Debt Free Divas Podcast Interview with Jarim Person Lynn!

Debt free divas

A few weeks ago I had the pleasure of sitting down with my faves the @debtfreedivas for a great interview on all things BKF.
Check it out here –>>

http://debtfreedivas.org/index.php/39-aboutus/aboutus/352-love-yourself-not-your-lacefront-brass-knuckle-finance#idc-container
Or visit your Stitcher radio app and search for the “debtfreedivas” podcast!

Why You Should Avoid Acorns (and other expensive, poorly thought out investing gimmicks)

img_2594

Lately there have been many questions coming my way in regards to the new Acorns Investing App.

“What do you think about Acorns?”

I don’t.

“Do you recommend the Acorns app?”

No.

“Should I…”

No.

No.

No.

Listen folks. We have to stop trying to take the easy way out of things that were a piece of cake to begin.
When we opt for even lazier, we opt for even more expensive.

How expensive?

Lets start from the top:

Acorns is a mobile app that supposedly rounds up your recent spending transactions and invests the rounded up portion.

But for someone to provide this “service”, there is going to be an expense for it. (even though there is no benefit of micro investing in the first place)

The service itself becomes expensive for two reasons: #1 Acorns has to keep track of your spending, calculate the difference and then find someone to pay for this service.

That person is you. This is part of the $1/month fee in addition to .50% of your balance you get to hand over each year.

What does that mean for your money? The below is if someone invested $200/month using www.BKFInvestingSchool.com principals.

no acorns

And below is what happens when you take a seemingly small, yet actually substantial .50% out of someone’s return over long periods of time using “Acorns”:

w acorns

Yes, that is a cold hard $139,824 difference between the first return and the second return.

A cold hard $139k taken right out of your pocket.

And it doesn’t even do what you think.

Which brings us to the #2 reason the Acorns service is expensive – starting your investing career off of lies is one of the most harmful things you can do. If you fall for simple tricks, you will fall for larger ones. And they only get more expensive.

If you notice on the Acorns website, the term “virtual” is used to describe this rounding up of transactions. This is because the app doesn’t actually take the rounded up portion of that $3.95 cup of Starbucks you bought. No your checking account nor the transactions you make are not incorporated into to the Acorns app in any way. Its true function is to simply make an automatic transfer from your bank account of whatever dollar amount you want whenever you want.

Which any person on earth can do, for free.

This means that to achieve the same investment regimen, all you would need to do is schedule an automatic transfer of X amount of money from your checking into your TD Ameritrade brokerage account, use the same commission free ETFs and not pay anyone an additional X amount to do so.

Better yet? Now you’ll be able to actually teach your kids how to invest because you know how, vs depending on some app that may or may not be in business in 5 years to do blind allocations on your behalf. You can not pass on an App to your kids and expect to form a wealthy lineage. (to be fair, we’re talking about apps and not website platforms that go more in depth with the process)

We must do better.

Next thing to understand about just how expensive this app is in other areas, is how psychology affects your investment returns.

Bad psychology

Consider this:

Sam makes a complete financial overhaul and learns to manage his money. After eliminating his liabilities (his consumer debt) and now that he isn’t paying $1,100 in car loans, credit cards and personal loans, he takes half of that amount to add to his investments each month. ($550/month)

Over 40 years, his portfolio becomes worth $2,953,972.

Chris on the other hand likes the easy way out. He never buckles down to learn to manage his money and instead defers to a random app he heard about on the internet that promises to round up his horrible spending habits while charging him for the ability to do so.

Since Chris continually drowns in monthly liabilities & debt payments instead of getting his life and finances together, he only has about $1/day in rounded up change to invest over those 40 years.

Over 40 years, this becomes $142,098 in the bank.

He blows through this amount with one medical procedure in “retirement”.

Moral of the story: when you’re encouraged to be broke, broke is exactly what you will aim to be.

dontbestupid

But lastly and potentially most detrimental of all?
taxes1


Let me give you a quick overview on how taxes are paid on traditional investments.

