fbpx

Our Debt Free Family

Commit. Plan. Take action.

Why You Don’t Have to Choose Between Investing or Paying Off Debt

| Leave a Comment

investing or paying off debt

A lot of people in the debt-free community (especially if they are Dave Ramsey followers) believe you have to choose between investing or paying off debt. This black-and-white thinking could potentially be holding you back from larger financial goals though. You don’t have to choose. You can do both. Here’s how.

Choosing Between Investing or Paying Off Debt

Any time you come into some “extra” money it is difficult to decide where it should be allocated. When your finances are the main focus in your life, like it is for many of us, it is hard to decide whether you should be investing in your future or focused on paying off debt.

The answer to this question will vary from person-to-person and family-to-family. After all, personal finance is personal, right? If you still hold a lot of debt, no you shouldn’t be thinking about making any investments right now. Focus on getting your high-interest debts paid off and then shift your gaze to making investments for the future.

For us, our main focus has been paying off debt. I’ve had people ask, “Why aren’t you investing yet?” I always thought to myself, “Well, because I still hold a lot of debt.” That does not necessarily mean you can’t invest though. In fact, in some cases, your return on your investment may benefit you more than paying off your debts. That is a rather unpopular opinion in debt-free circles online though.

Now, that isn’t to say that you should drop down to minimum payments on all of your debts and throw the extra cash into an investment portfolio. You have to go about it the right way.

How to Invest While Paying Off Debt

So, how do you invest while simultaneously paying off debt?

Investing and paying off debt are both good uses of your money any way you look at it. However, you want to be sure you are making the most of every penny. At the end of the day, paying off your high-interest debts will provide a better return on your money than any investment you will make. Make a list of your debts from highest to lowest interest.

The key is to look at interest rates versus your potential return. If the return you’d be earning is higher than the interest you are paying on your debts, make the investment. For example, if you hold a mortgage loan that has 5% interest but your portfolio return is 10%, the investment may be the better decision for you. Unfortunately, for the most part, investments are not always that straightforward. Something that is performing well this year may not be next year.

Many people use investments this way to come up with the money they need to pay off their debt more quickly as well. If you think you can earn in the stock market in a way that will further your debt freedom goals, do it! But you really need to put thought into the numbers before making that move.

Read More

How to Start Investing in Stocks on a Budget

| Leave a Comment

Less than 50 percent of Americans currently invest in the stock market.

Are you part of the majority that’s wary of investing their hard-earned money? If so, what’s holding you back?

There are lots of reasons why people opt out of investing. Often, though, it’s because they’re not sure how to get started or they think they don’t have enough money to be an investor.

If you’re not sure how to start investing or are worried about your limited budget, keep reading. Listed below are some tips that will help you get started no matter how much money you have.

Reasons to Start Investing

Some people also hesitate to start investing because they don’t understand all the benefits that it has to offer.

There are lots of reasons to invest in the stock market, including the following:

  • Grow wealth faster with higher interest rates
  • Start saving for retirement
  • Reduce your tax bill
  • Support businesses you believe in
  • Be part of something new and innovative

Now is also a great time to start investing because it’s easier than ever. You definitely don’t have to work on Wall Street to invest in the stock market.

How to Start Investing While on a Budget

If you’re looking to invest in the stock market but don’t have a lot of money to spare, don’t worry. The following are some tips that will help you begin investing even if you’re working with a very limited budget:

Start With a High-Interest Savings Account

A great way to dip your toe into the investment pool is to open a high-interest savings account.

There are lots of accounts, such as CDs, that have higher-than-average interest rates. Invest whatever you can spare — even if it’s only $5 dollars — in this account and watch it grow.

Use a Roboadvisor

If you don’t want to worry about managing your investments yourself, a roboadvisor is a great option. Roboadvisors make it easy for you to start investing even if you have no prior experience.

There are lots of low-cost online roboadvisors that will manage your money and provide you with the education you need to continue making good investment choices in the future.

Enroll in a Retirement Plan

In addition to opening a high-interest savings account, enrolling in a retirement plan is another great first-step to take when getting into the world of investing.

