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Saturday, December 23, 2017

Situations Change. Principles Don’t.

In 1987, I was a child in upper elementary school. Believe it or not, I still have some journal entries from that year, the writings of an overly curious little boy that I think would fit right in with my own children. My best friend in the world was about to move far away and there was no interest; believe it or not, I managed to get back in touch with him in the last few years and we actually have quite a lot in common, though we live fairly far away from one another.

In 1997, I was a college freshman. I knew my wife-to-be, but wasn’t dating her or romantically interested in her. Most evenings, I read books or played video or computer games. My closest friends in the world lived on my dorm floor; one of them still remains my best friend (besides my wife), while I am still in touch with the other.

In 2007, my wife and I lived in a tiny apartment. I worked in a research lab doing data mining. We had one child, a toddler. We watched television together most evenings. My wife’s closest friend (who we’ll call Bee) used to come over regularly for wine tastings. My closest friend came over about once a month or so and I felt that friendship slipping away, at least in part because my friend wasn’t really sure what to do around infants; it would recover.

In 2017, my wife and I live in a nice mid-sized family home. I am a full time writer working at home. We have three children, and that toddler is now a pre-teen. We usually sit in the living room together most evenings, while we both either get some work done or read while cuddled up together. My wife’s closest friend now lives across the street from us; we haven’t seen Bee in several years. My closest friend is still the same person, but now I see him at least weekly – I worked to renew that friendship.

Lots of details changed, but most of the principles I live by stayed the same.

Spend less than you earn and do something financially productive with the difference. I picked this one up in the mid 2000s.

Unless there is a clear long term benefit to buying something, don’t buy it – figure out another way to achieve whatever you want to be doing. Again, I picked this one up in the mid 2000s.

If you must carry debt, make sure it’s low interest debt. I also picked this one up in the mid 2000s.

Having money in a savings account will help you in all kinds of emergencies. I’ve known this since I’ve had money.

Put aside focused time for your most valuable relationships, the ones you couldn’t live without but can easily take for granted. I’ve done this since I was a kid.

Treat others as you would like to be treated. I’ve also done this since I was a kid.

Treat wasted time as lost money or lost meaningful experiences. This was taught to me by my first real adult mentor, who showed me again and again how true it was.

Be the person you want to be around. I figured this out in high school and have stuck with it ever since.

Ask questions if you don’t understand, as it’s better to admit ignorance and grow over time than to feign knowledge and lose the respect of others. Again, this was another one taught to me by my mentor.

Most people don’t realize that they’re being cruel and don’t intend to do so, so don’t take minor slights personally. My college pastor taught me this one.

Take some time each day to appreciate all that you have and what other people have done for you. I figured this one out in my early professional years.

You can feel an emotion inside of you without having to display it. I spent a few years reading a ton of philosophy and this was perhaps the most valuable thing I picked up.

Laugh at yourself. I’ve known this one since I was very, very young.

I could list quite a few of these, but they give you a clear idea of what I’m talking about.

Those are principles that I live by. I don’t just say them; I try to do them, to the best of my ability. The vast majority of the time, I succeed; if I fail, I try hard to figure out why.

As much as my life has changed over the years, most of these principles have stuck with me through those changes. I didn’t always have all of them – many were taught by my parents or by my earliest teachers, while others came from my mentors or from things that I read and learned – but once they stuck, they stuck.

The thing is, collectively, choosing to live by these principles has helped me handle almost everything that has come up in my life, from the biggest life-changing things to the little pleasures and annoyances. It’s not just about saying those principles, but how they guide you toward how you should act and how you should react to things.

To put it simply, when you stick to principles, you usually get through situations with a reasonably good outcome; it’s when you abandon them that things go haywire. This is really easy to illustrate with personal finance principles, so let’s walk through a few.

Principles In Practice

Spend less than you earn and do something financially sensible with the remainder. If you stick with that principle month in and month out, year in and year out, you’ll find that your financial problems melt away. Your debt disappears. You start saving for big goals in life, like retirement.

If you abandon that principle, even some of the time, a much worse outcome occurs. Sure, you get to splurge in some way in the short term, but the debt persists. You’re unable to actually build a stable financial foundation.

Unless there is a clear long term benefit to buying something, don’t immediately buy it – figure out another way to achieve whatever you want to be doing. My tactic for achieving this principle is to live by the thirty day rule – if I’m tempted to buy something nonessential, I wait for thirty days before doing so. If I still want it at that point, then I budget for it.

This goes down even to very little things, like buying a morning coffee at the coffee shop. I’ll do so if there’s a clear long term benefit, like if I’m meeting someone at the coffee shop to discuss a business relationship, but if that extra reason doesn’t exist, I look for a less expensive way to have that item or wait for at least a month. My long-term solution for a morning coffee is to simply make my own cold brew at home, which basically means I soak coffee grounds in cold water for 20 hours or so. It’s about as inexpensive as coffee can get and the resulting beverage is delicious. It’s literally my favorite way to enjoy coffee.

The funny thing is, if I didn’t follow this principle of trying to find a better and more cost-effective way of doing things, I likely would have never discovered my preferred way of making coffee. I would have stuck with “good enough” – overpriced coffee at the coffee shop. By trying to find something that had a better balance of “great coffee” and “low price,” I found a better solution both in terms of quality and money.

That phenomenon repeats itself over and over in all kinds of buying situations, and I would never discover those things if I didn’t stick to this principle.

If you must carry debt, make sure it’s low interest debt. The best route is not to carry debt at all, but if you must carry debt, try to make that interest as low as possible through debt consolidation or balance transfers.

The thing is, if you truly live by spending less than you earn, debt should eventually be a pretty rare thing in your life. You might end up with a small amount in an emergency situation, for instance, but that’s to alleviate a very short term problem.

The only time where this should be relevant is if you’re just starting to discover financial principles in your life and are just getting used to them. You’re probably holding debts from earlier poor choices, and thus if you apply this principle, you’ll know that you should do all you can to consolidate them down into lower interest debts when possible.

Having money in a savings account will help you in all kinds of emergencies. I implement this principle by automatically transferring a small amount each week from checking to an emergency savings account. I never turn off that transfer. That way, if an emergency occurs that would blow apart my budget – say, an appliance breaks, for example – then I know I can just tap that savings account.

Plus, I look at that account like this: if I’m truly spending less than I earn and am not accumulating debt and that account has a positive balance, then I know I’m spending less than I earn over the long haul.

An emergency fund bails you out time and time again. It keeps big unexpected expenses off of credit cards, where they are likely to start accumulating interest that you’re going to have to pay back. An emergency fund makes that a non-issue – you handle the emergency via credit card, then pay it off in full as soon as you’re able, or else transfer the money into checking and pay by check. No debt, no muss, no fuss.

These principles remain the same and continue to work even as my life changes.

Principles Stay True

Spend less than you earn and do something financially sensible with the remainder. Ten years ago, that “financially sensible” thing was paying off debt. At that time, our only real debt was a house mortgage, but we were committed to paying it off quickly using what remained after retirement contributions and building an emergency fund.

We spent less than we earned – a lot less – and because of that, we had the money to make double and triple mortgage payments and fund retirement and fund an emergency fund, all while only making roughly the average American household income.

Today, we still spend less than we earn, but the remainder is dumped into saving for retirement and also saving for an eventual land purchase in the country. The same exact principle still applies, though. We’re spending less than we earn and doing something financially sensible with the remainder.

What will we do in the future? We plan on sticking to this until we’re able to retire and live off of what we’ve saved, but even then, we’ll both probably still earn at least some income. I want to write a series of novels that I’ve been outlining and modifying for most of my adult life. I expect that we’ll still earn some income, but without the day to day pressure of deadlines, and that’ll still all add up to spending less than we earn.

Unless there is a clear long term benefit to buying something, don’t immediately buy it – figure out another way to achieve whatever you want to be doing. Ten years ago, our action on this principle involved figuring out how to take care of infants and toddlers without breaking the bank. We were figuring out how much more cost effective cloth diapering was rather than buying acres of disposables, for example, and how much value one can get out of a good breast pump.

Today, one of our big foci is on the long term value of education. What extracurriculars are our children getting a lot of value out of? What about educational opportunities for myself and Sarah? What actually provides value? We’ve learned that too many extracurriculars have a diminishing return in terms of actually building character and excellence, but having none isn’t good either – a balance of a quality activity or two and unstructured free time to explore interests seems to be the right balance for growth and for finances.

Ten years ago, we were learning the value of preparing meals at home. This year, I used this principle to find a better way of making good low-cost coffee. Ten years ago, I used this principle to start figuring out how to save a ton of money on laundry by making my own laundry soap. This year, we dug deep into make-ahead meals, putting tons of them in the freezer instead of buying ready-made ones or buying takeout.

Over and over again, this principle comes through for us. What is the clear long term benefit of this purchase over a lower-cost alternative? We’ve asked that of our purchases for a very long time, and we keep asking it, because sometimes even better answers reveal themselves.

If you must carry debt, make sure it’s low interest debt. Back then, our goal was to eliminate our remaining debt. We spent much of 2006 and 2007 paying down debt, setting ourselves up to buy a home, and then hammering at that mortgage debt.

Today, our goal is to avoid debt. We’ve considered many of the big expenses that we have coming up – replacing one car, then replacing the other a year or two later – and already have saved for those costs.

If we have to carry debt for some reason, a low interest car loan is preferable to high interest credit card debt, so if we absolutely had to, we could tap our car savings if the other option was to throw things on a credit card. We’d rather avoid both.

Having money in a savings account will help you in all kinds of emergencies. Ten years ago, I added to our emergency fund manually and, over and over again, I found that we were happy to have that money. We had a major unexpected trip for a funeral. We had several unplanned expenses for our house. Our emergency fund handled all of those things.

Now? We have a very healthy emergency fund that’s funded automatically with a small checking account transfer each week. We have had a couple of emergencies in 2017 that were big enough to tap it, but nothing that really drained the account in any significant way.