If you buy 4 shares of a mutual fund on March 3rd 2014….and you sell those 4 shares on March 30th 2014, you will receive paperwork from your brokerage account indicating you’ve done so. You would then take that information and plug it into Turbotax or provide it to your tax person.

You or they would then do the math and figure out the net gain (or loss) on that transaction (the date you bought the specific number of shares and the date you sold them) so that you can pay taxes based on the amount. (most brokerages don’t provide this last part to you)

And that’s the semi-easy part.

But now what happens when you buy 4 shares of that same mutual fund on March 4th, 5th, 6th, 7th, 8th, 9th…. and essentially every day of the year? Who calculates and records net profit from these purchases and when you sell them?

Once it gets too overwhelming for you and/or your tax person on 365 purchases a year, how much will you be charged in addition to your normal fee for having a far more complicated tax return than normal? (they charge upwards of $500 for this managing high numbers of stock transactions)

Even worse? Now that we have a multitude of purchases on the front end, what happens when Acorns does its “automatic re balancing” and dividend reinvesting on your behalf? For re-balancing that means you’re triggering a taxable event by selling portions of your investments when you otherwise might not have. (you should be buying and holding for 5 years minimum vs selling frequently)

And for the over abundance of dividend reinvestment? In conjunction with the re-balancing just mentioned?… lets just put it like this… you will be in one bonafied….

tax nightmare 2

Don’t do it to yourself.

Investing is simple. Don’t try to make something simple, simpler by taking away hundreds of thousands of dollars in potential return and forcing yourself into the wrong psychology.

And for damn sure don’t place yourself in an un-needed tax war with the IRS for when you never get around to putting together last years tax return after being overwhelmed.

In reality, nobody gets successful in America by being lazy.

                                                                                              -Bruno Tonioli

Learn how to invest the right way, here.

For new car drivers: Leasing is now killing owning

benefit-of-leasing-vs-buying-a-car-pros-and-cons

What they won’t tell you: Leasing car a car is now the smartest car choice for most people

Allow me to explain.

Americans are keeping their cars longer these days – this we know. The average we keep our financed cars before running back to a dealership is going on almost 6 years.

But you know whats also true? A. New cars are getting more expensive and B. we’re taking out longer loans than ever to pay for them.

This means that those who buy new cars are paying on average $472/month over…you guessed it….72 months. (6 years)

Yes, that car you were so dead set on owning has been going down in value over those same 6 years while newer cars being created are going up in value every year.

So once its time to trade up, years after your warranty and maintenance plans have expired, the car you trade in is worth less (not “worthless”) and your payments become, again, $472/month. (we’re going to give you the benefit of the doubt and say you aren’t one of the many actually trading up with negative equity in your current car, read about that here –> https://thisiswhyubroke.wordpress.com/2012/01/02/the-lost-decade/ )

Now lets take the average lease for a lower mid priced sedan on the other hand via a typical national offer: $270/month (with downpayment averaged and taxes factored in).

Quick math shows us we’re dealing with about a loss of about $200 in cash-flow for the “owner” vs the leasee.

We’re not factoring in the effect of having a more fuel efficient car every 3 years (data shows autos get more efficient yearly), not factoring in lack of maintenance (this is huge) and not factoring in the intangable mental benefits of (typically) always driving a worry free car….

But guess what investment gain that translates into for the lease holder?

**$1,074,171.90 over 40 years.**

Yes, thats a million you’re giving away for listening to what others tell you – without doing the math for yourself.

The secret is and always has been monthly cash-flow.

Yes, time is important but its not necessarily just about time, but cash-flow as well.

A couple caveats –

  • As you’ll always hear us say, centrally locating yourself and using a creative mix of public transportation/personal non motorized transportation and/or Uber is the best transportation for city dwellers.
  • For those who feel they must have cars however, and you are purchasing cars every 6 years, financially you’d be better off leasing. Leasing a car that holds its value is literally killing all other new car options right now.
  • The best way to lease a car is to pre-pay the lease for those 36 months in advance (commanding a discount and forcing you to buy only what you can afford).
  • You do not need credit cards, mortgage loans or any other FICO score tricks.
  • Simply do the first lease (which you will pay more initially – you can do as little as 24 months if you like) and the second, third, fourth lease is based on keeping that lease in good standing.
  • If you are paying on student loans consistently and without deferment, then its that much easier for that first lease.
  • Absolute smartest way to lease is through a business entity you operate so its not attached to your name in the first place.
  • None of this applies if you keep your car for 10 -15 years, then yes leasing is exponentially more expensive. *But then again, no matter what you say to yourself at the car dealer, the data shows you’re not keeping your cars for 10 -15 years. And nowhere near it in California. And that is why you’ll find in the first sentence of this post – “most people”.

