualifying for homes, loans and credit cards, but there’s other stuff, too,” Torabi said. “I think if [people] knew the extent to which [their] credit score actually makes an impact, it would make people more interested to see what their credit score is, and learn how to improve it.”
When you sign up for cable plans or insurance, providers will often do a credit check to make sure you’re paying your other bills on time. And if you’re renting, landlords and property managers will also run a credit check and review your credit score.
But the biggest reason to know your score has nothing to do with what you want to do in the future. It’s all about what you’ve done — or rather, haven’t done — in the past.
Credit reporting mistakes and identity theft are common occurrences, and they’re not going away anytime soon.
So even if you’re not planning on buying a house, financing a car, or opening a credit card in the near future, it’s still super important to know your credit score and monitor your credit report.
At The Penny Hoarder, we publish no shortage of articles telling you why you should check your credit score, how to improve your credit score and how amazing life has gotten since so-and-so raised their credit score.
Maintaining healthy credit is just like maintaining a healthy body.
“If you’re trying to stay healthy in your physical life, you should get on that scale and face that number, as hard as it can be,” Torabi said. “Numbers don’t lie. [Your credit score] will give you the honest truth, and from there, you can improve.”
Jen Smith is a staff writer at The Penny Hoarder. She gives money saving and debt payoff tips on Instagram at @savingwithspunk.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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Today’s free cash comes from Personal Capital, a portfolio management site. It’s giving away a $20 Amazon gift card to anyone who joins and opens a free account.
The lawsuit was filed Friday in San Francisco, making it the latest in a series of lawsuits against the student loan debt collector. California Attorney General Xavier Becerra accused Navient of mismanaging the loans of as many as several hundred thousand borrowers.
The state accused Navient of steering borrowers who needed long-term help through income-based repayment plans into short-term forbearance.
Forbearance reduces or eliminates student loan payments for up to one year. However, interest continues to accumulate while a borrower is in forbearance, and when the period ends, the interest is added onto the principal. Over time, this could lead to more expensive monthly payments for borrowers and owing more over the lifetime of the loan.
According to the lawsuit, Navient’s training materials instructed its employees to use forbearance as a last resort to help those who needed temporary assistance. Instead, the lawsuit says, it was used as the first step for borrowers who needed the long-term help of an income-based repayment plan.
“In other words, Navient affirmatively ‘steered’ borrowers into harmful and inappropriate forbearances, reducing Navient’s operational costs while causing serious financial harm to borrowers,” the lawsuit reads.
Nationwide, Navient services the loans of about 12 million people.
The states of Illinois, Washington and Pennsylvania, along with the Consumer Financial Protection Bureau — the government office tasked with making sure customers are treated fairly by financial institutions — also have ongoing lawsuits against Navient.
“Navient exploited every family’s dream of witnessing our children graduate from college,” Becerra said in a statement before the suit was filed. “Navient’s loan servicing abuses have compounded the misery of parents and students who sacrificed to pay for college. Our students can’t afford to be cheated out of any more money than they legally owe simply because Navient knew how to game the system. We are ready to hold Navient accountable.”
While other state lawsuits accuse Navient of mismanaging both private and federal loans, the California filing focuses solely on federal borrowers.
The state also accused Navient of failing to discharge loans of borrowers with permanent disabilities who qualified for loan forgiveness, and misleading borrowers into thinking that any payment above the minimum due each month would go toward reducing the principal on the loan. The additional payments actually covered fees and interest first.
In a written statement, Jack Remondi, president and CEO of Navient, said the accusations were “unfounded.”
He instead said the problems California and the other state and federal lawsuits recognized were symptoms of “the failures of the higher education system and the federal student loan program to deliver desired outcomes.”
Remondi added that Navient has the lowest default rate in the industry. He said the focus should instead be on educating prospective students and their parents on the full cost of paying for a college education with a loan before the student enrolls in college.
Desiree Stennett (@desi_stennett) is a senior writer at The Penny Hoarder. She writes about how government and court actions impact your wallet.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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15 (or So) Simple and Extremely Practical Strategies for Saving Money and Improving Your Life
Over the last several years since I started The Simple Dollar, I’ve found myself trying out literally thousands of money and time and energy-saving strategies in order to seek out the best “bang for the buck” life that I can have. Some tips just didn’t work at all. Other tips were okay – saving a little bit of money or time or energy, but not resulting in a big win.
However, there have been some strategies that have just absolutely knocked things out of the park for me, becoming a strictly better way of doing things than the methods I was using before.
Recently, a reader wrote in and asked me if I had a list of the “best” strategies I’ve ever found and I realized I didn’t have a great article that covered just that. My tips tend to be spread out over lots of different articles.
So, I sat down to answer the reader’s question and I came up with fifteen very practical things I’ve changed or done in the last ten years or so that have had a profound positive and direct impact on my finances, my time, and my energy.
You’ve probably seen many of these strategies mentioned before, spread out here and there on The Simple Dollar. I’m mentioning them again because they work. In terms of time efficiency and “bang for the buck,” these strategies are well worth your time and energy.
Negotiate every single bill you have. Virtually every bill you have is something that can be negotiated. Your cable bill. Your energy bill. Your internet bill. Your credit card bill. Your cell phone bill. All of them have at least some room for negotiation in them, and by negotiating, you’re going to clear off a bunch of extra charges and save yourself money every single month.
The exact strategies for negotiating each bill are different. For bills with competitors, like your cell phone bill or your cable bill, call them up and simply say that you’re going to be switching to a new service soon and see what they can offer to keep you as a customer. Ask for any perks for new customers. For other bills with less competition (like your energy bill), look carefully through your bill for line items that seem unnecessary and then call them up to have some of them removed (remember, removing one $3 line item from your energy bill is $36 a year in savings for the foreseeable future – little savings add up).
If you’re negotiating a credit card interest rate, remember that they’re mostly interested in helping “good customers,” and by that I mean customers that carry a balance but also keep their bill paid. If that sounds like you, you have some leverage for a better interest rate, especially if you mention you’re considering a balance transfer to another card.
Negotiating can be tricky, but it can almost always save you money on your regular bills. It almost never hurts to negotiate, especially if you have competition to leverage against and you’re a good customer.
Do an annual “possession purge” and sell everything untouched since your last purge. Once a year, spend a few days digging through your closets and the various “collecting” areas in your home and purge them. Get rid of everything you haven’t touched in a year – ideally, since the last time you did this. Try selling it, if possible, by having a yard sale – it’s a good idea to do this in the spring so you can have a nice spring yard sale – or by selling it online via Craigslist or eBay. Purge your shelves, your drawers, your garage, everything.
If you’re not sure you should get rid of it, put that item in a box and put the date on that box. Then, put that box off to the side somewhere. Over the next year, if you need something and you suspect it might be in that box, dig in and see if it’s in there and, if it is, pull it out and use it and then put it in the correct place in your home. At the end of that year, get rid of everything still in the box.
This keeps stuff from accumulating in your home (which makes it much harder to move and to keep things organized and to find things when you need them) and enables you to turn unused items back into some money that you can use to right your financial ship. It takes some time, but this kind of annual purge of your possessions will repay that time throughout the year (because it’s much easier to find stuff and takes much less time to clean and organize) and turn some of your completely unused possessions into money.