Still, simply having that emergency fund is a huge relief. It reflects the fact that a pretty stiff crisis can hit our life and we can roll right through it without skipping a beat. This principle saves us cash, but it also saves us some significant headaches and some stress along the way, too.

Finding Your Principles

In this article, I’ve mostly hammered home how a handful of key financial principles go a long way toward governing a lot of our financial decisions, from what we buy to how we invest. Even as the tides of life change, we continue to live by those core principles and they continue to guide us in the right direction.

They’ve worked through the arrival of children. They’ve worked through life-altering illnesses. They’ve worked through career changes. They’ve worked through personal crises. They worked when I was a young adult, and they work as I approach middle age.

Why? When principles really make sense, when they make objective sense and align with your values, they work in lots and lots of settings and situations. You can rely on them to guide you through whatever you might be facing in the moment.

How do you find these principles? Honestly, it takes a while, but here’s what I’ve found to be true.

First, focus on things you care about that you aren’t sure that you’re handling well. Money, obviously, is one, but so are social situations, your career, your social network, and so on.

Second, think about the outcomes of those situations that would make everyone involved happy, not just you. It’s easiest to visualize a great outcome for yourself, but the true best outcomes are the ones where everyone involved sees a nice net benefit. Think of a good friendship – it doesn’t just run one way.

Third, look for trusted advice on how to get to those awesome outcomes. How do you build a good social network? How do you build financial independence? What exactly do you do? Seek out trusted advice on the process involved, either from people in your life that you trust or other resources that have built your trust over time. Seek out their key steps for getting to that desired outcome.

Fourth, adopt the things that all of those pieces of advice have in common that also feel right to you. A truly good piece of advice feels right because it resonates with your internal values. A piece of advice that both feels right and is agreed upon as a step to getting the great outcomes you want is probably going to become a principle.

Finally, apply that nascent principle over and over until it feels natural and you really understand it. For a while, you’ll probably have to remind yourself of this principle. One good way to do that is to keep the principles you’re working on front and center in your mind as you’re building them. Make it the lock screen on your phone or the home page on your browser. Put it on a Post-It note on your rear view mirror. Make it a four times daily reminder on your phone. Keep thinking about it and applying it and thinking about it more and applying it more until it starts to feel completely natural. That usually takes a while – three or four months – but when it does feel natural and you do it without even thinking about it, that’s when you’re living by principles. Then, repeat the process with new principles.

Discovering good principles is easy. Ingraining them into your heart and into your behavior is hard. It takes time. However, when you do finally build them and you do live by them, it makes life so much easier and so much better. Your natural course of action not only lifts you up, it lifts everyone around you. Not only that, you feel prepared to handle almost anything life hands to you. That’s a great place to be in.

Your homework? Pick a part of your life that you really want to improve. Imagine the kinds of outcomes you want in that part of your life, ones where everyone involved wins. Figure out how to get from the way you do things now to a state where those outcomes happen often – figure it out by talking to mentors and reading good advice. Figure out the one or two or three key principles that pop up again and again and just feel right. Practice those principles and keep them front and center in your mind until living by that principle feels natural. Doing so gives you a bedrock to live by, making things like being financially responsible feel like a completely natural behavior.

Good luck!

The post Situations Change. Principles Don’t. appeared first on The Simple Dollar.

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Friday, December 22, 2017

Eight Reasons to Ignore the Bitcoin Craze

If you’ve never heard of Bitcoin, here’s a serious question: Where in the heck have you been?

The digital cryptocurrency known as Bitcoin has been a hot talking point for months, mostly because it surged in value from several hundred dollars to more than $17,000 in a matter of months in 2017.

Imagine if you purchased five Bitcoin last December when each theoretical “coin” was worth around $766. If you held your $3,830 investment until Bitcoin surged over $16,000 early this December, you’d have turned your investment into $80,000. Not bad, huh?

But if, like most people, you didn’t buy Bitcoin? At this point, you might have a serious case of FOMO – or “fear of missing out.” Whether or not you had the cash to invest in Bitcoin when you first heard about it, you might have a serious case of regret.

While it’s easy to understand why you might feel like you missed out on something big, here’s the good news: A lot – and I mean a lot – of financial advisors and economists are suggesting we all ignore the entire Bitcoin craze altogether.

And these people are actual financial advisors and economic experts trained in the financial markets and how they work, not your neighbor Doug who invested $500 in Bitcoin and now thinks he’s a genius.

Eight Reasons You Should Ignore Bitcoin Mania

When experts who know a thing or two about financial markets and the economy talk about Bitcoin, we should listen. Here are eight reasons some experts say we should ignore the hype around Bitcoin and other cryptocurrencies – at least for the time being.

#1: Bitcoin is an obvious bubble.

A financial bubble, according to Investopedia, is “an economic cycle characterized by rapid escalation of asset prices followed by a contraction.” Remember that what goes up quickly very often comes crashing right back down, and that could very well include Bitcoin.

Some experts even call Bitcoin an obvious bubble. Recently, Nobel Prize-winning economist Paul Krugman shared his thoughts on Bitcoin with Business Insider. To say that Krugman thinks Bitcoin is a bubble could be the understatement of the year. In fact, Krugman says the Bitcoin bubble is “even more obvious than the housing bubble was.”

But if it’s a bubble, when will it crash? Like everyone else, Krugman doesn’t know. Since Bitcoin isn’t anchored by real estate, stocks, or anything of tangible value, Krugman says we’re waiting for a “Wylie Coyote moment.” At some point, Bitcoin will run off a cliff and look down. Only then will we all realize there’s nothing underneath.

Indiana Financial Advisor Tom Diem says Bitcoin reminds him a lot of Tulip Mania, a historic bubble that took place in the 1600s when tulips were brought to Holland from Turkey and introduced to the Dutch. The local population became so enthralled with the new flower that they started trading the bulbs like mad.

Where tulip bulbs had once cost as much as an onion, they surged to reach the price of an estate. Of course, the whole thing eventually came crashing down, and tulip bulbs were suddenly worth what you might expect to pay for a flower – not a lot.

#2: Bitcoin is mostly driven by FOMO.

While Bitcoin has some advantages as a currency — low fees, easy transfers, anonymity — many investors don’t really know much about it. Krugman says this lack of knowledge is a good thing for now as the price continues to surge. But eventually, we may all find that FOMO is the root cause of the currency’s sudden rise in value.

This is a problem, says financial advisor Anthony Montenegro of The Blackmont Group. Many investors driving the price up are doing so because they’re more scared of missing out on returns than they are of actually losing money, he says.

“They’ve succumbed to the fear of missing out,” he says, adding that you shouldn’t “believe the hype.”

As a financial advisor, Montenegro believes and has always believed that steady plodding brings prosperity and hasty speculation brings poverty. “Plan wisely and invest accordingly,” he says.

And perhaps remember the wise words of Warren Buffett: “Be fearful when others are greedy, and greedy when others are fearful.”

#3: Bitcoin isn’t backed by a country.

Financial advisor Michael Solari says one of his biggest worries is the fact that Bitcoin, like other cryptocurrencies, is not tied to a country. Without a national bank backing the currency, what will happen if the market tanks or something goes extremely awry?

Former hedge fund manager Todd Tresidder, who blogs at FinancialMentor.com, also says that, while part of Bitcoin’s appeal is that it operates outside of government control, this is simultaneously disconcerting, because government needs to control currencies if they hope to implement policy.

Tresidder says there’s a real risk the federal government could choose to regulate and control cryptocurrency. “And, it’s not a big stretch to imagine them making all currency not originated from government illegal,” he says. “That would, of course, have a dramatic impact on price through its impact on supply and demand.”

#4: It makes more sense to invest in what you know and understand.

Financial advisor Stephen Rischall of 1080 Financial Group says one of the main reasons he isn’t suggesting his clients invest in Bitcoin is because they, like everyone else, do not understand it.

“If you don’t understand how it works, what it does, and how you can easily get your money back, then you probably should think twice before investing in it,” Rischall says.

Cryptocurrencies are highly speculative and unregulated, notes Rischall. “It’s the wild west of investing, where numerous cases of fraud and hacking thefts are hidden by greed and hyper marketing.”

#5: Bitcoin is extremely volatile.

While Bitcoin prices have surged steadily over the past year, the daily value of this currency has been all over the place. These huge swings can cause off-the-charts emotional reactions that will only be amplified the larger the movement, says financial advisor Brett Romero of SAS Capital Investment Advisory Group.

Imagine if you dove into Bitcoin when its value was at $16,000, then watched as its value plunged beneath $14,000 just a few days later — as it did early on December 22. You’d likely be extremely stressed out, and maybe even sell your investment to thwart off further losses.

Either way, volatility can easily cause us to lose our cool and make rash investment decisions.

#6: Investing in Bitcoin promotes gambling behavior.

Financial advisor and investment analyst Joseph Hogue of My Stock Market Basics says Bitcoin isn’t nearly as big of a problem as the investing behavior it creates. Making a lot of money on a short-term investment always turns into gambling, he says. And when you get accustomed to gambling, it’s hard to invest any other way.

“You’re going to be constantly looking for the next hot stock,” he says. “You might make money on a few but you’ll end up chasing your losers all the way down, throwing more money into them until you’ve given up your profits and then some.”

And let’s not forget that you’ll likely lose thousands to taxes and trading fees along the way. “True investing won’t make you rich overnight, but it will meet your goals if you stick to a long-term strategy,” says Hogue.

#7: Bitcoin is highly concentrated in the hands of a few.

As of earlier this year, just 1,000 people owned 40% of the Bitcoin currency, according to Bloomberg. You can see why this could be problematic. Imagine some of those investors, often called “whales,” decided to capitalize on their gains and sell their Bitcoin all at once. What would happen to the currency?

As the market floods, chances are good Bitcoin prices would drop with a thud, says financial advisor Christopher Clepp. Having so much Bitcoin in the hands of so few makes it “ripe for market manipulation by a relatively small number of people,” he says.