Now you know.

Learn more on how to defeat the 12 most dangerous areas in your financial budget by reading my new book: www.ThisisWhyYoureBroke.com

TIWYB Cover

No, Your Employer Can’t Check Your Credit Score — But Here’s What It Can See

 

Business Insider

By Libby Kane

“Your three-digit credit score is a go-to indication of your trustworthiness that banks, credit card issuers, and car dealerships all use to help predict the likelihood of you repaying a loan.

But it’s of little use to the company that wants to give you a job.

“That a potential employer can check your credit score is probably the most common myth out there when it comes to credit, and unfortunately, it’s one of the most problematic,” says John Ulzheimer, credit expert at CreditSesame.com. “In my 23-plus years in the credit industry, there has never been a verified example of this happening.” In fact, he says, the three credit agencies have all gone on record saying that they don’t supply a credit score to employers.

Ulzheimer believes this myth is so pervasive for two reasons:

1. People are using “credit score” and “credit report” interchangeably. While your credit score is based on the contents of your credit report — which details your credit activity and history — they are not the same thing. As an illustration of their independence, consider the fact that while you can get your credit score for free at sites like Credit Sesame, you can’t get your report. And while you can get your free report from each bureau once per year from annualcreditreport.com, you must pay for your score.

2. Employers can pull a credit report. But the credit report available to employers is not the same one that your lenders see. “When an employer checks your credit, it’s called an ’employment screening,’ and the credit bureaus have a separate product available for this purpose,” explains Ulzheimer. “A lot of the data is the same, but not everything. For instance, your date of birth isn’t on it. Plus, when an employer screens your report, not only does the inquiry have no effect at all on your credit score, but you, the consumer, are the only person able to see that it ever happened.”

It’s also worth noting, says Ulzheimer, that a potential employer isn’t going to secretly check your credit behind your back. Unlike with the credit check that comes with applying for a mortgage or car loan, you must give explicit written permission for an employer to check your credit. And it’s not as though it’s your interviewer looking into your credit, he explains. “Normally the employer outsources the process to a third-party company, one that does things like verify your background and education.”

The bottom line is that while employers can check your credit, they can’t see your credit score, their inquiry doesn’t affect it, and the credit report they can pull isn’t the same one used to evaluate your trustworthiness as a borrower. While some states restrict the cases in which an employer can check your credit at all, “certain professions, like law enforcement or other government positions, should expect that credit checks are fair game,” Ulzheimer says. “You should assume a report is going to be pulled.”

http://finance.yahoo.com/news/no-employer-cant-check-credit-194739945.html

Image

 

 

7 Stages to Financial Wealth

**7 Stages to Financial Wealth** (applicable to even the most stubborn of our recruits)

Image

Stage -1– Can’t nobody tell you NOTHIN. You’re deep in denial and ignorant to the truth about the damage your current mentality has done to your finances. You’re completely trapped in the credit/debt slave matrix and have no idea that you are truly broke underneath all of your monthly financial facade frontin. You react violently

Stage 2– Exploration and Acknowledgement of the truth.

Someone or something has come along and figured out how to give you an extremely rude awakening.

You’ve begun to reluctantly question a lot of things. You know somethings wrong with how you’ve been handling things, something wrong with your immediate surroundings and the way the world works but you just dont know exactly what it is or how to fix it. In this stage you begin to fish around for proper education on personal finance, self esteem and even improving your health if necessary for the upcoming fight.

Whatever that fight may turn out to be.