Check every window edge and door frame in your home and seal up any that have air flowing through them. This is one of the best “bang for the buck” projects you can do around your house. Air leaking through the edges of your window or around your doorframe is just money lost to the environment during the summer and winter months. Whenever you have your air conditioning on or your furnace on, every drop of air leaking out of your home is expensive.
One big part of preventing this kind of leaking is insulation, but updating your insulation can be a major project. On the other hand, caulking windows is a super easy project that requires just a putty knife with a rounded corner, a caulking gun, and some caulk. You just look for spots on your window edges where you can feel cool or warm air coming through and then caulk them. Putting weatherstripping on a door is a bit harder, but it’s still a pretty simple project that kills air flow around the edges of your doors.
Those projects can eliminate a ton of energy loss through those little cracks in your home, and that will make a profound positive difference in your energy bill as long as you live there. The first step? Go check the edges of all of your windows and doors and see if you feel any hot air coming in (assuming you’re reading this in the summer) or cold air coming in (in the winter). If you find such spots, it’s time to get to work.
Whenever you make a big meal, make several extra batches, freeze them in individual meal-sized containers, and then eat them later. This is something I do whenever we make a casserole or a stew or any sort of dish with beans and rice in it. I’ll just make multiple batches of the meal, then pack away individual meal-sized containers in the freezer with a label on them so that I have a quick lunch later (or we can grab several for a quick supper).
Let’s say I’m making a pan of lasagna. It’s not that much more work to pull out several pans and just cook a bunch of noodles at once and assemble several pans of lasagna at once. I can then cook one pan for dinner and freeze the other pans, or else cook all of the pans and divide them up to freeze them as individual meals for later on.
This is my solution to the idea of the “make ahead meal.” Sometimes, I’ll make a huge batch of “make ahead meals” at once, but usually I just make a lot more of whatever we’re having for supper and then save the rest for the future. I tend to use inexpensive Gladware for this as they can be reused a ton of times but it’s not an expensive problem if one of them is damaged or forgotten somewhere. I just stick a masking tape label on the container saying what it is and when it was originally made so I can identify what’s what when digging through the freezer.
Make a big pot of soup this weekend and then freeze several containers of it in individual meal containers. It’s so easy to do this and it provides a ton of very quick meals for the future. There’s no better way to get started with this.
Keep busy at work, minimize the drama, and look for solutions to problems rather than just pointing them out. When you’re at work, stay busy. Unless your workplace is in dire straits, there’s usually something you can be doing, whether it’s cleaning up code or sweeping the floor or fixing displays or talking to customers. Do something. You’ll find pretty quickly that keeping busy is a great strategy for keeping yourself in everyone’s good graces. Plus, you have plausible deniability if others are trying to shift work onto you – you’re already busy, right?
Stay out of drama. If you hear people talking about others behind their backs, avoid it. Just go on about your tasks. Join in instead when the talk is positive, like when you’re discussing something good that happened or talking about a pop culture moment. Build your relationships at work on a backbone of positivity.
If you see problems at work, think about a solution to that problem and when you bring it up, bring that solution with you. Don’t just dump problems on your boss’s lap. Instead, come in there with a solution to that problem – you’ll look less like a malcontent and more like a problem solver.
These are good strategies in virtually any workplace you’ll find yourself in, yet so many people don’t do those simple things. If you just do those things, you’ll be miles ahead of others.
Keep a whiteboard in your kitchen and use it to keep a running grocery list and meal plan on it. Copy that grocery list and fully trust it when you go to the store. Right next to our kitchen, you’ll find a whiteboard that lists about a week’s worth of meals on it. It indicates what we’re having for each meal on each day so that whoever’s around to prepare that meal knows that this is a meal for which we already have items, so that person can just get down to the business of prepping it.
Whenever someone notices that we’re running low on something – milk or eggs or bananas or whatever – that person just adds it to a running grocery list on that board. Easy enough.
When the week wraps up and we’re at the end of that meal plan, one of us starts a fresh one, erasing most of the message board and starting with the current day at the top and listing the next several days below it. From there, some meals are planned out – when I do it, I usually glance at the grocery store flyer, see what’s on sale, and plan some meals using the on-sale stuff. Then, once some meals are planned out, I look around to see what ingredients we actually need for those meals and add all of that stuff to the list. Then, I enter that list into my grocery list app (Sarah usually just takes a picture, but I like having a checkable list that’s already sorted by area for me, which Paprika does) and head out to the store.
At the store, I follow that list like it’s the gospel. I just go down the aisles looking specifically for whatever’s next on the list, and try to get out of there as fast as possible. Doing that minimizes the number of incidental items that I put in the cart and makes up for the time spent meal planning. In fact, the meal plan itself is a money saver because it already has the meal decisions for each busy day ahead of us figured out.
This system saves us at least $50 per week compared to the more haphazard food planning that we once did, and there’s no need for clipping coupons or anything else.
Keep a pocket notebook with you, write down anything that you think you might want to remember later, and then review that notebook once or twice a day. This little strategy has saved me money and time and relationships more times than I can count. It’s also helped me build my income and my relationships, too. It’s helped me be a more reliable person and it’s helped me be far more productive than I ever thought possible with my creative work.
It’s easy. Just carry around a pocket notebook. I like Field Notes because they stand up to a pocket beating, but any kind will do. Carry around a pen, too – a decent one that won’t leak, like a Uniball Signo with a micro or ultra micro point. Whenever you hear something or think of something that you’re going to want to remember in the future – whether it’s something you need to do or something you need to remember or some idea you have or anything – just pull out the notebook and jot it down.
I jot down ideas for Simple Dollar posts. I jot down people’s contact information and their name and the reason I’m wanting to touch base with them. I jot down something I want to get at the grocery store. I jot down a book I want to read that I hear about on NPR and jot down as soon as I park the car. I jot down a quote or a lyric or a moment I want to remember.
And then, once or twice a day, I go through that notebook and I do something with each thing in it. I create a new document for that Simple Dollar article idea and add any extra notes I have. I contact that person that I met with earlier and follow up. I add that new item to my grocery list. I look up that book and reserve it from the library.
If I jot it down in my pocket notebook, I won’t forget it. I also don’t need to spend my time trying to remember something all day (and then still forget it half the time).
Use that pocket notebook to write down every expense (and stuff your receipts in there), then tally them up at the end of the month. Why is this a useful strategy? To put it simply, I have never found a more useful way to dig through one’s expenses and get a real picture of what your spending looks like while, at the same time, forcing you to rethink all of your dumb little spending choices.
Whenever you spend a dime, write it down in your pocket notebook. Write down what it was and how much it was. Stuff a receipt in there.
When you get home and go through that notebook, record that expense in a piece of budgeting software – I like PearBudget’s free spreadsheet as a free and secure option, or you can do your own thing with a simple three column spreadsheet describing each thing you bought, a category for it, and the dollar amount.
At the end of the month, total up each category. You’ll probably be shocked at how much you spent on some of your worst spending categories, and it will fill you with resolve to do better. After that, writing things down in that pocket notebook will fill you with a bit of dread – you won’t want to write things down in there, and that will be a strong nudge to you to simply not spend that money.
Also, use that pocket notebook as a “wish list” and then use the thirty day rule. Whenever we want something badly, it occupies our thoughts and our focus until we do something about it. It’ll shout and dance and keep distracting us until we take action, and with online shopping and the ease of credit cards, it’s often way too easy to take action in a way that’s financially destructive. The worst part? You probably won’t even want the thing two days later.