And if these owners decided to coordinate their movements to protect themselves from losses, they could. Since Bitcoin is a currency and not a security (a stock), there’s “no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in minutes,” notes Bloomberg.

#8: Bitcoin may be especially susceptible to hacking and theft.

Because Bitcoin is a digital currency that is mostly unregulated, it may be especially susceptible to hacking. And this is already playing out. In early December of this year, for example, more than $60 million in Bitcoin was stolen through a trading site called NiceHash.com, notes CNBC. And apparently, North Korean hackers had stolen upwards of $80 million in Bitcoin as of a few weeks ago.

But Clepp says this may just be the beginning. “The coming wave of quantum computing, which will accelerate greatly in the next two to four years, will render much of the cryptography of bitcoin near useless in preventing hacking and theft,” says Clepp.

In other words, it could all get worse before it gets better. And it may never get better.

The Bottom Line

Instead of racking your brain over how or when to invest in Bitcoin, most financial advisors suggest you focus on real, tangible financial goals. Boosting the amount you’re saving for retirement by a few percentage points, building up your emergency fund, and paying down debt can make a huge difference in your net worth over time, for example.

These tried and true financial moves may not be as exciting as Bitcoin, but they will pay off in the long run.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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Did you invest in Bitcoin? Are you planning on it? Please share in the comments below. 

The post Eight Reasons to Ignore the Bitcoin Craze appeared first on The Simple Dollar.

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Want to Read More? Here’s How to Do It Cost Effectively and Meaningfully.

Over the last few weeks, you may have noticed a bit of a theme across some of my articles here at The Simple Dollar. Without directly making it into a series, I’m addressing low cost ways to tackle many common New Years resolutions that people make, such as getting fit or building new friendships or saving money. I even talked about goal-oriented planners for the coming year, and I have a few more “resolution” posts planned in this informal series.

Today, however, we’re going to tackle a resolution that’s near and dear to my heart: “I want to read more.”

People often adopt this resolution when they look back on their life and see a love of reading over the years and reflect on many books that they’ve loved to read, but when they think about their current life… they haven’t read many books at all, or even any short stories or meaningful articles. Reading used to occupy a real place in their life, but it’s somehow faded, and they want to reclaim it.

The problem with a simple “I want to read more” resolution is that it can really easily lead to a lot of unfulfilled spending. It’s really tempting to head down to the local bookstore or over to Amazon and just buy a bunch of books that you’ve been wanting to read. Surely, by having those books on one’s bedside table, one will read more. Right? Right?

Actually, that’s not what I’ve ever found in my life, nor have any of my friends who also love to read. The amount of time spent reading and the amount of books read seems to have little connection to the number of unread books on one’s shelves or bedside table. Just because the option is there doesn’t mean that we pick up books.

As someone who is incredibly busy but still makes room for reading in my life, I find the ability to continue to read books boils down to two key elements.

First, I intentionally set aside time for reading. Every single day, I set aside thirty minutes for reading with my children – during that time, I almost exclusively read fiction. I also spend about the same amount of time reading a personal finance or personal growth book with a notebook open – ostensibly, this is part of “brainstorming” ideas for The Simple Dollar, but it’s also valuable time – and I put aside a solid hour for reading a different nonfiction book on the weekends.

Notice that nowhere in this do I say that I “try” to put aside this time or that I do it if I can “squeeze it in.” I just do it.

For me, reading is a “rock” in the proverbial jar of my life. It’s not “sand.” Sand is the other stuff – television, games, movies, gardening, and so on – that I enjoy doing but that I don’t mind moving around as needed. If I don’t watch any television today, it’s okay. If I don’t play a game today, it’s okay. If I don’t read today… then I’m disappointed. If evening comes around and I haven’t read for a while, it comes before browsing the web on my phone or before watching a television show. It’s a true priority for me.

In fact, most days, I literally schedule it. I usually read my personal finance/self-improvement book just before the kids get home from school on school days, or early in the morning when everyone else is still asleep on non-school days. I usually read my fiction with all of my kids during a half-hour period of sustained reading that we do each day. I do my nonfiction reading for an hour or so after lunch on Sundays.

If I care about something, I make time for it. That means, sometimes, pushing aside other things that I might care about a little bit or that are just convenient time-fillers.

Second, I keep a book with me almost everywhere I go so that I can turn to it in idle moments. This actually contributes a lot to my reading time in a given year. I just simply keep a book with me wherever I go and turn to it in idle moments.

The easiest way to do this, I’ve found, is to simply have an e-reader app on your phone that contains a book that you’re currently reading on it. That way, everywhere you have a phone, you have a book. However, that has a big drawback – your phone is pretty much distraction central.

Another approach I often use is to simply have a “car book.” It’s a book that I just leave in my car and read during idle moments. I’ll take it into appointments with me or just read it when I’m waiting for children to get done with practice or for my friend to come out and join me in the car.

I also keep the books I’m currently reading in my “go bag,” which is basically just my portable office. That way, if I go somewhere to work or to handle some life and household tasks, I have a book with me.

So, if you’re going to adopt a reading habit in the coming year, I suggest two simple resolutions. One, block off some time each day to read and give that time block a high priority. Two, keep a book with you wherever you go. Those two tactics will encourage you to read books far more than you might ever expect.

We’ve tackled how to turn reading into an effective resolution, but how do you make it meaningful and cost-effective? Let’s start with the meaningful.

I have one simple suggestion for meaningful reading: try to read stuff that will improve or change your way of thinking. Read novels that take place in areas you don’t know about, or focus on people from backgrounds that you’re unfamiliar with. Choose nonfiction that addresses a topic that you don’t know well but are curious about, or nonfiction that helps you improve in a desired way.

I find that two types of books really stick with me. One type is the truly great story that sucks me in, but I’ve found that those are very much hit and miss. I might read a book that someone else loves and it’s just not for me, or I might read a book that someone else loathes and absolutely love it. With books like that, I give them a serious chance, but if they don’t click, I don’t feel guilty about moving on to a new book before finishing. The other type is the book that I chose to expose me to a new idea or a new situation or to help me improve myself. These are actually easier to find and choose on my own than great stories are.

Stick to those books and you’ll find that reading really becomes meaningful. Choose promising stories, but don’t stick with them if they don’t click, or choose books that help you improve yourself or introduce you to new ideas or backgrounds or challenge the ones you have.

How do you do this cost effectively, though? The obvious answer is the library. Simply use the library as your primary source of books. Stop in at your local library, see what they have available, and check out interesting titles. If they don’t have exactly what you want, request them or get on the wait list for those books. The only cost for using most libraries is in the form of late fees, so you do have to remember to return the books!

What if you prefer reading on your phone or Kindle? Many libraries offer access to Overdrive, which allows free access to thousands of ebooks and audiobooks via your local library. It’s easy to read books right within the app, pretty much wherever you are, or you can transfer books straight to your Kindle device if you have one.

A final tip: don’t shop for books. If you want to “shop” for books, do so on the shelves of your local library. If you happen to read a book review or hear a recommendation, channel that book acquisition impulse toward your library, not toward the bookstore.

That’s not to say there isn’t a reason to own a book. Books that you use for regular reference are invaluable, as are books that you re-read on a consistent basis. However, books that you’re likely to read just once and then set aside for good? Those are best checked out from the library.

Reading is an incredibly rewarding hobby, one that can both entertain you and add great meaning to your life while simultaneously sharpening your own literacy skills. However, it is a hobby that’s easy to push aside when life gets busy, and simply buying a bunch of books isn’t a cost-effective or time-effective way to reclaim that hobby. Try these strategies instead – set aside time for reading, read things that are meaningful, and use your local library to keep the costs in check.

Good luck!

The post Want to Read More? Here’s How to Do It Cost Effectively and Meaningfully. appeared first on The Simple Dollar.

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Thursday, December 21, 2017

Frugality Is Not Your Solution. Frugality Is a Tool.

Several times a day, I find myself having a conversation with someone about personal finance. Whether it’s face to face, via email, through social media, or something else, it is a surprisingly common thing for people to open up about their financial state to me and ask really thoughtful and insightful questions.

While those questions and answers – which often turn into mailbag posts – are often the most fulfilling part of my day, they’re also the most challenging part of my day for a number of reasons.

One big reason for this is that some of the stories are really hard to hear. The stories of people who are really struggling, particularly when it is due to horrific unexpected events, are tough to read. They’ve usually got a ton on their plate and are hoping that I can provide some kind of miraculous solution, which I usually can’t.

Other stories are a challenge because of missing details. It’s really hard to give adequate thoughts on a person’s situation when those thoughts rely on assumptions and guesses about their life. Not knowing a person’s age or employment situation makes it very hard to suggest anything meaningful.

There are many, many types of messages that I get, but I wanted to focus in on one particular type: the message from the unfulfilled person who believes they have found a new life direction thanks to personal finance.

I’ll hear from someone who has seen some very nice short term financial success from being a bit more frugal in their buying choices and suddenly now thinks that frugality is going to solve all of the challenges in their life. They’ve focused in on frugal tactics like a laser beam and view it as the “magic key” to opening all of the doors that they want to open in their life.

I understand that passion because, to a large extent, I was once there myself.

For a period of my life that lasted for eighteen months or so, I truly believed that frugality was the key to building the exact life that I wanted to have. Frugality was how I was going to buy a home. Frugality was how I was going to improve my fitness (yep). Frugality was how I was going to make everything in my life better. It was in this period that I wrote my short book 365 Ways to Live Cheap, which was exactly what it described but also included a few bits that were very excited about the power of frugality to change lives.

Here’s the catch, though: near the end of that period, I began to realize that, although frugality had really helped in some aspects of my life, it wasn’t this magic wand that could fix everything. A lot more was required of me to live the life that I wanted.

I needed discipline. I needed the ability to choose the difficult option in the moment and do it on a regular basis under the knowledge that it would build a better life in the long run. Discipline is why you make your bed in the morning rather than just trudging out the door as quickly as possible. It’s why you go to the gym when you’d rather curl up and watch Netflix.

I needed organization. I needed to be able to find things when I needed them. I needed to have a home that was presentable at any moment.