Stage 3– Absolute anger. At this point you’re gaining momentum in your pursuit of knowledge. Yet the more you learn, the more you feel the walls have closed in due to all of the stupid sht you’ve done financially. The more you’re able to accurately calculate the totality of your financial f*ckery, the harder it seems it will be for you to climb out of it.

You’re feel both completely against the wall and at the same time completely ready to break the cycle…yet you now acknowledge that your previous ignorance was definitely bliss.

Stage 4- Your anger has propelled you into an all out war against debt and financial struggle each month. You’re cutting expenses, selling things on Craigslist, budgeting, setting money aside as a starter emergency fund & aggressively fighting to pay down your credit cards, car loans and medical bills. You see progress, yet due to your intense battle with debt, you have no leftover funds to begin to aggressively save and invest for you and your kids future. However, you have woken up to the fact that by eliminating such harmful liabilities, you are putting yourself into the perfect position to more than catch up on those luxuries in 24 months.

Stage 5- Initial victory! You’ve paid your consumer debts and have a medium sized chunk of change saved up to weather a storm. You do however, still have student loans and maybe even a mortgage left. You start investing lightly and begin to contribute up to the match in your 401k while focusing most of your resources to knocking out your two remaining  debt monsters. (mortgages and student loans)

Stage 6- **Debt Freedom**. It has been a long time coming. You have never seen such a powerful cash flow each month and because you have no interest payments you need to send to ANYONE ever again, you’ve never seen so much money pile up in your bank and investment accounts so quickly. You rejoice.

You spend some of that cash-flow on yourself this month to celebrate your hard work. You make a pact to yourself to never allow you to get in that position again. You also promise that you will go full fledge into wealth generation mode through investing, getting your kids college straightened out and possibly even starting your own business/ income rental property portfolio.

Stage 7- You have been enjoying your financial freedom and new self esteem for sometime while investing properly, buying rental units properly and in general doing whatever the hell you want with your money. But you realize there is still one piece to the wealth puzzle left.

You realize the only way for you to be truly financially wealthy is by uplifting the next person in your family or community. So you seek out someone as unfortunate to be stuck in stage 1, send them a cold glass of water to the face and you completely change their outlook on life and the building of their family tree. A new cycle of wealth begins to combat the previous cycle of poverty.

Welcome to The Winner’s Circle.

Benefits of Buying a Car in Cash

Car Cash 2

What buying a car in cash does over someone who enslaves themselves to a care note:

1. Affordability: It forces you to ONLY buy what you can afford. Remember, the term “I can afford it” does not mean you can afford the car payment that month. It means that you have the cash in the bank to make the purchase without owing anyone. Otherwise you can’t afford s#%$. You’re just gambling with how long you can make it without a major emergency happening.

2. Discounts: It puts you in place to be highly likely to receive a sizable discount on the overall price of the car. Lenders want to move VOLUME. Making $3k on 5 cars beats $5k on 2 in most businesses across the globe. Your greedy local car dealership is no different. Whipping out cash and buying a car at the end of a sales month will 9 times out of 10 allow you to get the dealer to cover your tax, title and registration.

3. Car insurance: It allows you the CHOICE to pay less in insurance! (Banks and car lease finance companies dictate your insurance coverage)

4. Late fees: The goal for wealthy people is not to be able to make payments on their bills on time. The goal is to have as few as possible in the first place. By reducing the number of payments that go out each month (from canceling cable bills to combining monthly cel phone plans to eliminating credit card payments regardless if you pay in full) you are substantially reducing your potential to pay late fees.

5. No more car than you really want or need: It forces you to think smarter about your purchase! Numerous published studies show that when you spend your own hard earned money you choose better, more reliable, longer lasting products (read: honda, toyota, nissan). When you give a 25 year old a $25k loan they come home with a Giraffe with a motor in its butt.

6. Cha ching! It puts you on path for wealth! If you were to simply reduce your auto expenses by $400 per month and instead you invested that amount over the typical timeframe someone pays a mortgage (30 years), you are $818,435.52 wealthier than the person who doesn’t.

Shout out to driving cars in hopes of impressing people who you’ll be asking to borrow money from in a few years.

Very impressive your plan is my friend.

Continue reading “Benefits of Buying a Car in Cash”