So here’s what you do: whenever you want something bad, write it down in that pocket notebook. Stick a date beside it. In one month, if you still want that thing, go for it. Use this for every spending impulse you can.
What you’ll find, over and over again, is that the action of writing down that “want” takes the edge off of the desire. You’ve taken some action on it, and that’s often enough. Then, when you look back at it a month later, that desire will probably seem silly, a reminder of some fleeting thing you wanted then that’s irrelevant now.
Don’t eat unless you actually feel hungry. Then eat (largely) whatever you want (as long as at least some of it is plant-based), but eat slowly until you no longer feel hungry. This doesn’t mean “feel stuffed” or “feel full.” This strategy will save you a ton of money on food and it will (eventually) help you get close to a healthy weight if you’re not already there provided you stick to it.
The thing is, this strategy pops up all the time in a given day. It pops up literally every time you’re considering putting food in your mouth. Are you actually hungry? If the answer is no, don’t put food in your mouth. If the answer is yes, make sure what you’re about to eat is at least somewhat plant-based (meaning fruits and/or veggies and/or legumes and/or nuts), then start eating slowly and pay attention to how you feel. When you no longer feel actually hungry, stop eating. I also recommend drinking a big glass of water slowly while eating.
Just make that your normal routine. If you do this when going out to eat, just take the leftovers home with you, because you’ll probably have leftovers, and eat them for lunch the next day in the exact same way – when you’re hungry, slowly, and with water.
You’ll save a bunch of money on food and, if you’re the average American, probably improve your health significantly, too.
Set up an automatic transfer from your checking account to your savings account that goes off each week. Don’t touch it again. Use the money in your savings account when a real emergency happens that you can’t financially deal with. That’s it. Just go to your bank and ask if you can set things up so that $20 each week (or maybe more, depending on your life) moves automatically from checking to savings. Then, live as normal out of your checking account and forget about it.
When an emergency comes – your car breaks down or you need to fly home for a funeral or someone gets really sick or a hail storm damages your roof or you have a big flat tire something – and you can’t make ends meet, then turn to that emergency fund that’s sitting there for you in your savings account and you will have the money – or most of it, anyway.
All that you lose by transferring that $20 a week is the dumbest of your purchases, the most forgettable of things, the kinds of things that you buy at a convenience store. You won’t give up anything that matters thanks to that $20 a week transfer.
Instead, you gain a certain peace of mind and the ability to keep yourself out of debt when something goes wrong.
Watch less television, check social media less often, read more books, and spend more time outside. Watching television, particularly in long stretches, leads to feelings of loneliness and depression. Heavy use of social media (Facebook, Twitter, Instagram, Reddit, etc.) is linked to feelings of anxiety and depression. Meanwhile, reading a book improves brain function and reduces anxiety, while the physical and psychological benefits of spending time outside, particularly in nature, are almost overwhelming.
In other words, if you want to feel better about the state of things in your life without spending money and without making radical changes, cut back on the time you spend watching television or looking at social media, and increase the time you spend reading books and doing things outdoors.
Instead of binge-watching yet another series on Netflix, call up some friends and go have a picnic in the park. Instead of thumbing through social media on your phone, delete those apps, put Overdrive on your phone instead, and read a few pages of a book from your library.
Find every excuse you can to walk more. Simply moving around more has a ton of health benefits, which is going to drastically reduce your long term health care costs and quality of life. The easiest way I’ve found to move around more is to simply find more reasons to walk, even if they’re a bit artificial, and find settings in which I enjoy walking.
For example, when I go to the grocery store, I park on the far end of the lot. This means that I have further to walk to get to the grocery store. It’s a simple thing, but it’s a good way to move more. When I go to a meeting or an appointment, if it’s on anything below the tenth floor or so, I take the stairs. If I have an errand to run that’s within a mile or so of my house and doesn’t involve carrying anything too heavy, I walk it instead of driving.
On top of that, I usually set aside time at least once a day to walk around my neighborhood just to get out of the house (that outdoors effect mentioned earlier), and at least once a week I go on a nature walk or hike at a park somewhere. (This is sometimes rough in the winters, but I do the best I can.) I’ll just stroll along at whatever pace I feel like and appreciate the environment around me.
This helps with genuinely feeling good most of the time. This helps with my long term health costs. Plus, aside from the dedicated walks around the neighborhood, it takes little time.
More intense exercise is certainly a good thing, but if you find that dreadful or can’t find room for it in your life, just find more opportunities to walk. You’ll feel better and you’ll cut your long term health care costs, too.
Open up and contribute to a Roth IRA. A Roth IRA is simply an account that offers a ton of tax benefits if you’re saving for retirement. When you put money in a Roth IRA, it’s going to start earning money for you, and if you have it open for five years or more, any earnings that you make within that account that you withdraw at retirement age (59 1/2 or older) is tax free. No taxes at all, period.
This works much like the advice above for an emergency fund. Just sign up for a Roth IRA somewhere (say, Vanguard), turn on an automatic transfer that transfers a small amount of money each week ($100 a week gets you to close to the annual limit, so that amount or lower, depending what you can handle), and then just forget about it until you’re 60.
Peek at it once a year or so and then just don’t worry about it at all. The money you transfer will be easily forgotten in the bustle of life and then you’ll have a big bundle waiting for you when you retire. It’s such a no brainer move.
When you’re about to buy anything, hold it in your hands (or pause in line) for several seconds and think about why you don’t need this or where you could get it for less before actually buying it or putting it in your cart. I do this for every purchase I make aside from things directly off of my grocery list and it works like a charm. I talk myself out of so many silly unnecessary purchases by doing this.
I first ask myself whether or not I really want or need this thing. Is this just a pure impulse, or is it actually serving a purpose? That alone talks me out of things like getting coffee at the kiosk inside the store or buying a beverage in the checkout aisle. Then, I ask myself whether this is something I absolutely have to get right now, and if it’s not, I write it down in my notebook, as mentioned above. After that, if I still have the unplanned item in my hands, I usually ask myself if there’s not a place I can get it less expensively or borrow it or something, and if I can’t strongly answer “no” to that, I put it back on the shelf.
Does that mean I’m never spontaneous with spending? Nope. Sometimes I blow right through those questions and still make the impulse buy because it really feels like the right thing in the moment. However, asking those questions tends to kill most of my impulsive purchases, particularly the ones that aren’t truly important to me, and those are the ones you really want to kill. Why spend money if it’s not adding much value to your life? Keeping that money around lets you get out of debt faster and that leads to lower stress and a better life all around.
Each of these little strategies has been a huge hit in my life. They take up very little time or energy, yet they result in some enormous positive successes in my financial life and my personal life and professional life, too. They’re the kind of tips that produce far, far more than what you put into them.
The key, as always, is to stick to them. Grab one or two of these and focus on making them your habit over the next couple of months. Adjust your thinking so that these things become habit – let them be the new normal in your life. As for the ones that are more project-oriented, just spend some time this weekend doing one of them. You’ll find that the benefits are well worth the time invested. Every single one of these things has been an enormous unquestionable net positive in my life.
Good luck!
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Why Envelopes Are a Great Weapon When You’re Fighting the Urge to Overspend
Popularized by modern personal finance patriarch Dave Ramsey, the cash envelope system encourages you to toss aside your wallet and rely on pre-labeled envelopes full of real, physical money.