I needed time management. I needed to know what things I needed to get done at any given moment. I needed a smart way to keep those things accessible, too, and out of the way when I needed to focus on a task at hand.

I needed values and principles. I needed core rules to live by to balance my life and help me navigate tough decisions and be at least relatively certain that I was always making good choices.

I needed good friends. I needed good relationships. I needed emotional control. I needed a healthy body. The list keeps going and going.

Here’s the thing: frugality is a wonderfully powerful tool for building a great life, but it is only one tool in a toolbox. Being obsessive about frugality alone will help in some areas but not in others.

I like to think of these things as being like tent stakes. If you have just one, you don’t really have a functional tent. If you have three or four, you can at least make passable shelter. If you have a lot, you can make a wonderful place to sleep that will give you plenty of space and keep the rain out.

Each tent stake is one of those tools, and the canvas tent itself is your life. One tool won’t really prop it up into anything amazing – it takes a lot of tools to make the kind of life that you want.

So, what exactly should you do if you see yourself in these words? What should you do if you find yourself pinning all of your hopes on using frugality – or some other individual tactic – to fix a myriad of problems in your life?

Moving From “Frugality as Solution” to “Frugality as Tool”

The absolute first thing you should do when you decide that you want to make changes in your life is to really think about what those changes should specifically be. A vague idea of a “better life” won’t really help you achieve much of anything, and, besides, almost everyone has a somewhat different definition of what a “better life” actually is.

What do you want out of your life? It seems like such a vague question, and it’s because of that vagueness that people often ignore it or get lost in it.

My preferred tactic to use here is to visualize a specific future, a few years down the road. It’s simple – I just ask myself one very straightforward question. “Assuming that things go reasonably well in the next five years and I’m able to execute on the things under my control, what do I want my life to look like?” So, you assume that if you bite off some reasonable challenges for yourself and execute on the things you can control, what will your life look like?

Things to include in this picture are things like personal health, intellectual growth, some degree of financial success, skill development, and personal achievements. You can also include things like positive growth in existing relationships and development of new relationships, but do not pin your hopes on a specific person or specific relationships outside of your immediate family because those things are somewhat outside of your control.

Try to focus in on just a few things that you want and make them specific. Maybe you want to establish some financial control in your life, but what does that look like? Are you eliminating debt? Saving for retirement? Or, maybe, you just want to have a really strong marriage, but what does that look like? Better communication? Better intimacy? What about your career? If you’re focusing on that, what does that mean in terms of things you can control? More education? Living up to a performance review?

Figure out a handful of key things that you really care about, and then make those things specific. Where do you want to be in five years? Debt free? Better body? Lower weight? Better career options? Better relationships?

Once you’ve really identified some of the things you want to have in your life in five years, start translating those things into changes. What’s the difference between your life now and that picture you visualize? Maybe you’re debt free. Maybe you’ve lost weight. Maybe you have some retirement savings. It really could be any number of things.

This might appear similar to suggestions I’ve made in the past on The Simple Dollar, and for good reason, but here’s where things start to change a little bit.

That list of changes is now your list of goals. Frugality is a tool that will help you achieve some of those goals, but it is far from the only tool. What tools will you need?

Well, the next step in this journey is research. You need to look into the specifics of each of those goals and find out what kinds of things actually work in terms of achieving those goals.

If your goal is debt repayment, for example, frugality is definitely one tool, but it’s not the only tool that helps. Improving your income through improving your career or starting a side hustle is also a tool you can use to pay off debt – it won’t start clicking right away, but if you have a lot of debt and a large timeframe, you’ll find that some career focus will really pay off for you in a few years when you can really hammer through that debt.

Other goals you may have will only use frugality in a secondary way at best. If you want to lose weight, you might discover that the most effective way is to count calories. This may seem really obvious, but you’d be surprised how often people begin to pin all of their hopes and dreams almost irrationally on a single tool.

In fact, if I were to suggest one tool that’s actually fundamental to anything you want to achieve, it’s discipline. Discipline, in this context, simply means having the self-control necessary to consistently put forth the effort needed to achieve a goal over the long term, even if – or especially if – the results aren’t immediate.

Without discipline, it’s pretty hard to keep pushing yourself through the long slog between the exciting start of a goal and the exciting finish where you achieve the results you want. Self-discipline is the willingness to get up each and every morning and do something that offers a bit of resistance.

Putting Tools in their Place

Let’s step back here for a moment.

We’ve established that frugality, like many other things, is not a solution in and of itself, but a tool one can use to work toward a life-changing goal.

We’ve also established that the best approach for changing your life is to define a life-changing goal, then research that goal to figure out how to approach that goal in the most effective way that you can.

Finally, we’ve established that the most effective all-around tool is probably self-discipline, but no tool is perfect for everything.

Let’s focus in a little bit on that second part – research. You know where you are. You know where you want to be. However, the path between here and there seems both difficult and unclear. Lots of people are telling you lots of different ways to go and suggesting lots of different tools to use.

What do you do? How do you figure out the right strategy to follow?

My approach is very straightforward. I read a lot of different approaches and stick with the things that they have in common.

For example, the most consistent elements of weight loss strategies that I’ve seen revolve around eating fewer total calories and eating a diet that’s mostly plants – fruits, vegetables, and whole grains. There are many, many, many different weight control strategies out there, but all of them tend to fall back on those things.

If you want to get more fit, move around more, pick up some heavy things, and occasionally push yourself hard enough that you’re out of breath a few times in a row. The exact thing that you do varies all over the place, but the advice seems to consistently agree on those elements.

This move is akin to digging through a toolbox for the right tools for the job. You might know how to use a hammer, for example, but a hammer isn’t particularly useful if you’re trying to install a shelf. You need a level, a few brackets, some screws, and a drill. As the old adage goes, if you have a hammer, everything begins to look like a nail, but if you try to use a hammer here, you end up with a big hole in your drywall and a bunch of wasted time.

Let’s sum all of this up.

A Tool Won’t Save You. A Plan Will.

If you believe that a particular strategy will solve all of life’s problems, you’re going to be sorely disappointed. There is no magic tool that will solve every challenge in your life. Just because something handles one or two of those challenges really well doesn’t mean that it will handle all challenges with ease. Don’t become obsessed with just that one strategy – instead, add it to your quiver of strategies that you can use to solve problems.

Instead, start by identifying where you want to go. Where do you want to be in the future? What changes need to happen in your life?

Then consider those changes as problems to solve. How do you move your life from where it is now to where you want it to be? Then, how exactly do you make that change happen?

Those steps give you a vision, a goal, and a plan. Tools like frugality are how you make those plans a reality. Knowing how to get the most from a dollar is a very useful thing to know, but it’s really only useful for approaching financial goals, and financial goals alone won’t bring you the life that you want. It won’t magically solve fitness goals or marital goals or achievement goals or other goals.

Frugality is not your solution. Frugality is a powerful tool, one that works well in terms of helping you achieve some big goals you might have, but it doesn’t solve those problems by itself.

Frugality works best when you consider a financial goal to be very important for the future that you want and when it’s paired with other useful tools, like self-discipline and budgeting and money management and bill negotiation skills. Taken together, those tactics can go a long way toward stretching your income and helping you stop accumulating debt and pay off debt.

If you want to hang a beautiful picture, you need more than just a hammer. You likely also need the right kind of nail and a level if you want to get the job done well and get it done efficiently.

If you want to achieve financial success, you need more than just frugality. You likely also need self-discipline, money management skills, and negotiation skills if you want to get the job done well and get it done efficiently.

Frugality is a tool. It’s a great tool, don’t get me wrong, but it’s not a solution on its own. It just helps you on the path to where you want to go. You’ll need more to get you to where you want to go with any reasonable efficiency.

Good luck!

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Five Apps to Build Better Habits (or Break Bad Ones)

It’s not a revelation to say that most of us would be more focused, accomplished, and satisfied people if we developed stronger habits. We all intuitively know that to be true.

So, why do I and others find it so difficult to floss twice a day, work out five times a week, or stop eating so much ice cream? Why do so many of us make New Year’s resolutions, only to break them a month later?

It could be because most habits take quite a bit of time to change. I always used to hear that it took 21 days to change a habit, which is long enough – but that’s not even the case. Studies show that it takes anywhere from 18 to 254 days to create new behavior patterns, with the average being 66 days.

In order to stay on task for such a long time, it can be helpful to have support. Working with a team, mentor, or coach is always going to be the best way, but not all of us have the time, funds, or inclination to get involved in that way.

Thankfully, there are some great habit-building apps that can be used anywhere, anytime, to help us start engaging in more productive behaviors and stay accountable to ourselves. Here are five services that can help you kick off your New Year’s resolutions with a bang.

Beeminder

We’ll start with my personal favorite, Beeminder. It’s a wonderfully designed app that makes it easy to monitor your progress toward a goal while also holding you accountable for falling short.

Beeminder requires that you create a quantifiable goal and a timeframe in which you want to accomplish that goal. Then, you have to enter in real payment details (if you don’t feel comfortable doing this, you can’t use the app). When you fall short of your goal, you get charged real money. The minimum payment is five dollars, and it doesn’t go to an investment or savings account or anything like that — it goes directly to Beeminder.

For someone who’s highly motivated by money, this is a perfect incentive. If I don’t write a certain amount of words each day, I know that five precious dollars are going out the window. That is unacceptable to me, and thus, it works very well to keep me motivated.

Finally, I really like how Beeminder seamlessly connects with other popular apps so I can avoid manually inputting my data. Whether I’m tracking steps taken, words written, or time spent on social media, Beeminder will automatically update my progress.

HabitBull

HabitBull is based on a simple premise: helping people create new habits by using the “chain method.” This refers to the idea that if you start seeing a few days of positive momentum, and you can visualize your progress, you won’t want to “break the chain” and end your habit.

While you build a streak of engaging in a positive behavior, you are encouraged by both other users and inspirational quotes to continue on the streak. Via both of those mechanisms, you’ll increase your odds of building good habits.