Everyone ought to have at least one retirement plan to which they contribute on a regular basis. Enroll in your employer’s 401(k) plan or open a traditional or Roth IRA if you’re self-employed.

Invest in Mutual Funds

Mutual funds make it easy for you to invest in a variety of stocks and bonds with one simple transaction. They’re perfect for people who want to start investing but don’t want to spend too much time thinking about the investment process.

Mutual funds often require higher minimum investments (between $500 and $1500). Some will waive the account minimums if you agree to make an automatic investment each month, though.

Use a Micro-investing App

If your budget is very limited, another good option is a micro-investing app.

Apps like Robinhood and Acorns make it easy for you to invest your spare change in stocks and index funds.

These apps lower the barrier to entry for many new investors, and they often have very low (or no) minimum balance requirements.

Common Investment Mistakes to Avoid

As you can see, there are tons of options out there no matter how tight your budget is. If you want to profit from any of these investment options, though, you need to make sure you’re avoiding these common investment mistakes:

Not Trusting Your Gut

It’s easy to let yourself be swayed by people who seem to know more about investing than you do.

There’s nothing wrong with taking advice from others, but don’t let them talk you into making an investment that feels wrong to you. Trust your gut and use caution when investing in a new venture or taking a risk.

Investing in Businesses You Don’t Understand

Be wary of investing in businesses of which you don’t have a thorough understanding.

It doesn’t matter if it’s supposed to be a hot new enterprise or is on track to become a billion-dollar company. If you don’t get it, your investment might come back to bite you later.

Not Staying Informed

Make sure you stay informed on how your investments are performing. Check in with them on a regular basis to make sure you’re on track to reach your financial goals.

Pay attention to stock market news as well. This will help you keep up with the trends and get an idea of whether you should invest in specific businesses or not.

Making Emotional Decisions

It’s important to stay informed. At the same time, though, it’s important to maintain a cool head when doing your research.

Don’t let fear cause you to make emotional decisions. Just because you see in the news one day that a company isn’t doing too well, that doesn’t mean you ought to go out and sell your stocks right away.

You also shouldn’t go out and drop a ton of money buying stock in a particular business just because they’re doing well right now.

Being Impatient

Finally, don’t be impatient.

New investors often become obsessive over watching their money grow. Remember, though, that it takes time to build wealth.

If you’re patient, you’ll see much more significant returns that if you’re always obsessing over the markets and trying to move things along at a faster pace.

Start Investing Today

There are tons of benefits that come with being an investor.

The sooner you get started, the better off you’ll be later on. Even if you only have a small amount of money to spare, you can benefit from investing those funds.

Now that you know how to start investing, it’s time to get to work!

Keep these tips in mind so you can start growing wealth and making your money work for you, no matter how tight your budget is.

If you want to learn more about wise investing, we’ve got plenty of resources available. Check out some of our other investment-focused articles today for additional advice.

Researching 529 Savings Plans and the Benefits

| Leave a Comment

529 savings plans and benefits

After welcoming our daughter into the world almost a year ago we have been looking into things we can do to set her up financially. In addition to improving our own financial wellness, we plan to do things to help her in the future. That brought us to researching 529 savings plans and their benefits. I wanted to bring what I learned to the blog.

What is a 529 Plan?

According to SavingForCollege.com, a 529 plan is an investment account that provides tax benefits to the accountholder when used for qualified education expenses. Now, what are qualified education expenses, you ask? The include the following:

  • College tuition
  • K-12 tuition
  • Apprenticeship programs
  • Student loan repayments

Types of 529 Plans

Every state in the U.S. offers some kind of 529 savings plan except for Wyoming. These types of savings plans are typically categorized as a college savings plan or a prepaid tuition.

A prepaid tuition plan allows you to pre-pay all or part of the costs of education at an in-state public institution. These plans can be converted to be used at private colleges or out-of-state universities as well. For individuals interested in private college education, there is a separate prepaid tuition plan called the Private College 529 Plan.