You don’t have to use this method for your fixed expenses, like your rent or monthly car payment. Instead, you’ll use cash for areas where amounts can vary: gas, groceries, weekend adventures or clothing, for example.
Ready to try it?
How the Cash Envelope System Works
First, you need to create a budget to determine how much money you have to spend each month.
Whichever budgeting style you choose, make sure you have a good idea of what you can afford to spend in each of the categories you’ll track with the cash envelope method.
Then, grab a stack of envelopes. Label each one with a spending category, like takeout meals, groceries, movie nights, manicures or yoga classes. Your envelopes will vary depending on what you’ve included in your budget.
Each time you get paid, visit the bank or ATM and take out cash to fill your envelopes.
Say next month you want to budget $500 for groceries and $100 for gas. If you get paid once per month, you’ll take out $600 on payday. If you get paid twice per month, you’ll take out $300 each time.
Separate the cash into its appropriate envelopes. Then spend wisely. When your envelope is empty, you can’t cheat and reach for your credit or debit card. You’ll have to wait until it’s time to fill the envelope again!
Pros and Cons of the Envelope Budget System
Let’s start with the advantages, because they’re pretty big.
Swiping a card to pay for something is easy. Paying with cash forces you to look at the money, touch the money, and consider what you’re paying in exchange for a product or service. Don’t be surprised if relying on the envelope system makes you start thinking twice about some of the purchases you’d normally make.
Another benefit of working from cash envelopes is that it’s impossible to incur an overdraft fee or have your debit card declined. When you’re out of cash, it’s not fun, but at least you’re not in the red.
It can help you resist the urge to shop online, too. But if you do decide to make a purchase on the web, take the same amount of cash from the assigned envelope and deposit it back into your bank account to cover the purchase. (Really, there’s no cheating in this system. There’s no place to hide.)
What about the disadvantages of this system?
Well, there aren’t any rewards beyond the satisfaction of paying with cash to shore up your budget. If you like getting credit card rewards, the envelope system won’t help you earn a free flight.
It can also be challenging to pay with cash in tech-friendly retail environments. Some stores and eateries are going cash-free to speed up the payment process and avoid counterfeit bills. If you’re planning to visit a new-to-you shop or restaurant, you may want to check their payment options.
If you’re managing a budget for more than one person, figuring out who gets how much money in their envelope can be challenging. Talk through your goals for using the envelope method before starting, and discuss ways to distribute cash appropriately.
3 Expert-Level Tips for Cash Envelope System Fans
You don’t need to get fancy to be successful with the cash envelope system, but if you’re ready to take it even further, try some of these advanced tips.
Track each purchase from each envelope. Just jot it down on the envelope while you’re waiting for your groceries to get bagged up. Or stash paper receipts in your envelope, and write your expenses down at the end of each day. This extra step will help you be even more mindful about what each dollar you spend is going toward.
Splurge on special envelopes. Can’t keep track of your cash stash? Get a pack of heavy-duty color-coded envelopes to manage your cash budget. Some options even have lines for neatly tracking those expenses as you go. If you travel with several envelopes at a time, you may want an expandable bill folder. Dave Ramsey even has his own line of envelope system wallets and trackers.
Strive to have money left over at the end of each month. This may prove the toughest challenge of the envelope method. If you can get through the month without encountering an empty envelope, roll any extra cash into the next month. Either enjoy a bigger budget, or take out less cash and put the surplus into a savings account — budgeter’s choice!
Lisa Rowan is a senior writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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This Tool Helps You Secure Your Baby’s Future in Just 5 Minutes
Sure, putting the nursery together was important, but Scott, a self-taught personal finance aficionado, wanted to make sure the family’s finances were in order.
But like many new parents, after Isaiah’s birth, the Raleigh, North Carolina, couple still had lingering financial matters on their to-do list. Near the top of the list? Invest in their son’s future.
The task proved daunting. After hours of research, Scott settled on a 529 college savings plan, a tax-advantaged account to help save for education expenses. But then he sunk more hours into figuring out which 529 plan was the best fit — because, of course, there’s more than one option.
On top of sleepless nights, you can imagine planning for a new child’s education can easily become exhausting.
Here’s the good news: There’s a robo-advisory service called CollegeBacker that can help you start a 529 plan in just five minutes.
Why Many Experts Recommend a 529 Savings Plan
In 2018, one year at a four-year college, including board and books, averages $19,800. In 2036, that average will nearly double, costing between $37,000 and $39,000 a year, according to a Penny Hoarder projection analysis of average growth rates provided by the National Center for Education Statistics.
This doesn’t take inflation into account, and still. Life’s going to be expensive 18 years from now.
Like Scott alluded to, there are several — well, a lot of — ways to jumpstart your child’s future. He considered everything from a Roth IRA (though your child needs earned income) to a Coverdell Education Savings Account.
He landed on a 529 college savings plan for a few reasons, including:
- Contributions are invested in public markets, meaning your money likely won’t sit stagnant; you’ll get to watch it grow.“I can't stand the thought of funds sitting there stagnant for a long time,” Scott wrote in an email. “You got to start early and get that compound interest working!” However, he notes there’s risk, too, like any other kind of investing.
- These plans are tax-advantaged, meaning your money both grows and can be withdrawn free of state taxes.
- The parental figure holds ownership and control over the plan, so kids can’t tap into it for whatever the heck they want. As much as Scott loves his son, he doesn’t plan to just throw cash at him.
- The plans don’t have super strict eligibility requirements or contribution minimums. Scott says he doesn’t contribute a huge amount each month. Plus, it’s nice knowing he wouldn’t be penalized for not contributing if there was any sort of emergency.
- The money in these plans is accepted by nearly every college in the U.S. and even many abroad.
Additionally, with the new tax plan, you can use 529 funds for private schooling, kindergarten through 12th grade. This option wasn’t around when Scott signed up for his plan, but he appreciates knowing this, as it’s not a 100% guarantee his kid will even go to college.
Speaking of… What if Isaiah doesn’t want to go to college? What if he wants to start a business instead? The Perrys could use the money for another immediate family member. They could also withdraw the money from the 529 plan and pay a 10% penalty.
How to Sign up for a 529 College Savings Plan
Whew.
See? There’s a lot to weigh when it comes to establishing your kid’s education fund.
But say you’ve decided a 529 savings plan is your best bet. Great! Now you’ve got more research to do to figure out which 529 plan is a good fit.
But we know you don’t want to get into that. We don’t even want to get into it.
Instead, you can tap into CollegeBacker, a robo-adviser that specializes in 529 plans. The platform operates on a pay-what-you-can model, meaning you can pay a monthly fee of as little as $0. Additionally, you can open an account in about five minutes with no minimum deposit.
You can also crowdfund your kid’s education through CollegeBacker. Maybe instead of showering your kid with extravagant toys, Aunt Mary can contribute a little bit of money to their 529 plan.
To get started, you’ll calculate your savings goal. Enter the age of your child and what type of university you’re saving for. Then CollegeBacker will show you how much you need to save each month. You’re welcome to adjust this number (or pause withdrawals) based on your budget at any time.
Continue through to create a profile and build your team of contributors.
The money you contribute will be held in a state-sponsored 529 savings plan.
When your kid is ready to head off to school, they can use the money in conjunction with scholarships and financial aid. They can even use the money from the 529 plan toward a computer.