HabitBull is all about helping you stay on track via encouragement from its community and its timely, tailored, and motivating messages. As a social person who also loves a good inspirational quote, I can see why this service is so popular.

StickK

StickK has quite the academic pedigree. It was created by behavioral economists at Yale, including recent Nobel Prize winner Richard Thaler, and you can tell some high-level thinking went into the app. It’s well designed, intuitive, and just makes sense.

StickK has a similar premise to Beeminder, in that its main way of keeping people on track to meet their goals is through the penalty of payment. A wrinkle that makes them different is that they require you to actually write out and sign a commitment contract before starting a goal.

This is a document where you outline what you want to achieve, and why. Signing it is intended to “utilize the psychological power of loss aversion and accountability to drive behavior change.”

I love that idea, as it reminds me of the “Investing Policy Statement” made famous by the Bogleheads investing forum. The IPS is a document in which you write out your investment plan and promise yourself you’ll stick with it, through thick and thin. It’s a reminder to keep yourself on track when times get tough, and I’ve personally found it to be very useful.

StickK also makes it easy to involve a friend or family member who can track your progress and encourage you to stay on track and do your best.

WayBetter

WayBetter is an app specifically for those looking to build healthier fitness habits. The creator was inspired to build the app after seeing how an office weight loss competition motivated his co-workers. People who never cared about exercise before were all of a sudden taking the stairs and tracking their steps.

The app builds on that idea by allowing people to engage in healthy competitions whenever they want, with people around the world. If you have the goal to take more steps in the coming year, this could be a really interesting one to check out.

Once you sign up for “step bet,” you can join a group of peers and compete against other groups. You can place a financial bet on the outcome, say one dollar. If your group out-steps the competition, you get your money back, plus a small bonus for winning.

It’s a clever way of using the financial incentive, compared to the other apps in which you can only lose money. If you’re confident you can outwork the competition, you can use WayBetter to both build healthy habits and make some side money.

Pavlok

While the first four apps on this list tend to focus on building new habits, it’s also important to be able to effectively break old, bad habits. Pavlok aims to help you with the latter.

Pavlok helps people break bad habits by using aversive conditioning, which is behavior training that uses negative stimuli, such as an electric shock, to get you to associate a certain behavior with a bad outcome.

In Pavlok’s case, they actually use electric shocks. Don’t worry, it’s not as bad as it sounds.

The Pavlok system requires you use their wearable wristband. Anytime you’re about to engage in a forbidden behavior, such as biting your nails, you give yourself a shock. You can adjust the intensity of the shock in the app to make sure you don’t overdo it, but keep in mind that it’s not intended to be painful, just a bit uncomfortable. You can even program it to zap you automatically based on certain behaviors. The theory is that eventually your brain starts to associate those “bad” behaviors with the uncomfortable zap, and you will naturally engage in them less.

This system is not going to be for everyone, as it’s uncommon to sign up even for free electric shocks, and the wristband costs $180. But if you’ve struggled with other ways to break habits, it could be worth a shot. There are many success stories of people using the Pavlok system, and if it can get you to quit a costly habit like smoking, then you’ll save a whole lot more than the $180 price tag.

Summing Up

We still don’t know the exact best way to get every individual to develop better habits. It’s a complex question, and the answer delves into psychology, physiology, and genetics.

Thankfully, we don’t need to know the exact reason why we tend to falter when it comes to building new habits. We just need to realize that it’s hard to get started on a new routine, and then try different tactics until we find one that works for us.

It’s a little bit like dieting. If you learn that you have more energy and you sleep better when you don’t eat bread, you should just stop eating bread. You don’t need to know the reason you feel better – whether it’s because you’re avoiding gluten, or reducing carbs, or it stems from a deep-rooted psychological issue from were seven years old. If you’ve found something that clicks for you, just stick with it.

Similarly, you don’t have to know why you’re better at achieving your goals when using Beeminder versus when you tried the “chain method.” As long as you find a system that allows you to stay motivated and on track, you’ll be well on your way to building a sustainable foundation of good habits in the new year.

Related Articles: 

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Wednesday, December 20, 2017

Money Can Buy Happiness. Here’s How.

“Financially independent people are happier than those in their same income/age cohort who are not financially secure.”
The Millionaire Next Door, page 46

If you want to buy happiness, the best thing you can do with that money is to use it to approach financial security, and then do that same thing consistently each time you want to buy happiness.

Why does that make a difference? Building toward financial independence is one of the few things you can do with your money that makes a lasting positive difference in almost every avenue of your life.

Most things that you can buy might provide a burst of happiness, but then it quickly fades. Even if you buy things with the strict goal of improving your life, almost all of them require you to add some additional effort to the mix – think of gym memberships or cooking equipment in this category.

There’s almost nothing you can buy (beyond covering essential needs) that will actually increase your happiness just by simply buying it except buying financial security. It’s not fun or glamorous. It just leads to lasting happiness.

So, how do you “buy” financial independence or financial security? You can’t just go to the store and find something on the shelf that says “financial security” on it, take it home, and bask in the happiness. What can you do?

It’s simple. You buy financial security when you pay off personal debt. When you send money to a credit card issuer to lower your credit card balance, you’re buying financial security and, over time, that will lead to happiness. When you make an extra mortgage payment, you’re buying a bit of financial security.

Similarly, you buy financial security when you save money for the future. When you put money aside for an emergency fund in your savings account at a local bank, you’re buying financial security. When you invest money for retirement, you’re buying financial security.

Those moves, when repeated over and over, lead to happiness. Not only do they cause a lot of the background worries about life to slowly erode, they open up a lot of opportunities that previously didn’t exist. You can retire at a normal age and not have to work a demeaning job just to keep food on the table. You can go back to school and train for a different career.

That’s happiness. That’s life changing. Knowing that things are stable, knowing that you can follow a different route if that’s what you want, that’s incredibly powerful.

Spending your money on a daily “treat” or an occasional big meaningless splurge doesn’t bring anything powerful at all. It just numbs the concerns of life for a bit, and that numbing fades.

So, why doesn’t everyone do this, then? If this is the key to happiness, why doesn’t everyone do it?

First of all, it doesn’t provide an immediate burst of joy (or at least not a strong one). The moment of buying something, and a bit of the anticipation and decision process, feels good in that moment. The decision to save money or to pay off debt often lacks that good feeling, at least in the moment.

The joy that comes from good financial moves is a long tail. Each good financial move you make is like a small increment of lasting happiness.

I like to think of it this way: whenever you use money, it’s kind of like spraying water on a hot summer day. You can spray a little bit of water on someone sprinkler-style for a quick burst of coolness, but that water dries up quickly and everyone’s back to being just as hot. Otherwise, you can put a little bit of water into an empty swimming pool. If you keep making the swimming pool choice, eventually it will fill up and everyone can go swimming in the pool and cool off together, but it takes a long time to fill that pool and meanwhile there is no quick relief.

Quite often, we’ll choose that quick burst of water from the sprinkler rather than putting a little bit in the pool, but that quick burst won’t create lasting joy.

Second, the “glass half empty” perspective is easy to buy into because the distance seems so vast. Often, the goal of being financially independent seems so far away from where you’re at that the little steps you might take are easy to write off as making no difference. When you have $80,000 in student loans and $200,000 in a mortgage and need to save $800,000 for retirement, the thought that choosing not to spend $5 on some splurge seems so small by comparison that it’s not worth it. Even worse, the sheer amount of financial ground that one feels that they have to make up can feel just utterly overwhelming.

However, looking at the glass half empty instead of half full is the wrong approach.

Rather than looking at your huge remaining student debt, remind yourself of how much you’ve paid already – and furthermore how much benefit you’ve already gotten from those loans. It’s likely that they’ve helped you get a job and, if not, they’ve helped you have some powerful experiences and grow as a person. You already have this. All you’re doing when you pay off a student loan is building upon the value that you already have.

Rather than looking at how much you should be saving for retirement, consider what you already have – Social Security benefits and whatever you’ve saved so far – and recognize that every single subsequent dollar you put into that pool will make your life just a little bit better. Skipping little forgotten treats now means something hugely meaningful down the road, like being able to afford the trip to be present at the birth of a grandchild.

Don’t obsess over what you don’t have. Look at what you do have. Don’t fret over how far there is to go. Rejoice in how far you’ve already come.

Finally, the idea of life with fewer “treats” seems unappealing. Many people buy into the perspective that in order to build financial independence, they must give up a bunch of the perks that they have in life and that their life will become barren and empty. “I don’t want to stay home every evening washing Ziploc bags and eating lentils!” they shout.

The truth is that a frugal life isn’t a barren life at all, it’s just a different life.

Rather than going out to an expensive restaurant, I’ll have a bunch of friends over for a potluck.

Rather than going shopping, I’ll go for a hike in the woods.

Rather than doing thing X that I might enjoy that costs money, I’ll instead do thing Y that I might enjoy that doesn’t cost money.

If you carry that forward, you start to ask yourself questions about every spending situation. Is this really the most worthwhile thing I could be doing with this money? What’s something that’s more worthwhile for the buck? That thinking starts to nudge you toward decisions like buying store brands or using the library rather than buying name brands or buying a DVD or a book whenever you’re bored.

If you start applying that thinking to everything, lots of money decisions begin to look different. Lots of life decisions begin to look different.

Eventually, you realize you’re not actually giving up much joy in your day to day life. Instead, you’re just finding new ways to enjoy day to day life that really aren’t any less joyful than the previous ways, but you’re also filling up that proverbial swimming pool I talked about earlier.

That swimming pool, as it fills, becomes a source of truly lasting happiness. It really is the tide that lifts your entire life.

So, the next time you wonder if you can buy happiness, the answer is yes. You buy it by being financially responsible and seeking daily choices that bring you joy without just throwing money at the problem. Over time, those choices grow into lasting contentment and happiness.

Good luck!