College savings plans, on the other hand, work like a 401(k) or IRA. It puts your contributions into mutual funds and other similar investments. Before opening this kind of account it is a good idea to take a look at how each 529 savings plan investments are performing.

Benefits of a 529 Savings Plan

There are a few clear benefits of having a 529 savings plan. First, having a 529 savings account does not impact your eligibility for financial aid. So, even with that money set aside, the student can apply for grants and other aid. The money in the 529 won’t be taken into consideration.

Another one of the benefits that draws most people in is the tax breaks you receive for having this type of account. The money grows on a tax-deferred basis and you don’t have to pay taxes on the money when it is withdrawn if it is being used for a qualified education expense. Depending on where you live, you can also get additional deductions and credits for contributions made to your 529 savings plan.

Education savings plans also have generally low contribution amounts. Once you have deposited the initial required amount of money, the upkeep on the account can be as low as $25 per month. You simply need to find the right 529 plan for you.

Cons of 529 Plans

One of the only cons I can see is that your 529 savings plan is an investment account. When the market is performing poorly, so is your child’s education fund. During the economic chaos of 2008, my grandfather lost much of my college tuition money in the stock market. So, I do have that lingering in the back of my mind as we make our decision about moving forward with a 529 plan.

Our Decision

At the end of the day, we’d like to either homeschool or send our daughter to private school. Public school in our area just isn’t what it used to be. Knowing that we could stash away money for her K-12 tuition at a private school with some tax benefits is great. Additionally, if we decide to homeschool, we can put money into the account for college or whatever she decides to do after high school.

Readers, do you have experience with this kind of account? What are your thoughts about 529 savings plans? 

Read More

Pros and Cons of a Real Estate Investment Partner

| Leave a Comment

Investing your money to build wealth is a great way to help you toward a more secure future. There are, of course, several different ways you can invest your money to help you toward such a goal. If real estate investing interests you, it may help to have a partner when you are getting started. But, as with many things, there are both pros and cons of a real estate investment partner.

Pros:

1. Down-payment

If you are new to investing and have decided to invest in real estate, it can take several thousand dollars for your first down-payment. In order to have enough money, you could split that amount with a partner in order to reach your goal faster. Obviously it is an advantage for your partner as well because they get the same benefits as you – being able to invest sooner rather than waiting until they have saved enough on their own for the initial down-payment on a property.

2. Experience

Are you interested in real estate investing but lack the experience necessary to get started? This is another area having a partner can help. Choose wisely among your family or friends to ensure you are getting someone who not only has the experience necessary, but also has had success in real estate investing in the past.

3. Time

When you have a partner to invest with, you may be able to accomplish your goals more quickly. For instance, if you are investing to flip the property and you both plan on also investing sweat equity, having two of you to do the work can help you get finished faster. The quicker you finish, the quicker you can sell the property, bank the profits, and move on to the next one.

Cons:

1. Inability to Compromise

When you have a real estate investment partner, it helps make the process go smoother if you get along well with each other. Before deciding to enter into a business relationship together, talk to your family member or friend to ensure you have the same ideas and goals for the property. If one of you wishes to fix the property and flip it but the other wants to rent it out, for example, you must be able to come up with a plan that you can both live with. That may mean one of you gives in to the other about the end result. Or, if neither of you is willing to compromise, you might need to find a different partner.

2. Lack of Planning

Investing with a partner requires some planning. If you and your partner are investing to rent the property, have you planned for what could happen if you are unable to find a renter? There are ways to plan ahead for such a possibility by choosing to invest in a turnkey operation.

3. Failure to Communicate

You must continually interact and communicate with each other about what is happening to your project along the way when you have a partner. Any failure to do so could completely sink your project, your relationship with your partner, and possibly your own finances.

4. Lack of a Contract

As with any type of partnership where money is involved, you should draw up a legal contract for both parties to sign. This holds true whether you are partnering with a friend or family member. In addition, each party should have their lawyer look over such an agreement before signing it.  This way, both parties are protected in case the deal, or property, goes south.

As you can see, real estate investing with a partner is not something you should enter into lightly or on just a handshake. That may have worked for some people in the past, but to ensure you don’t end up getting into a bad situation, think carefully about the pros and cons of a real estate investment partner before you write any checks.