Once your kid is settled in the dorm and you say your teary goodbyes, it’s time to take a deep breath — because you did it! You were super smart and started saving early!
Carson Kohler (carson@thepennyhoarder.com) is a staff writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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What to Know When Adding a Teen Driver to Your Car Insurance Policy
Older people just love generalizing about younger generations, but there’s one stereotype that is painfully true: Young people are terrible at driving. Unfortunately for parents who add teenagers to their insurance policies, that bad driving can prove costly, even if young drivers never get into trouble.
A study commissioned by insurance pricing site insuranceQuotes looked at how much it would cost a family to add a driver between the ages of 16 and 19 to their policy. The answer, on average, was 82% more a year.
“Auto insurers are primarily interested in one thing: Are you a safe driver or a risky one?” said Nick DiUlio, insurance analyst at insuranceQuotes.
However, it isn’t as if insurers view all teens differently. For example, the average premium increase is 112.1% for a 16-year-old male driver, compared to roughly 80% for a female driver the same age. By the time those drivers hit age 19, the male driver will cost his family an extra 70%, compared to 51.3% for the female driver.
Yet age and gender are just part of the growing risk that drivers as a whole present to insurers. According to the Federal Highway Administration, Americans are driving more than ever. U.S. vehicles logged 3.21 trillion miles in 2017, sitting at the same record level reached in 2016 and up from 3.1 trillion miles in 2015. It’s the sixth-straight year without a decrease in mileage, but that isn’t great for drivers. The National Safety Council (NSC) reports that traffic fatalities in 2017 topped 40,000 for the second time in two years and has increased roughly 20% since 2014.
Worse, the NSC estimates that 4.57 million drivers were seriously injured in 2017. Meanwhile, the overall cost of motor-vehicle deaths, injuries, and property damage last year was $413.8 billion, a more than 10% increase from 2015. As a result, insurance companies are paying a lot more attention to how people drive and how many miles they travel.
For young people, this means insurance companies are taking a hard look at just how bad they are at driving. As the NSC points out on its teen-focused site DriveItHome.org, the 3,327 teen driving deaths in 2015 — the last year for which information was available — exceeded the number of teens killed by either homicide or suicide.
The Centers for Disease Control and Prevention (CDC) notes that motor vehicle crashes are “the leading cause of death for U.S. teens and that 235,845 drivers age 16-19 were treated in emergency rooms for injuries suffered in motor vehicle crashes. In 2013, young people ages 15-19 represented only 7% of the U.S. population. However, they accounted for 11% ($10 billion) of the total costs of motor vehicle injuries.
The Insurance Institute for Highway Safety (IIHS) says teenagers “drive less than all but the oldest people, but their numbers of crashes and crash deaths are disproportionately high.”
Mike Barry, vice president of media relations for the nonprofit Insurance Information Institute, told insuranceQuotes that the high cost of insuring teens is the only way to insure a fair cost for everyone else.
“Unfortunately, teens just aren’t very good drivers because they don’t have much experience behind the wheel,” Barry says. “Teens are twice as likely to be involved in an accident and 50% more likely to be involved in a fatal accident. Anytime you add a driver that is likely to be involved in more accidents as well as more serious accidents, the rise in insurance costs will be steep.”
There are ways to mitigate that cost, but not all of them are as effective for teens as they are for everyone else. An insuranceQuotes survey conducted in 2017 found that an American who drives 5,000 miles a year pays 9% less on average for car insurance than a fellow driver who logs 20,000 miles a year — a bit more than the 13,476 miles the average American drives annually, according to the Department of Transportation. However, teens only drive about 7,624 miles a year, less than any demographic other than those age 65 and older. However, both of those demographics have accident rates higher than those ages 20-64 who drive twice as much.
There’s a chance that the problem may fix itself as well. For instance, the IIHS reports that there were nearly 10,000 teen driver deaths in 1975, a figure that has continued to drop substantially every year since. According to the National Highway Transportation and Safety Administration (NHTSA), fatal crashes among drivers age 15 to 20 are down 43% from the 7,493 involved in fatal crashes in 2006. Modern vehicles are safer, sure, but economics, ride-sharing apps, and graduated drivers license (GDL) programs are also keeping more teens off the road. A 2012 study from the University of Michigan found that 80% of Americans between the ages of 17 and 19 had a driver’s license 30 years ago. Today it’s fewer than 60%.
The New York Times discovered that less than half of U.S. youths aged 19 or younger had a license in 2008, down from nearly two-thirds in 1998. And the Department of Transportation notes that just 28% of 16-year-olds and 45% of 17-year-olds had driver’s licenses in 2010. That’s slid from 50% and 69%, respectively, in 1978. The number of 16-year-olds with driver’s licenses peaked at 1.72 million in 2009, but plummeted to 1.08 million by 2014.
The Insurance Institute for Highway Safety (IIHS) notes teen driver fatality rates started dropping around 1996, when states first began graduated driver licensing (GDL), and have kept falling. That decreased accidents involving 16-year-olds by 68% between 1996 and 2010. During that same span, fatal crashes fell 59% for 17-year-olds, 52% for 18-year-olds, and 47% for 19-year-olds.
Meanwhile, the share of new cars being bought by Americans between 18 and 34 is down 30% in the last five years, according to auto pricing site Edmunds.com. A Pew Research Center study notes that people under 35 bought 12% fewer cars than they did in 2010.
Look to Big Brother to Save Money on Your Teen’s Car Insurance
For parents unfortunate enough to have teenagers who actually want to drive more often, there are steps worth taking. You can set a good example through your own driving, hammer home the dangers of distracted driving, or even set rules and schedules for driving. However, technology and insurance companies can help out with the latter.
Pay-as-you-drive or usage-based insurance programs like Progressive’s Snapshot or Liberty Mutual’s RightTrack use small sensors installed in a car’s dashboard or an existing on-board communications system (think OnStar) to track driving habits.
For providers including State Farm and MetroMile, that means strictly counting the miles you’re driving. Other insurers, however — including Progressive, Allstate, The Hartford, Liberty Mutual, GMAC, and Travelers — can record how many miles you drive each day, how often you drive between midnight and 4 a.m., and how often you slam on your brakes. Good drivers can get discounts of 5% to 30% if these devices — or even telematics systems or smartphones — like what they see.
Progressive’s Snapshot program, for example, has collected enough data to figure out that not only were school driving manuals wrong about keeping four seconds between you and the driver in front of you, but that it takes even the most aggressive stoppers 12 seconds to come to a complete halt when traveling 60 miles per hour. The average driver takes 24 seconds — or roughly 420 yards — to come to a stop at that speed.
“After analyzing Snapshot driving data, we’ve found hard braking to be one of the most highly predictive variables for predicting future crashes,” says Dave Pratt, general manager of usage-based insurance for Progressive. “We know that one of the main contributors to hard braking is tailgating, so we’re using our data to help drivers be as alert and aware as possible on the road.”
More privacy-minded U.S. drivers are a bit freaked out by the monitoring aspect. In fact, a majority of U.S. drivers (51%) told insuranceQuotes that they would never join a pay-as-you-drive insurance program. That’s actually up from the 37% who were dead-set against pay-as-you-drive insurance in 2014.