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Mint SIM Review: Cheap Cell Phone and Data Plan at $15 Per Month

Finding an affordable cell phone plan may seem like an impossible feat. Not only do you have to figure out which plans are available in your area, but you have to determine which carriers offer the best coverage where you live – and any places you travel to frequently. From there, you have to figure out which perks you need and which you can go without. And obviously, you have to figure out what you can afford – both in terms of upfront costs and your new monthly payment.

Unfortunately, there are almost too many questions to answer. Do you need unlimited data? What about talk or text? Are you fine with signing a contract that might last a year or longer? Or, would you rather go month-to-month?

And, what about your phone? Do you have to buy a new one that fits with your new plan, or can you bring your own? And if you have to buy a new phone, will you have to fork over the big bucks for a fancy smartphone like the iPhone X?

Unfortunately, there’s no easy answer to any of this. That’s why, a lot of times, people ask their friends for recommendations and just go with the plans their buddies suggest, or leave it up to inertia and stick with whatever carrier they’ve been using for years.

If you want to save money and you’re willing to try something new, however, there are some new and exciting plans hitting the market.

Introducing Mint SIM

One such plan is called Mint SIM, and it works totally differently from other wireless plans. With Mint SIM, you purchase prepaid SIM cards that you insert into a phone you already have.

Here’s how this works: Once you select a plan, you get a SIM kit in the mail. From there, you follow the prompts to insert the SIM card and set up your new account. While the set-up goes fairly easily for most people, Mint SIM offers some pretty handy how-to videos on their website, as well as a customer service line that can provide additional help.

Mint Sim piggybacks off the T-Mobile network, which may be a good thing or a bad thing depending on where you live. While coverage tends to be great in most areas of the country, some areas in the West (namely Montana and Wyoming) have spotty coverage at best. Fortunately, Mint Sim offers a coverage map that can show you whether the plan would work well in your area – or if you should try something else. (You can also check the real-world signal strength of various carriers in your area on OpenSignal.com.)

By now, you’re probably wondering why you would bother signing up for a cell phone plan that requires you to insert your own SIM card periodically, or even every few months. The main benefit, which we’ll talk about in the next section, is cost. Compared to other cell phone carriers, it’s hard to find any plans that can compete with Mint SIM in terms of how much you’ll pay on your monthly bill.

How Much Does Mint SIM Cost?

Mint SIM plans can vary in terms of their monthly cost, but if you sign up for a three-month commitment, your initial cost is $15 per month. For that $15 monthly rate, you get:

  • Unlimited talk, text, and data delivered on T-Mobile’s 4G LTE network.
  • 2GB of 4G LTE data per month; speeds slow down after you exceed 2GB.
  • Prepaid SIM card in standard, micro, and nano sizes.
  • Smartphone Mobile HotSpot (SMHS), which allows you to turn your device into a WiFi hotspot.

Keep in mind, you can also bring your own phone as long as it’s a phone that’s set up to work with the Mint SIM system. If you’re curious whether your phone will work or not, you can enter your phone’s 15-17 digit IMEI code here.

If you want more than 2GB of super-fast data, you can also buy a plan with a bigger high-speed data allowance. For just 10 bucks more ($25 a month), for example, you can get 10 GB per month of 4G LTE.

There are other plans available, and they all require at least a three-month commitment. Mint SIM does offer a seven-day money-back guarantee on all their three-month plans, however. This way, you can try it for a week to make sure your coverage is sufficient and that you’re happy with the service.

Here’s a graphic that shows their basic plans and what they include:

Mint Sim 1

Where Mint SIM Shines

There are several reasons Mint SIM could be the ideal cell phone carrier for anyone wanting to save on their cell phone bill. For starters, it’s difficult to beat the $15 per month price point – especially when we’re talking about unlimited data, talk, and text.

Another big benefit is that, provided your phone actually works with the service, you can bring your own device. This is a huge benefit compared to other discount phone carriers who may make you purchase a new device that works with their plan.

Last but not least, Mint SIM does let you customize your cell phone plan to meet your needs. You can choose a plan with as much high-speed data as you think you’ll need, and you can choose to commit for three months or up to a year. If you find you need more high-speed data than you purchased, you can jump up another plan the next time you reload.

Last but not least, Mint SIM makes it easy to turn your device into a mobile hotspot you can use to connect to the internet on another device.

Where Mint SIM Falls Short

While this cell phone plan has some serious benefits (and opportunities for savings), it’s not perfect. One of the biggest downsides of Mint SIM is the fact that coverage is not sufficient all over the United States. Mint SIM operates on the T-Mobile network, which is fairly broad, but there are some big gaps that you should be aware of before you sign up.

Mint Sim 2

Not only that, but not everyone wants to deal with putting a new SIM card in their phone all the time. While the process isn’t difficult, it’s a step not everyone will be willing to make, and you don’t want to be stuck having to switch SIM cards the moment you’re expecting an important call.

Lastly, Mint SIM does require at least a three-month commitment. In a world where most discount phone carriers offer month-to-month service, this is a difference that should be noted. On the flip side, it’s not a two-year contract, and Mint SIM does offer a seven-day worry-free guarantee on three-month plans.

Who Mint SIM is Best For:

  • Someone who lives in an area with excellent coverage: Since Mint SIM offers spotty coverage in states like Wyoming, Montana, and Iowa, this plan is best for someone who lives and spends most of their time in an area well served by T-Mobile’s network.
  • People who don’t travel the country a lot: If you’re someone who’s constantly traveling the country and needs reliable coverage on-the-go, Mint SIM may not be ideal for you. It would be a shame to travel out west and find out your phone isn’t working – or at least not working well.
  • People who want to pay as little as possible: It’s difficult enough to find carriers who offer cell phone coverage for less than $15 per month, but it’s downright impossible to find a plan with unlimited data, text, and talk for the amount per month.

Who Should Skip Mint SIM:

  • Anyone who needs excellent coverage nationwide: If you need excellent coverage nationwide, this plan isn’t for you. Also keep in mind that Mint SIM doesn’t work overseas.
  • Someone who needs unlimited high-speed data: If you need large amounts of high speed data, you may be better off paying more for a plan with more generous high-speed data limits.
  • People who don’t want to deal with SIM cards: If you’re stressed over the idea of inserting a new SIM card or setting up new phone service, this plan may not be ideal. Keep in mind, however, that Mint SIM offers instructional videos that can walk you through the process.

The Bottom Line

If you’re looking for a low-cost cell phone plan and live in an area with T-Mobile coverage, Mint SIM is a smart plan to consider. You can get unlimited data, text, and talk for as little as $15 per month with Mint SIM, and you can even bring your own phone.

On the flip side, this carrier isn’t perfect for everyone. Coverage isn’t offered nationwide, for example, even though it’s pretty broad. And if you don’t have a cell phone that qualifies for the plan, you may have to buy a new one. That’s why, at the very least, you should make sure you have broad coverage in your area and that you can take your phone to Mint SIM before you make the switch.

If you do, and everything goes as planned, it’s possible to get cell phone and data service for $15 per month. And that’s pretty sweet.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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Have you heard of Mint SIM or tried it? Please share in the comments below.

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Tuesday, December 19, 2017

Compare Loans

Thinking of taking out a loan? Start by comparing your options to find the loan that’s right for you!

Many of life’s biggest moment also require a large amount of money, which is where loans come in. If you’re looking for a house, buying a new car, or getting married, you may need a loan. The questions then become: Which one, and for how much? To answer these questions, you’ll need to compare loans.

Comparing loans helps you find the right loan for you. For instance, if you’re remodeling your kitchen, should you choose a home equity loan or a home equity line of credit? Should you compare personal loans with those two options as well? Finding the right loan for you is important to ensure you get the best rate and terms. If the APR is too high or the terms too aggressive, you could end up damaging your finances.

We’ll go through the most common types of loans, their pros and cons, how to compare loans, and how to compare loan rates to help you make an informed decision!

Why do I need a loan?

In order to compare loans and narrow down your options, you need to understand why you need a loan in the first place. Most people need to secure financing because they don’t have thousands of dollars sitting around to pay for large expenses.

Some of the most common scenarios that require a loan include:

  • Buying a car
  • Consolidating debts
  • Emergency expenses
  • Funeral expenses
  • Home improvement
  • Medical expenses
  • Pay off credit cards
  • School tuition
  • Special event
  • Starting a business
  • Vacation
  • Wedding

What types of loans are available?

While there are several different types of loans based on your needs, they each fall into one of two main categories — secured or unsecured.

  • Secured: These loans are backed by collateral, which means you put something up (typically your car, house, or other valuable asset) to guarantee that you’ll repay the loan. In the event that you don’t repay the loan and default, the asset can then be forfeited or seized.
  • Unsecured: On the flip side is unsecured loans. These are loans that are not backed by an asset and therefore consider to be “higher risk” loans. Because the lending institution is taking a chance on you and your ability to repay, unsecured loans typically come with higher interest rates.

Within these two categories, there are several different types of loans you can choose from (some you’re probably familiar with, such as a mortgage or auto loan). The type of loan you get and whether it is secured or unsecured will determine how you pay it back and what happens if, for some reason, you’re unable to pay.

Types of secured loans:

  • Auto loan – A loan is granted to help you pay for your car over a certain person of time and your car can be repossessed if you fail to pay.
  • Business loan – These can be both secured and unsecured. Secured business loans will require you to put something up as collateral, but you may get a lower interest rate.
  • CD or savings loan – A hold is placed on your certificate of deposit or savings account allowing you to borrow up to 95% of its funds.
  • Home equity loan – This allows you to borrow against your home’s equity for a lump sum, fixed-installment loan.
  • Home equity line of credit – A HELOC allows you to draw money from your home’s equity as needed for up to 10 years before repaying.
  • Mortgage – Your new home is put up as collateral and can be foreclosed if you fail to pay your mortgage.
  • Personal loan – These can be both secured and unsecured. Typically, if you have a lower credit score, you’ll be required to take out a secured personal loan.

