What’s Brilliant About Avoiding Bank Overdrafts?

It may seem like a simple question: Why should anyone avoid overdrafts on their bank account? But the simple answers – that they cost money in fees, plus end up as a “ding” against your credit score – only tell half the story.

The other half is learning how to be savvy about how you do it. The road to financial freedom is not one smooth highway. There are bumps, curves, narrow and wide sections, times when you’re stuck going slow and other times when you have to decide if you want to risk aggressively passing the other guy – all points where smart decisions must be made. It’s about developing the skills and becoming familiar with important tools.

Take the bank overdraft problem (please!). These days, we have many automatic withdrawals for everything from utilities and telecom (phones, cable TV and broadband Internet hookups) to car and home payments, insurance and condo fee assessments. The problem is when an emergency expense happens – it can drain your bank account even as those automatic withdrawals loom in the days ahead.

What to do?

You have several options:

Get cash advances from your credit card – The fees can be steep, particularly if the cost folds into your credit card balance.

Get a cash advance from your next paycheck – The fees are steep when you take a year to pay them off. But few borrowers require so much time. These payday loans are usually paid with the next paycheck to come, taken care of in a matter of weeks, not months or years.

Ask family members for cash advances – This actually works in some families, although data suggest it’s a rare phenomenon. When you borrow personal loans  from friends or family, be sure to articulate the transaction on paper before money changes hands.

As should be clear, each of these approaches requires you to do something different or something new. While that is difficult for most people, to change a routine or try something they’ve never done before, it’s all a part of good stewardship of your resources – money and intellect – to give it your best shot. When you do, you are practicing your God-given brilliance at finding solutions to sticky, costly problems.

Guest Post by Elisa

Buying new furniture? Don’t forget to add it to your home insurance

Shopping for new furniture is something of a national obsession in the UK – just head to your local chain DIY store on any given weekend for further proof of this fact. There’s no getting away from it – we all like to give our homes a facelift from time to time, whether that’s replacing what’s broken or giving a room a new theme with some tastefully chosen new items. As anyone who’s spent an afternoon idly browsing the aisles in Ikea can attest, a quick trip for a desk and chair can quickly turn into a three or four figure spending splurge.

After a fun afternoon at your local Swedish interiors store – and a bank holiday spent putting up your new flatpack miracle – the last thing you may be in the mood for is a call to your home insurance provider. However, that quick call could prove to be a really smart move, especially if the worst happens in your home a few weeks, months of years down the line. Adding new furniture to your home will almost certainly increase the value of its contents – and it’s a wise move to make sure you’re covered for everything contained in your property.

In fact, regularly reviewing your contents is a habit that’s well worth getting into. Getting the best value out of your contents insurance is a fine art – you want to make sure you’re covered for everything, as if a disaster such as a flood or fire occurred, you’d only be covered up to the total value of your contents, even if more damage was caused. However, on the other hand, you don’t want to wildly overestimate the value of your contents, as this means you’ll be wasting money on cover you don’t need. If the value of your contents is £30,000 and you’re paying for £50,000, you’ll be needlessly throwing money down the drain each and every month.

If you’re planning a weekend of flatpack furniture building, it’s also worth checking that you’ve got accidental damage cover as part of your house insurance. As those amusing DIY shows we’ve all seen over the years have proved, swinging the hammer in the wrong place can have disastrous consequences. Make sure you’re covered before, during and after your weekend of DIY fun and the only thing you’ll need to worry about is whether your new pieces of furniture match the carefully-chosen colour scheme

Post by Alex

How to Finance a Home Extension

No matter how much money or how little you have spent in the creation of your home extension, there comes a time when you will eventually have to pay for the work you did or had done. Of course, the smaller the extension is, the less of a problem you will face, but in every case, you will still have a number of options at your disposal. Such options may range from paying for such a project through personal savings to various forms of lending and borrowing.

Regardless of which step you select, the first thing you will need to do is to create a budget that is the right kind for the task. It should be detailed and should guide you through exactly how much money you will eventually need to borrow. This is key, as you will not want to run out of money half way through a project.

Private or commercial?