The National Association of Insurance Commissioners (NAIC) predicts that 20% of all U.S. auto insurance companies will incorporate some form of pay-as-you-drive program by 2020. That isn’t as scary as most drivers would believe. More than half of those surveyed by InsuranceQuotes said they think insurers can monitor whether or not they’ve been drinking and driving (they can’t), while 35% say they think insurers can jack up rates for driving in “neighborhoods with a lot of crime” (they don’t).
Though 26% of respondents dismissed pay-as you-drive insurance solely because “I don’t understand how it works,” that’s been less of a problem with younger drivers. Nearly half (47%) of drivers between the ages of 18 and 29 are aware of pay-as-you-drive programs, compared to just 22% of drivers 65 or older. Meanwhile, only 15% of millennials share their elders’ privacy concerns and 43% of drivers between the ages of 18 and 29 said they would consider enrolling. That far outpaces the 36% between the ages of 50 and 64 who’d do the same and the 28% of respondents over 65 who’d give it a shot.
“From considering pay-as-you-drive programs and electronic monitoring devices, to shopping for cheaper policies and teaching the dangers of distracted driving, there are many measures parents can take to maximize safety and also minimize monthly costs,” DiUlio says. “It is imperative that parents take the initiative.”
Related Articles:
- Student Guide to Car Insurance
- How to Teach Kids About Money, From Toddlers to Teen
- Four Reasons to Add Your Teen as an Authorized User
- Best Cheap Car Insurance for Teens
The post What to Know When Adding a Teen Driver to Your Car Insurance Policy appeared first on The Simple Dollar.
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Red, White, Blue — and Green. Here’s How Much Americans Spend on July 4
Similar to May the 4th (Be With You), how can you not love a holiday with a name that reminds you exactly where to find it on the calendar?
Independence Day is a perfect time for cookouts, parties and family get-togethers, and Americans spend a lot of money to celebrate it.
We won’t know how much party animals will spend in 2018, so let’s take a look at data from previous years to see where our cash goes.
Food
In 2017, WalletHub predicted Americans would spend $7.15 billion on food for July Fourth festivities.
It doesn’t seem all that surprising when you consider we spent $25 million just for mustard in 2016.
WalletHub also predicted we would spend $1.6 billion on wine and beer in 2017. There’s no judgment here. After all, George Washington issued double rations of rum to his troops in honor of Independence Day in 1778.
Franks
Condiments have to land somewhere, and hot dogs are always a good bet. The National Hot Dog and Sausage Council (yes, it’s a thing) says we eat about 150 million hot dogs on the Fourth of July.
Los Angeles ate the most hot dogs in 2016 — more than 36 million pounds — in case you need a fun bit of trivia to pull out around the grill.
Frolicking
In 2017, AAA predicted 44.2 million Americans would travel for the Independence Day holiday.
It’s too soon to forecast Fourth of July travel data for 2018, but AAA expects it will be a busy summer travel season once again, said Julie Hall, a spokeswoman for the auto club.
Gas prices are a big concern since many people will travel to their destination by car. During last year’s holiday, the nationwide average price for regular gas was $2.23 per gallon.
Hall says gas this summer could cost as much as $3.00 per gallon. At that price, you’ll want to travel as efficiently as possible to save a few bucks.
“Try to avoid traveling through major cities during peak travel times,” Hall recommends. “The best times to leave are typically early morning or after the morning commute because the roads should be less crowded and you will have more time to get to your destination safely.”
Hall notes that travel on the day of the holiday often means less traffic. That means less wasted gas – and money – sitting in gridlock.
Make sure your car is in good shape to avoid having to deal with costly repairs on the road, and pack an extra set of car keys before setting out. “Dead batteries, lockouts and flat tires are the leading reasons AAA members experience car trouble,” says Hall.
Fireworks
WalletHub estimated Americans would spend over $800 million on fireworks in 2017. If you plan to host your own fireworks show this year, these statistics might change your mind.
- The National Fire Protection Association says more fires are reported on July Fourth than any other day of the year. Fireworks are responsible for two out of every five of these fires and cause an average of $43 million in property damage per year.
- The National Safety Council reports that in 2016, four people died and about 11,000 people were injured in fireworks-related accidents.
Why not attend a professional fireworks show near you instead? They’re almost always free and the wow factor can’t be beat.
Flags
In 2016, the National Retail Federation found 25% of Americans planned to purchase patriotic apparel and decorations. By 2017, that figure had jumped to 28%.
That’s a lot of flag-shaped cake pans.
Lisa McGreevy is a staff writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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Make money by opening your home to guests this summer
Enterprising homeowners can earn hundreds of pounds a week by letting a room – or their whole home – to guests during a major cultural or sporting event such as Henley Royal Regatta or the Edinburgh Festival
More and more people are making extra money from their property by renting it out for short but lucrative stints, often by leaving their home for the duration of a tournament or festival and heading off to stay with friends and family.
The amount you can get depends on factors such as the condition and size of your property, as well as the location. Findings from TripAdvisor Rentals showed that last summer the average price per night for a one-bedroom property in Edinburgh during the Festival and Fringe was £129.33, while in Stamford, Lincolnshire during the Burghley Horse Trials it was £97.06.
Separate figures from events and accommodation booking site EventfulStays.com show that last year, during the Henley Royal Regatta, a four-bedroom house was being let at £460 a night, while in Silverstone, in Northamptonshire, during the Grand Prix, a similarly sized property was being let at £650.
Findings from holiday rental site Airbnb showed that last year, Stamford, in Lincolnshire, saw a 107% increase in bookings for the Burghley Horse Trials, while the areas around Silverstone drew 86% more visitors than usual for the Grand Prix.
James McClure, UK general manager for Airbnb, says: “Major cultural and sporting events across the country mean an influx of visitors from both near and far, many of whom will need a place to stay for the duration of the event. By listing your home, you can help to meet this demand and get the opportunity to earn some extra cash while meeting new and interesting people from across the globe.”
Take advantage of tax breaks
If you are thinking about taking in guests this summer, the good news is, you can earn up to £7,500 tax-free under the government’s Rent-a-Room scheme.
Sarah Ghaffari, tax manager at the Institute of Chartered Accountants in England and Wales, explains: “The Rent-a-Room scheme is a tax break that allows homeowners to enjoy up to £7,500 of tax-free earnings from renting out a spare room. The scheme is available for all homeowners who let out a furnished room in their main residence. Major sporting and music events are perfect opportunities to participate.”
Income earned above the limit will need to be included on a self-assessment tax return form.
"You can earn up to £7,500 tax free from renting out a room"
Tim Walford-Fitzgerald, private client partner at accountant HW Fisher & Company, says: “Should the rental income you receive exceed the £7,500 allowance, you will be liable for income tax in the normal way – and you will need to declare it.”
For more information, visit Gov.uk/rent-room-in-your-home/the-rent-a-room-scheme.
There is another tax break which operates alongside this scheme, a £1,000 allowance for property income. Miss Ghaffari says: “Provided the property income earned does not exceed £1,000, it does not need to be declared, and there is no tax due.”
Note though, that while the £1,000 property allowance is in addition to Rent-a-Room relief, it can only be used on income which does not qualify for Rent-a-Room. In other words, you can’t claim both unless you are earning from a separate source of property-related income.
Miss Ghaffari adds: “If, for example, you earn £10,000 renting a spare room, you would get the £7,500 Rent-a-Room relief. You would only get the £1,000 property relief if, say, you let out your driveway or rented out your dining room as an office space.”