Should You Invest To Pay Off Debt?

| Leave a Comment

Invest to pay off debt

Investing while you still have a debt to pay off is a controversial topic amongst debt-free communities. However, many people still find it difficult to climb out of the debt holes they’ve dug. Many have to search for side jobs, part-time gigs, and other ways to pay off what they owe. In some cases, individuals have started to invest to pay off debt. Is this a good way to reach financial freedom?

Investing When You Have Debt

If you follow the teachings of Dave Ramsey or any other debt-freedom-focused financial advice, you know that most don’t recommend you invest at all until all your debts have been paid. This is typically because the quicker you pay off your debt, the sooner you’ll be able to put all of your extra resources into investments, retirement planning, and other financial goals.

In fact, paying off your debts early may be one of the best investments you can make. Paying off your mortgage early, for instance, has a guaranteed return on investment. You’ll save money on interest. However, the same guaranteed return isn’t there when you are investing. In some cases, you may even lose money that you couldn’t really afford to (especially if you are holding debt).

Should You Invest to Pay Off Debt?

I frequent the debt-free subreddit looking for good advice and interesting topics. One Reddit user took to the forum to ask others about their thoughts on using investments to pay off debt. Essentially, they were wondering if they could invest to pay off debt, meaning they wanted to make minimum payments on their debts while using any other money to invest in the stock market. Then, eventually, they’d cash out and pay their debts in full.

Most, if not all, Redditors advised against doing this. Here’s why…

  1. Your investments won’t outpace the interest on your debts. You’ll wind up paying way more interest over time if you are waiting for investments to grow.
  2. Holding debts while you try to invest is counterproductive. Investments can provide good passive income and even help you prep for retirement. Unless you pay your debts though, you’ll still be in the red.

So, all in all, it isn’t advisable to invest to pay off debt. Instead, use all of the “extra” money you have to snowball your debts. Once you’re finally debt-free, then look into investing your money.

Read More

The Steps of Getting Success in the Forex Market

| Leave a Comment

People improving their performance cam make them triumphant traders. To improve their performance, investors are required to do hard work and follow some strategies. The millionaire traders have not got to their current position by depending on luck. They have gained adequate knowledge about the market and have always tried to separate psychological complexities from crucial trading decisions. There are some guidelines for managing the buying and selling process to do well in the Forex market. Let’s dive into the details. [Read more…]

What to do When Your Spouse Won’t Invest

| Leave a Comment

Money is one of the things that can cause the most strife in marriages. Having different priorities about how money should be spent or different methods of handling money is usually the problem. But what if the bills are getting paid and most of your goals align except for investing? What if you have approached your spouse multiple times and they won’t budge? How do you know what to do when your spouse won’t invest?

1. Ask About Their Investment Fears

Since you already know your other half doesn’t want to invest, maybe you need to listen. Ask what is holding them back. Find out what their fears are when it comes to investing. Perhaps they don’t have all of the facts such as what type of investment you are interested in or what the success rate is. Maybe they don’t personally know anyone who has had success in investing so they feel the numbers are faked.

As you talk about your spouse’s fears when it comes to investing it’s best to try to keep them calm and not say things that will upset or anger them. Their concerns are valid even though they may be different and have a point of view that is not the same as yours. Let them know you understand and appreciate their honesty in discussing it with you.

The truth is, until you let your spouse tell you why they don’t want to invest you can’t put them at ease about it and start investing.

2. Discuss Goals

Before marriage you probably discussed at least some of your life’s goals such as jobs, children, or traveling. Maybe you even talked a little about money such as paying off certain bills or student loan debt. However, many couples don’t think about the far off goals such as having money when it’s time to retire because it is so far off in the future it seems like it will never come.

But the truth is, the years pass all too quickly and suddenly you are middle aged with no retirement savings. To avoid that you must address the elephant in the room and have the hard conversations about investing. If you have talked about what is holding your spouse back you’ve already tackled one of the obstacles to investing. Now it’s time to discuss your future goals. Do you want to travel in the future? Or maybe you want to retire early and open your own business. Of course, your goals could be as simple as retiring someday with enough money in the bank to sustain your lifestyle. Whatever each of your goals are you should get them out in the open so you can move forward toward making them happen.