Types of unsecured loans:

  • Business loan – These can be both secured and unsecured. Unsecured business loans typically have higher interest rates and shorter term lengths since there is more risk.
  • Personal loan – These can be both secured and unsecured. If you have a good to excellent credit score, you can probably negotiate better interest rates and terms for an unsecured personal loan.
  • Student loan – Both federal and private student loans are considered unsecured debt; however, they do differ in their interest rates and terms.

Pros and cons of secured loans

Some of the positive aspects of secured loans include:

  • Build your credit< – Secured loans are great for anyone with bad or poor credit because they minimize risk for the lender while helping you build credit when you make payments in full and on time./li>
  • Lower interest rates – Because you’re putting something up as collateral to cover the loan, lenders will often give you lower interest rates since their risk is now minimized.
  • Bigger loan amount – By securing your loan with collateral (your house or your car), lenders will often grant larger loans to cover these big purchases.
  • More favorable terms – With a secured loan, you’re more like to get a longer repayment window and a better interest rate, such as a 30-year fixed 3% interest mortgage.

Some of the potential negative aspects of secured loans include:

  • Loss of asset – If you default on your loan, then you may need to forfeit the asset you put up for collateral, or the lender can seize it.
  • Damaged credit – As with any loan (secured or unsecured), failure to meet the loan terms could result in your credit score decreasing.

Pros and cons of unsecured loans

Some of the positive aspects of unsecured loans include:

  • Build your credit – Making payments on time and in full on any type of line of credit will help boost your credit score over time.
  • No risk of assets – Since unsecured loans don’t require collateral, you won’t typically have to worry about losing your home or car if you fall on hard times and can’t make payments.
  • Easier application – For the most part, unsecured loan applications are easier to fill out since there’s no need to evaluate collateral.

Some of the potential negative aspects of unsecured loans include:

  • Still held responsible – Just because you didn’t put up collateral doesn’t mean a lender won’t take action if you stop making payments altogether. Lenders can sue you in court and place a lien on your assets to secure payment.
  • Smaller loan amount – Since your loan isn’t backed by an asset (and therefore considered riskier), lenders may not be as willing to lend you large amounts.
  • Higher interest rates – Again, since unsecured loans are considered riskier without collateral, they usually have higher interest rates and may come with other fees.
  • Damaged credit – As with any loan (secured or unsecured), your credit score could take a hit if you fail to make payments.

How to compare loans and loan rates

Once you understand why you need a loan and what type of loans are available to you, it’s time to start comparing the loans and loan rates to find the best option to meet your needs.

Here’s how to get started:

Step 1: Decide which type of lender is best for your needs

Before you can get a loan, you’ll need to decide which type of lender — bank, credit union, or online lender — is right for you. Each type of lender has their own pros and cons, so which one you choose will ultimately come down to the type of loan you want and the financial institution you feel most comfortable working with.

Some things to consider:

  • Bank – Getting a loan from a bank is the most common option. You can easily keep all of your finances under one roof (if you already have a bank for checking or savings), there are brick-and-mortar locations, and you may be able to secure better terms if you’re a longtime customer. On the downside, there may be fewer unsecured options and applicants with bad or poor credit may have a harder time getting approved.
  • Credit union – You’ll need to be a member of a credit union to take advantage of their loan options so be sure to inquire about that first and make sure they offer the loan you’re interested in. Once you’re a member, though, you may enjoy lower interest rates and an easier approval process. Additionally, there are brick-and-mortar locations you can visit in person.
  • Online lender – Typically with online lenders, you’ll be limited to only unsecured loan options, so you may get a higher APR. However, the process is generally more convenient with easier approval (it’s all online!). Exercise caution when looking at online lenders, though. There are many predatory sites out there, so make sure you’re working with a reputable lender.

Step 2: Get multiple quotes

Once you have a general idea of what type of lending institutions may be right for you, it’s time to get quotes. It’s important to shop around — try to get at least three quotes — so you can compare the terms of each loan.

Some quote options to consider:

  • Get quotes from multiple financial institutions – If you’re open to working with all three types of financial institutions, you can get quotes from a bank, a credit union, and an online lender to see who has the best rate.
  • Get quotes from multiple lenders – If you know you want to just work with a bank, for instance, you can get quotes from multiple banks to compare their terms and rates.
  • Get quotes for multiple types of loans – Depending on your financial needs, there may be a few loan options available to you. For instance, with our kitchen remodel example above, you’ll probably want to get a quote for a home equity loan, a home equity line of credit, and a personal loan to see which offers the best terms based on your creditworthiness.

Step 3: Compare the offers side-by-side

After you receive multiple quotes, it’s time to compare the offers side-by-side. Unfortunately, no two loan offers will look the same, so you’ll have to put in some work to compare loan rates. Create a spreadsheet or list that you can fill in based on each offer.

Here are some items you’ll want to consider:

  • Type of loan
  • Amount you’re borrowing
  • Interest rate
  • Annual percentage rate (APR)
  • Monthly payment amount
  • Lender fees
  • Late payment fees
  • Other fees or points
  • Term of loan
  • Prepayment penalty
  • Adjustments
  • Lock-in period
  • Terms of defaulting

Make sure you completely understand the terms of each offer before you make a decision.

Step 4: Negotiate

If you want the best deal, you have to be willing to speak up and negotiate. Don’t be afraid to ask the lender if they’d be willing to waive or reduce certain fees, or if they would agree to a lower interest rate. In some cases, they may agree on the spot, but in other cases, they may propose a compromise (for instance, put an extra $1,000 down to waive $1,500 in fees). The bottom line is, though, that it doesn’t hurt to ask.

Once you feel confident that you’ve found a loan offer that meets your needs, you understand the terms completely, and you’ve negotiated as much as you could, you’re ready to sign!

The post Compare Loans appeared first on The Simple Dollar.

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What are Personal Loans?

In short, a personal loan is a loan that can be spent on whatever you want. Each loan is a lump sum lent to a borrower with the expectation it will be repaid in fixed payments over one to five years.

Personal loans are some of the custom loan options available. Consumers can seek secured or unsecured personal loans from a bank, credit union, or personal lender, and the loan itself can be used for financing cars, housing costs, education, debt consolidation, or any other major expense.

As you can see, when it comes to a personal loan, there are a lot of variables. So, before you decide which personal loan is best for you (or if you should even choose a personal loan over other types of loans), ask yourself a few questions:

  • What kind of debt am I trying to cover?
  • Should I choose a bank, credit union, or private lender for my personal loan?
  • How can I get the best personal loan rate?
  • What questions do I need to ask my lender?

Before we begin, here are some terms you should be familiar with.

Personal loan terms and definitions

  • Annual Percentage Rate (APR): APR refers to the additional costs — both in interest and fees — borrowers must repay in addition to the principal of their loan. APRs are always expressed as a percentage, and determined by credit history, the length of the loan, the amount borrowed, and debt-to-income ratio.
  • Debt-to-Income Ratio (DTI): This is how much you owe, versus how much you currently make. To find your DTI, add up your total monthly payments and divide that number by your gross monthly income. Lower ratios (up to 35%) signal to lenders that you’re fiscally responsible, and thus a good investment. Maintaining a low DTI is one of the keys to earning a lower APR.
  • Fixed vs. Variable Rate: These terms refer to the stability of interest rates over the course of a loan.
    • Fixed interest rates do not change throughout a loan’s duration. If your rate is 5%, it will always be 5%.
    • Variable interest rates can fluctuate according to a number of factors, such as the U.S. Prime Rate index or paying down your principal. For example, your loan could start with a 3% variable interest rate, then increase to 7% if the U.S. Prime Rate index jumps.
  • Prepayment Fees: Prepayment, or exit fees, are extra fees charged when you fully repay loans within a certain time period (such as paying off early). These are usually associated with mortgages, but could come with personal loans as well.
  • Prequalification: During prequalification, lenders examine your credit history, and determine whether or not you’d qualify for a loan. Prequalification is very casual — you won’t receive official offers, and the process can be done remotely with nothing more than a soft credit pull.
  • Secured vs. Unsecured Loans: These terms refer to any and all collateral you might be expected to put up as part of your loan.
    • An unsecured loan isn’t protected by collateral (such as your car or home which could be forfeited if you default).
    • A secured loan is protected by collateral as well as an agreement that the lender can take possession of a specific piece of property if you fail to make payments.
      • In general, secured loans have higher rates and more terms; however, in some cases (such as high DTI or low credit score), you may need a secured loan in order to rebuild your credit.
  • Soft vs. Hard Credit Pull: Also known as “credit inquiries” or “credit checks,” a credit pull is when any organization checks your credit report.
    • Soft credit pulls are unofficial and can be initiated by potential lenders, financial institutions, or even by the individual themselves. They do not affect your credit score.
    • Hard credit pulls are official credit checks made by institutions that are considering whether or not to lend you money. As a result, you appear to be taking on more debt, and thus your credit score may decrease.

Is a personal loan right for me?

A personal loan is just that: personal. Once you receive a personal loan, you’re free to spend it on whatever you want, so long as you’re able to pay it back via monthly payments for a specified period of time.

But as a result, personal loan lenders often compete against other types of loans. For example, a homeowner that’s looking to refinance their property can choose between a personal loan, a home equity loan, and a home equity line of credit (HELOC).

Simply put, personal loans aren’t always the best option. We’ve compared personal loans against other common types of loans to help you determine which loan works the best for you.

You can start by taking our quiz here:

What’s my optimal loan?

Personal loans for debt consolidation

Personal loans are most commonly used for debt consolidation. Individuals with multiple sources of debt often have varying payments each month. Their existing loans may come with a high APR, disreputable lenders, steep monthly payments, or other unfavorable terms.

Borrowers in this situation have the option of taking out a personal loan to pay off all existing sources of debt, and instead simply pay off a single loan with fixed monthly payments. It’s an attractive option for many borrowers, and can actually cause a jump in credit score.

This is the ideal option for anyone with a lower credit score, higher DTI, and multiple sources of debt — in fact, it may be the only option available. You may have to take out a secured loan with a higher APR, but so long as you make monthly payments consistently and on time, you’ll be able to put your debt to rest.