Summer events to cash in on
- Henley Royal Regatta 4-8 July
- British Grand Prix, Silverstone 6-8 July
- Edinburgh Festival and Fringe 3-27 August
- Cowes Week, Isle of Wight 4-11 August
- Reading and Leeds Festivals 24-26 August
- Burghley Horse Trials, Stamford, Lincolnshire 30 August-2 September
How to price and market your property
If you are thinking of opening your home up to guests, you need to be realistic about how much you can charge. The best approach is to check how much other people are charging for similar properties in your area.
When it comes to marketing your property, the cheapest option is to list your home on a social media site, such as Facebook and Twitter – as these are free.
Alternatively, with Airbnb, you get the freedom to set your own price and organise everything yourself, but hosts face a 3% charge on bookings taken. Other sites that are worth a look include TripAdvisorRentals.co.uk and Eventfulstays.com. But remember to check for charges and VAT.
Also check whether you can earn cashback when you list your property. TopCashback.co.uk, for example, pays £78.75 cashback when you list your property on Airbnb via the TopCashback website, after you have successfully completed one booking.
Tips for a successful holiday let
Whichever route you choose, you need to provide as much information as possible to guests – about both the property and the surrounding area.
TripAdvisor spokesperson Laurel Greatrix says: “Your listing is the ultimate marketing tool for your property, so take advantage of all of its features. Have your listing tell a story: what’s distinct about your holiday let? What features will guests love? Keep your target audience in mind; for example, if your property is great for families, focus on details such as the number of bedrooms and the amount of space. Also highlight the general appeal of the location.”
Remember to provide information such as whether there is a cot and whether pets are allowed.
You also need to take good photos to show off your home at its best.
If your home is in easy travelling distance of a major music festival, Wimbledon tennis tournament or Burghley Horse Trials, you could make a significant profit renting out a room
Ms Greatrix explains: “A detailed listing is key, but ultimately your photos are the first thing to catch someone’s eye. Aim for eye-catching, well-lit and high-resolution images that capture the interior, exterior and surrounding area.”
Don’t skimp on the number of images, too. She adds: “Our data shows that rentals are six times more likely to be booked if they have more than 20 photos.”
Once your listing is live, make sure you respond to any booking enquiries as soon as possible.
Ms Greatrix adds: “It’s important to stay on top of guest communications. You are nearly three times more likely to receive bookings if you respond within one or two hours of the enquiry. During the stay, make sure guests have your contact information.”
After checkout, follow up and ask guests to review their experience.
Inform your mortgage lender and insurer
Before opening up your home to guests, renters should ask permission from their landlords, while those with a mortgage must speak to their lender first, to ensure they aren’t breaching their terms.
Sam Mitchell, chief executive of online agent HouseSimple.com, says: “It’s unlikely a lender will refuse to allow a short-term let, but you need to check to ensure you stay within the Ts & Cs.”
If you’re a leaseholder, you’ll need to speak to your freeholder as well.
"You are six times likelier to be booked if you have over 20 photos"
You also need to check with your insurer before letting any part of your home – even on a short-term basis. Fail to do this and you could invalidate your home cover.
As most insurers don’t cover people who are letting out rooms, or their entire homes, as standard, your provider may charge an extra premium to do so, or may refuse altogether.
You could consider arranging specialist insurance for renting out your home as a holiday let. Try a broker, such as HomeProtect.co.uk or Towergate.co.uk, or the British Insurance Brokers’ Association (Biba.org.uk).
When thinking about insurance, consider paying for some extra liability cover, which will protect you against accidents and injuries when someone is staying in your home.
Fringe benefits in Edinburgh
Victoria Tweedie (pictured above) rented out her four-bedroom flat in Edinburgh’s historic New Town during the Edinburgh Festival and Fringe last summer, and made £7,250 during the month-long event. She is renting it out again next month during this year’s festival.
The 43-year-old, who works for a charity, splits her time between Edinburgh and the Scottish Borders. She lives in Edinburgh during the week, and then rents her home (Edinburghholidaypad on Instagram) to guests at weekends and when she’s on holiday – including for the duration of the festival.
Victoria signed up to Airbnb last year and uses Airsorted – a management service for Airbnb hosts – to help with the lettings process.
“When I first signed up to Airsorted, it took the photos, wrote the blurb and took care of everything for me,” says Victoria. “Airsorted now manages all the bookings, as well as the cleaning and changeovers, and this is particularly helpful during the festival when things get really busy.”
Victoria usually charges between £220 and £320 a night for her flat, which can sleep seven people – but can get as much as £450 a night during the festival.
“I insist on a minimum stay of two nights, but many guests stay for a week – or several weeks – especially during the festival,” says Victoria. “I get all sorts of guests, and even had a comedian for two weeks last summer.”
Victoria arranged her holiday lettings insurance through Airsorted, and gets the host protection insurance that’s offered by Airbnb, which provides liability coverage.
“All the guests are carefully vetted by Airsorted and have to have gone through the Airbnb verification process,” she adds.
“They are also asked a lot of questions.
This makes me feel reassured about letting my home to strangers. To date, I’ve not had any bad experiences at all. I provide guests with lots of information and a lovely, welcoming place to stay, and people seem to respect that.”
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Buying a freehold home? Check the small print
Freehold means you hold your property outright for ever– but it’s often far from ‘free’. Inflated fees, rents and covenants can add hundreds to your annual bills, so ask your solicitor to check for hidden charges
You’ve paid your deposit, arranged your mortgage and are looking forward to moving into your new freehold home – but is it really ‘free’ for you to hold?
In theory, if you own the freehold of a property, it means you own the building and the land it stands on outright, in perpetuity. According to the Money Advice Service, this means you won’t pay ground rent, services charges or any other landlord charges.
But despite the legal definition, an increasing number of freehold owners are finding small print buried in their property deeds that’s there to create an income stream for a third party.
Covenants, estate maintenance contracts and obscure charges all obligate freeholders to pay unregulated fees to various bodies including developers and management companies. Campaigners have dubbed the practice ‘fleecehold’.
Beware restrictive covenants
Restrictive covenants are binding conditions written into a property’s deeds that determine what a homeowner can or cannot do with their house or land under particular circumstances. Common covenants prevent a trade or business being operated from a residential home, for example – so you can’t turn it into a pub or shop – while others prevent owners from extending or altering a property.
Being subject to this kind of condition is known as the burden of a covenant, and this burden will pass to successive owners or occupiers when a property is sold on. A covenant may also give a homeowner some say over what is allowed on neighbouring property: this is called the benefit of a covenant. Positive covenants are a promise to do something, such as maintain a wall or contribute money for maintenance of shared areas.
Traditionally, covenants were used to uphold certain standards for all residents or to maintain the uniform appearance of an area. Some popular covenants date back many years and forbid the keeping of chickens or livestock on the land. Some very old covenants are considered unenforceable because of ambiguous wording or because the character of the area has changed so much there is no value in enforcing the covenant.
But while many covenants may sound acceptable, some homeowners are finding they are preventing them from carrying out everyday activities. For example, some covenants prohibit homeowners from hanging washing outside, parking trade vehicles on their driveway or keeping pets.
More worryingly, some major housebuilders seem to be using covenants to extract more money from their customers. Many new-build homes have covenants written into their title deeds obligating the owner to seek permission from the original builder if they want to alter or extend their home.