3. Make a Plan Together

Now that you understand each other a little better when it comes to your investment fears and future goals it’s time to start putting together a plan. Determine if you are in a financial position to invest and what would happen if you don’t succeed. Can you both handle the consequences? Will your marriage fall apart because you each blame the other? You need to make your decisions based off of what works the best for both of you. In many cases, investing in commodities like gold and silver could be a great strategy as commodities are something even newbies understand.

4. Start Small

If losing a lot of money is one of the fears your spouse has when it comes to investing maybe you could start off by investing only a small amount. Although there are a lot of ways to invest that require significant amounts of start-up money, such as starting a business or purchasing real estate, there are other ways to invest on a smaller scale. In fact, some types of investments, like the robo-investing company Wealthfront, have no minimums when it comes to how much you need to get started.

5. Seek Help

If your spouse is concerned about choosing the wrong kind of investment, because it’s a hard decision to make, you could get help in that area. Because investing has changed over the years you don’t have to hire financial advisor in fancy suit to make the decisions for you. Look at robo-advisors if you haven’t already done so. They are a great way to have help in your investments and are easy to use. In addition, one of the things they are known for is saving you time. A robo-advisor is a good way to get started investing if you aren’t sure how to begin.

While it’s true money, and investing in particular, can cause many an argument in a marriage it doesn’t have to be that way in yours. You may have different ideas about investing, but there are solutions that will provide you with a better future together even when your spouse won’t invest.

What other kind of approach could you take when your spouse won’t invest?

Precious Metals Investment, Stocks, and Prices

| Leave a Comment

 

One of the main differences between stocks and precious metals is that stocks are classified as equities. This means that stocks give their holders ownership of a portion of the company that the stock is issued for. Precious metals on the other hand do not provide ownership in a company. Rather, the holder of precious metal own physical product.

Make Money from Precious Metals

Investors in precious metals make money from increases in demand of precious metals. As demand increases for precious metals, their value rises. Similarly, lower supply of precious metals can have a positive influence on their prices.

As companies generate more profit and improve their business standing, the value of their shares can rise. This increase in value gives stockholders the opportunity to sell their stocks or even receive dividends at dates specified by the company.

What do precious metal investments, stocks, and prices have in common? A lot. Precious metals have become more desirable as an investment alternative to stocks, highlighting the shifting winds in investor’s approach to implementing strategies that satisfy their risk appetite.

Many believe that stock market investments are better than investments in precious metals because returns from the stock market can be significantly higher. For the past 19 years, an investment in the stock markets has provided returns of 400% while investments in precious metals have provided lower returns.

Stability of Precious Metals

Precious metals, particularly gold, silver, platinum, and palladium, have served as great alternatives in times of economic downturn where stock markets suffer from negative growth. Over the past 19 years many companies (listed) have come and gone as demand for their stocks reduced and prices plummeted. Precious metals, however are still on the scene.

There are risks associated with precious metals which owners of stocks may not be exposed to. There is no guarantee that precious metals will continue to be the safe haven we have come to know them as.

There are dangers of theft that can arise as a result of ownership of precious metals. Even with a safe, one can easily become a target for theft if word gets out that precious metals are stored at one’s home.

For many years, gold has served as the prime safe haven among precious metals. Banks and households around the world continue to bet on gold, investing unfathomable sums every year. To many, investing in gold is not an option but a necessity. The proof is in the pudding as previous economic downturns have shown.

 

What Determines Gold Price Per Ounce?

| Leave a Comment

Paper notes have risen and fallen over centuries, but the value of gold has always been preserved. Although cultures traditionally revered gold for its elegance, investors are now buying gold to expand their assets, inflation hedges, and to guard against the devaluation of the currency. Gold is a worthy investment, but little is understood on how gold prices are calculated and what determines the gold price per ounce. [Read more…]