Personal loans vs. balance transfers

Criteria Personal Loan Balance Transfer
Average APR 10% – 28% 11.99% – 24.99%
Loan / transfer duration 12 – 60months 0% intro APR for 9 – 18 months, regular interest after
Additional fees 0% – 10% loan origination fees Up to 3% balance transfer fees
Ideal credit score Poor, Fair, Good, Excellent Good, Excellent
Best for Debt consolidation Credit Card debt
Type of debt Fixed installment Revolving

If you have good to excellent credit, and you’re confident you’ll be able to pay off your debts entirely within nine to 18 months, you might want to consider a balance transfer instead of a personal loan.

The best balance transfer credit cards aren’t like traditional credit cards. They’re not meant to be used to cover day-to-day purchases. Instead, they’re meant to be used for debt consolidation. Any existing credit card debt can be transferred to your balance transfer card (with up to 3% transfer fee), and paid off without any APR for up to 18 months.

If you choose to take out a balance transfer credit card, be very careful about paying off your balance in full within the introductory 0% APR period. Otherwise, you’ll be hit with a considerable APR — averaging between 12% and 25%.

Personal loans vs. home equity loans

Criteria Personal Loan Home Equity Loan
Average APR 10% – 28% 4% – 6%
Loan duration 1 – 5 years 10 – 15 years
Additional fees 0% – 10% loan origination fees 2% – 5% in closing costs
Ideal credit score Poor, Fair, Good, Excellent Fair, Good, Excellent
Best for Debt consolidation Refinancing or remodeling home
Type of debt Fixed installment Fixed installment

Home equity loans are lump sum, fixed-installment loans that borrow against a property’s equity. A homeowner’s equity is determined by the property’s total value, minus the debt still owed on said property. (Home equity loans are also commonly known as “second mortgages.”)

The best home equity loans are one of two loan options (along with a HELOC) designed to refinance a property.

Lenders require potential borrowers to own at least 20% to 25% equity in their home, have at least a fair credit score, and have a consistent record of employment with a steady stream of income.

In addition, home equity loans are often secured by the home itself. While that might give potential borrowers more favorable rates, if it’s a source of concern you may want to consider taking out a personal loan instead.

Personal loans vs. home equity lines of credit (HELOC)

Criteria Personal Loan Home Equity Line of Credit (HELOC)
Average APR 10% – 28% 3% – 6% variable
Loan / transfer duration 12 – 60 months 5 – 10 year draw period, 10 – 25 year payment period
Additional fees 0% – 10% loan origination fees $50 – $100 yearly maintenance fees, average 2 – 5% closing costs
Types of credit accepted Poor, Fair, Good, Excellent Good, Excellent
Best for Debt consolidation Remodeling home
Type of debt Fixed installment Revolving

Both home equity loans and HELOCs provide loans by borrowing against the equity of your property. But while a home equity loan is a lump sum with a fixed repayment period, HELOCs operate as revolving lines of credit, much like a credit card does. Here’s how it works:

When a homeowner signs up for a HELOC, they’re allowed to draw money out of their home’s equity for 5 to 10 years. This is known as the HELOC “draw period.” During this time, homeowners can use the money for a variety of reasons, same as a personal loan, up to a certain amount.

During the draw period, borrowers are allowed to make interest-only payments. They won’t be able to repay the principal, however, until the repayment period.

Once the draw period concludes, borrowers enter a repayment period that can last anywhere between 10 to 25 years. During this time, they’re expected to repay all of the money they borrowed (principal), as well as any remaining interest.

What makes home equity line of credit loans distinct is their variable APR, meaning that borrowers take a gamble on what the interest rate might be when payment comes due. HELOCs work best for homeowners with excellent credit that are using multiple organizations for home renovation and have bills with different costs coming due at different times. For everyone else, personal loans or home equity loans may be a better choice.

Personal loans vs. auto loans

Criteria Personal Loan Auto Loan
Average APR 10% – 28% 0% – 10%
Loan / transfer duration 12 – 60 months 3 – 6 years
Additional fees 0% – 10% loan origination fees Varies by state and dealer
Types of credit accepted Poor, Fair, Good, Excellent Bad, Poor, Fair, Good, Excellent
Best for Debt consolidation Financing a new or used car
Type of debt Fixed installment Fixed – simple or pre-computed interest

Cars are a notoriously bad investment. New cars lose approximately 10% of their value the moment you drive them off the lot. So finding a favorable auto loan is important, to say the least.

When it comes to auto financing, you’re likely to be presented with an auto loan through your dealer. Dealers are well aware of how fast cars depreciate, so they’re willing to offer a lower APR to potential customers with better credit. But if your credit’s on the lower side, you’re likely to see higher interest rates.

In addition, auto loans come with two different types of interest — simple, and pre-computed interest. Simple interest acts like fixed interest meaning your monthly interest will remain fixed for the duration of the loan. Pre-computed interest is more variable, offering less interest on higher payments but increasing the percentage as the principal goes down.

If your credit score is on the higher side, and you’re able to afford a down payment of at least 20% of the car’s total, one of the best auto loans may offer more favorable terms. Otherwise, personal loans offer better financing, and can even be used as a negotiating tactic.

Personal loan vs. small business loan

Criteria Personal Loan Small Business Loan (Standard 7a)
Average APR 10% – 28% 6.5% – 9% (Varies per loan)
Loan / transfer duration 12 – 60 months 7 – 25 years depending on industry
Additional fees 0% – 10% loan origination fees 0% – 3.5% (varies by size of loan)
Types of credit accepted Fair, Good, Excellent Fair, Good, Excellent
Best for Credit card debt Growing or starting a business
Type of debt Fixed installment Fixed or variable

Note: There’s such a large variety of small business loans, that we don’t have the space to cover them here. We’ve chosen to focus on a Standard 7a loan for $20,000.

If you need financing in order to grow or start a business, then you’ve entered the world of small business loans. The best small business loans are unique from other types of loans, in the sense that they can offer both revolving and fixed capital.

In addition, small business loans are guaranteed by the U.S. Small Business Association (SBA). So if your business defaults, the SBA will cover a certain percentage of the remaining loan.

Business loan durations can vary from repayment within seven years, as in a Standard 7a small business loan, or more than seven years, as in a Standard 7b.

Proceeds can only be used to help finance your business and cannot be used to reimburse owners for any money they’ve already put in. Nor can they be used to refinance existing debt.

If you’re confident in your business and you need a considerable amount of capital, along with backing from and access to business experts, a small business loan will be the most helpful. For everything else, consider a personal loan.

Which personal loan lender is best for me?

When you’re shopping for a personal loan, you want to get the most favorable terms. Banks, credit unions, and online lenders all offer personal loans at competitive rates, but each gives borrowers a different experience.

Your decision should be based on your current financial status, the reason for your loan, and the financial institution you feel you’ll work the best with.

You can start by taking our quiz here:

What type of lender works best for me?

Using a bank

Pros:

  • Variety of loan options
  • Multiple brick-and-mortar locations
  • Lower rates for good standing

Cons:

  • Higher interest rates
  • Difficult for poorer credit
  • Few unsecured loan options

Large financial institutions such as banks are still the most traditional way to get a private loan. And even though their reputation took a hit after the Great Recession, they’re still some of the most popular lenders in the nation.

Banks work best for anyone with fair to excellent credit, and they’re ideal for borrowers that already have an existing relationship with a financial institution. For example, if you’ve been banking with Wells Fargo for five years, you’re likely to find more favorable terms there than anywhere else.

Banks also have a variety of loan options — meaning that if you feel you’d rather pursue an auto or home equity loan instead of a personal loan, you’ll be able to deal with the same organization and still retain those favorable terms.

But banks are for-profit institutions run by shareholders, that do emphasize making money. As a result, interest rates are higher, and they want to be sure that all their borrowers are in good financial standing.

If you’re looking to use a personal loan to consolidate your debt, you may be better off with a credit union or online lender.

Using a credit union

Pros:

  • Lower interest rates
  • Member-owned institutions
  • Easier approval

Cons:

  • Fewer services
  • Membership criteria
  • Fewer loan options

If you’re looking to compare banks and credit unions, you’ll find a lot of similarities and a few key differences:

While banks are for-profit owned by investors, credit unions are non-profits owned and operated by members. And while banks are open to everyone, credit unions are limited to members that meet certain criteria (known as the “field of membership”).

Beyond that, banks and credit unions offer a lot of the same financial services: You’ll be able to take out personal loans, auto loans, home equity loans, etc. However, since credit unions are smaller institutions, they don’t offer as wide a variety of loans as banks do.

They do, however, offer lower rates and easier approval for those with poor to average credit. That makes credit unions one of the best options for anyone looking to rebuild their finances via debt consolidation. Just be sure to check the field of membership criteria first.

Using an online lender

Pros:

  • Easy approval
  • Unsecured loans
  • Convenient

Cons:

  • Can be predatory
  • Higher APR
  • High payday loan presence

Online lenders (sometimes known as peer-to-peer or “P2P” lenders) are at the cutting edge of financial tech. The best online personal loan lenders pair banks and other financial institutions that are looking to fund specific types of loans with borrowers looking to take out the same type of loan.

As a result, online lenders are the most customizable lenders in the marketplace. They also have the largest approval rate. If your credit score is on the lower side, you’re more likely to find a personal loan with an online lender than a bank. However, that’s a double-edged sword.

Online lenders are for-profits that make money off of their loans. As a result, the APR tends to be higher with many online lenders than it would be with a bank or credit union. In addition, there’s a number of illegitimate or predatory online lenders that are likely to sell your personal information.

Payday lenders also have a strong presence in the online lending space, so be wary of any lender that offers loans with no credit checks, short terms, and high fees.

The bottom line

Personal loans can be one of the most versatile financial services out there: You can use one to rebuild credit or finance a big purchase. But you need to be sure that a personal loan is your best option, and that you’re choosing the best lender. Once you’re sure about both, you’re all set!

The post What are Personal Loans? appeared first on The Simple Dollar.

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