Developers charge an often undisclosed fee for this permission, leading to these types of covenants being dubbed ‘permission fees’ by disgruntled homeowners. Some developers even charge homeowners a fee each time they remortgage or when they sell the property.
“Restrictive covenants on estates have been around a long time and used to be more about maintaining an overall appearance for the benefit of all residents. If you needed permission to extend, for instance, you had to ask the original landowner, if you could trace them. There was only a nominal charge, if any, for this,” says Cathy Priestley, spokesperson for campaign group the Homeowners Rights Network. “Nowadays, the existence of an estate management company, which can generate income from the estate, together with the lack of regulation, allows for these companies to charge excessive fees for permission, remortgage and exit fees.”
If you’re buying an older home, you should check if the property has any covenants before going ahead with the sale. You can do this by applying to the Land Registry for a copy of the registered title and title plan. Restrictive covenants will be listed in the section headed ‘charges register’ and positive covenants under ‘property register’.
Whether you’re buying a new-build property, or one already built, your conveyancer should give you a ‘report on title’, which should identify any covenants, and he or she should be able to answer any questions. If your solicitor doesn’t draw your attention to any covenants in your deeds and you later run into problems, you should complain to the law firm and then contact the Legal Ombudsman if you don’t get a satisfactory response.
If you breach a restrictive covenant, you could be sued by the person who benefits from it – such as a neighbour or the original developer. A solicitor will be able to advise you about whether the covenant is correctly written and enforceable. You could be forced to undo any offending work (such as having to take down an extension) or pay an inflated fee for retrospective consent.
Extra charges on private estates
Thousands of buyers purchase freehold homes on private estates each year and are told there is a small service charge to look after the communal open spaces. This is because patches of grass, play areas, electric gates and sometimes roads too, will not be adopted by the council and will remain in private ownership.
When freeholders buy their house, they sign a legal document called a deed of transfer setting out the contribution the homeowner will pay towards the cost of maintaining the estate. The charge may be referred to as an estate charge, maintenance charge or service charge.
In most cases, a managing agent will be employed by the developer to collect the service charge and organise maintenance. But although service charges may be reasonable initially, many homeowners have found fees can quickly rise while the service they receive deteriorates. Some even find themselves paying for the upkeep of areas still under construction.
To add insult to injury, some homeowners still have to pay full council tax, despite the council not maintaining their road, green spaces or children’s playgrounds. These areas are open to the public too, so not as private as you might think.
“This set-up is currently totally unregulated and homeowners have no rights of redress when they are charged excessively. Payment is enforced by having clauses in the legal transfer documents (deeds),” says Ms Priestley. “There is a huge variation in the way the deeds are written between builders and estates, which makes it harder to challenge them. What they have in common is an imbalance of rights in favour of the management companies.”
A key issue is that homeowners don’t have a recognised route of redress when challenging estate charges. “Unfortunately, freeholders do not have the same statutory protections as leaseholders, whose service charges are subject to legislation whereby the landlord’s service charges have to be reasonable (Landlord & Tenant Act 1985),” says Simon Wood, a barrister at law firm Hart Brown, “Accordingly, any claim would have to be made pursuant to general contractual principles. The freeholders will need to check their transfer deed and ensure that the charges are properly chargeable under its terms.”
Watch out for rentcharges
Another charge to look for in property deeds of freehold homes is a rentcharge (or chief rent, as it’s known in north-west England). Rentcharges date from the 13th century, when every freeholder (‘terre tenant’) had to pay a rent to the king, lord or other ultimate owner of the land. A statute of 1290 allowed the landowner to transfer or sell the right to collect rent, to a third party who otherwise had no interest in the land.
Especially from the 19th century onwards, rentcharges became a means for builders to develop land without paying a premium to the owner. Instead, the owner sold land to developers at a reduced price in return for an income from the property owners – and the subsequent owners.
Rentcharges are only attached to freehold properties and shouldn’t be confused with ground rents on leasehold properties. The person entitled to the rentcharge money is known as the rentowner.
The rentcharge and the rentowner should be detailed in the charges register of a property’s title deeds – these can be downloaded from the Land Registry for about £3. Because the amounts involved haven’t changed with decimalisation or inflation, rentcharges are normally a nominal amount between £2 and £10 a year.
While this amount of money might sound like nothing to worry about, homeowners can run into problems if they don’t pay it. Some property deeds state that the rentcharge will be payable annually “whether formally demanded or not”.
Often the rentcharge has been sold to a new rentowner who demands the money and, if asked for documentary proof they are the rightful rentowner, an administration fee for providing the proof. Failure to pay can result in heavy-handed tactics to pursue not only the overdue rentcharge, but a raft of penalties and legal fees, which can far exceed the original debt.
“If a rentcharge is more than 40 days overdue, the person or company to whom it is payable could enter into what’s known as a statutory lease to secure the outstanding debt against the property,” says Anthony Howarth, senior conveyancer at law firm Weightmans LLP. “They can do this even if they haven’t sent a demand for payment of the rentcharge. The homeowner could then be liable for the associated costs of this.”
The 1977 Rentcharges Act abolished the creation of most new rentcharges, and existing rentcharges were capped so they would expire in 2037. The 1977 act also provided a mechanism for freehold owners to buy out the rentcharge attached to their property. The cost is normally about 16 times the annual payment and can be done by completing an application form downloadable from the government’s website at Gov.uk/guidance/rentcharges#how-to-redeem-your-rentcharge.
‘We’re not getting value for money’
Kevin Graham (pictured above), 34, a married father of two who works for the NHS, bought a freehold home in Spennymoor, Durham from developer Taylor Wimpey in 2013.
Taylor Wimpey’s salesperson told him there was a maintenance charge of £80 a year for the communal areas of the estate, DurhamGate, payable until the council adopted the estate’s open spaces, which include a “green spine” of footpaths and trails, a picnic area, and play and sports areas. Until the adoption, these areas would be maintained by the management company, DurhamGate Ltd.
However, buried in the small print of Kevin’s deeds was a clause saying the charge would increase every five years, the first time by 150% multiplied by the change in the retail prices index (plus VAT), then in line with inflation after that. It also became apparent that a covenant in the deeds means the charge will still be payable even after the council adopts the estate.
Mr Graham feels this should have been brought to his attention by his solicitor – a firm recommended by Taylor Wimpey – as it would have influenced his decision to buy the house.
“It was £80 per year when we moved in. It is now £133,” says Kevin. “We’re definitely not getting value for money as we are paying full price for a green spine that is only half complete (Phase 1). Phase 2 has not even started yet and we still pay full council tax for the same services. Also, other members of the public can use the green spine but don’t contribute to this payment.”
Kevin has asked DurhamGate Ltd for a breakdown of what he and other residents are paying for, but his request has been refused each time. Some residents have stopped paying the fee as a result and are taking legal advice.
A company spokesperson says: “The developers have and continue to make substantial upfront investment in DurhamGate which is creating an attractive mixed-use community.
“The open space payment contributes to that investment and enables the creation of high-quality and sustainable public areas including landscaping and the use of enhanced materials such as granite paving. This sets DurhamGate apart from other developments in the area, which is why it is the destination of choice for many new home buyers.
“The scheme, which was agreed with the house builders Taylor Wimpey and Yuill, forms part of the individual house purchase contracts. We have also met with homeowners individually and as part of a residents’ panel we established to keep them updated. It is not unique to DurhamGate and is becoming increasingly common on high-quality developments of this kind.
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