Once you have figured out how much money you are going to have to put down, and presuming that you have discovered that you will not have enough in savings to cover that amount, then your next step will be to figure out how and where to borrow the money from a person or an institution. What you do at this point will depend on a number of different factors, such as whether or not the home extension in question involves your home.

If the extension involves your home, then you will continue to live there. However, if you are extending a property that is not yours for residential purposes, then you might be working on a developmental project, such as improving a property so you can turn a profit on it during the sale. Extending and then selling a property is not an uncommon practice these days and popular amongst builders.

Commercial developers will be able to access a number of different financing options that will consider the final property values once construction has finished; this is something you typically will not be able to get typical providers such as building societies and banks to do.

A number of commercial developers are private investors. They make their money through loans to developers once they have examined the viability of the project in question. They will provide large sums of money through daily or monthly interest rates. Other lenders may be financial institutions that focus on the provision of funds for development projects.

Make use of existing equity

If you are improving your own home, then you will probably want to get the money by extending the mortgage you already have; this is called a re-mortgage. It releases your home’s equity due to the increased value of your home. You borrow the money you need and pay it back through your mortgage. In some cases, you might not face a significant increase in your monthly payments. When you come to sell your home you will pay back both mortgage charges together.

It was not too long ago that borrowing against your mortgage was difficult and rarely done, but the rules have been changed to make it much easier these days, so you can even play a number of lenders off each other when trying to find the best deal. Watch out for deals that feature low introductory payments, as these periods will inevitably come to an end.

The problem with those situations is that you might fancy yourself earning more money at the ends of those periods but if you aren’t, you might be stuck with much higher monthly payments that are much harder to pay. Be sure you know what you are getting into before you sign any papers.

Alternative Loans

You can also get additional loans beyond your mortgage, including loans from banks, specialist lenders, or building societies. These can be secured or unsecured loans, depending on whether they are secured against your property or not. Separate loans are generally over shorter terms than mortgages and come with higher repayments. Consider the pros and cons of each option.

Bio

This guest post was written by Andrew Potter from My Online Estate Agent. My Online Estate Agent is a UK low cost estate agent and charges a fixed fee to advertise on Zoopla and many other top UK property portals and provides all the online tool and guides you need to sell or let your property.

 

The Right (Legal) Way to Lend Money to Loved Ones

You can ask all the big time personal finance gurus out there – from Dave Ramsey to Suze Orman – and they’ll all tell you the same thing: lending money to family is a bad idea. It invites a plague of ethical dilemmas and amateur mistakes that statistically often stack against the lender. But what are you going to do? It’s nearly impossible to refuse to help loved ones when they need it – that’s the point of love isn’t it? With that said, lending money by taking out personal loans, without proper consideration for the law and insuring yourself against all possible outcomes, is a bad idea. In today’s tough economic times it’s hard to say no to family members and friends who might need help, so if you say yes, consider the following:

Taxes

You might be mostly concerned about getting your money back in full from the borrower but you need to be mindful about making sure that the IRS doesn’t classify your loan as a gift if the amount exceeds $12,000. That’s the limit on non-taxable gift giving to one person and lenders must pay taxes on gifts in excess of that amount. The proper documentation of your loan agreement is as much about proving to the government you loaned the money as it is about ensuring proper repayment agreement.

The Paperwork

In order to protect yourself from owing unnecessary taxes, you have to make sure you create a proper loan agreement. This means determining the interest rate, loan amount, payment period, interest, and collateral if applicable, and putting it to paper. Once both parties have signed, it can be considered valid proof of a loan in the eyes of the IRS. But you have to make sure you follow federal guidelines for interest on loans between related parties. These rates are determined based on the payback period, and can be found by visiting the IRS’s website for rates rulings.

The Paperwork Part II

Make sure you list the income, if any, earned from your loan on your Form 1040 Schedule B. That way you avoid accidentally committing tax evasion on unlisted income. They take loans between related parties as serious as they take loans between anyone else. It’s important to remember that when it comes to the IRS they simply don’t have a sense of humor about anything.

Lend money to family members at your own risk. But even if it’s shady Uncle Harry you lend your hard earned money to, it’ll be Uncle Sam who will be coming to collect his due if you don’t take the necessary precautions. Being good family isn’t always easy, but preventing the government from getting its hands in on the deal is if you know the right things to do.

Guest post by Jess