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Is There a Lesser Evil Between Buying and Renting?

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Most people are excited to move out of their parents’ home and gain a little independence. The only major downside is having to pay a mortgage or monthly rent. The big question is whether to buy or rent. No matter which you go for, the rule of thumb is always to keep your housing costs to no more than 30% of your monthly income.

Harvard’s Joint Center for Housing Studies states that over 21 million tenants who rented in the last year spent much more than 30% of their monthly income. About a quarter of these people experiences a higher degree of a financial burden because over half of their monthly income goes to rent. In those cases, these individuals have to compromise the remainder of their budget. The study states the result is a 55% drop in healthcare spending and a 40% in grocery shopping to compensate. The primary reason that so many people are struggling is rental prices are climbing higher than ever while wages are on the decline.

From 2001 until 2014, the average household income decreased by about 10% while rental prices inflated 7%. Last year, the average apartment cost $1,380 to rent, which is a 25% increase compared to prices three years ago. Even so, there is still an incredible demand for apartments, and the national vacancy rate has been pushed to a 30-year low. Nowadays, low-income households are not the only ones struggling; about 20% of middle-class households find themselves in the same predicament. As if things couldn’t get any worse, experts, like chief economist of Zillow, Svenja Gudell, speculate that prices will only go up over the next year, by about 3% to 5%.

Still, not all hope is lost for those that are looking for something cheaper. Interestingly enough the head of strategic marketing at Zumper, Devin O’Brein, states that prices will be more leveled out in metro hot spots like New York City, San Francisco, and Boston. O’Brien believes that there will be price gains in Oakland that will outpace those in San Fransico in 2016. He also suspects that there will be an increase in growth around Dallas, Miami, Austin, and Houston.

Is there a lesser evil between buying and renting?

If you had to make a smart move between one of the two, it might be a better option to purchase a house this year. Although mortgage interest rates are also expected to climb for the first time in about a decade, there is still a chance you might find a bargain on a home. House prices are expected to drop this year; the opposite of rentals. If you have been contemplating purchasing a home, but you have been stuck in the wave of high prices, it may be your only chance for a while to find a deal.

Around six million homes are projected to be sold from April through September alone this year, and not everyone will be able to take advantage of what is out there. Jonathan Smoke, chief economist at Realtor.com, stated the slowdown in home prices will push more homeowners to list their houses, which means you will have plenty of options. It is also believed that new home markets will climb next year with builders keeping a watchful eye on both starter and middle-range homes. There will likely be a significant amount of homes listed, so the amount of bidding will decrease.

With increased interest rates on the way, the window for record low mortgage rates will soon end. Higher rates will push up borrowing costs and monthly mortgage payments. If you are considering to buy or have a rental contract that is almost up, it won’t hurt to look into becoming a homeowner. Housing Economist at Trulia, Ralph McLaughlin, stated that mortgage interest rates would need to rise as high as 6.5% for the cost of buying a home to equal the cost of renting. Are you happy where you currently live?

Investing

Not All 401k’s Are Alike: How to Recognize and Fix a Bad 401k

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Most people believe that a 401k is beneficial. This type of investment can provide the same percentage of a retired person’s income that pensions once provided. However, there are millions of people haven’t a clue whether their 401k plan is a good one. Many have inadequate funding options and excessive fees.

It could end up causing you to lose hundreds to thousands annually. The costs associated with a plan will range, making it a complicated ordeal to find out what you are paying. According to an AARP survey, there are not many who catch that they are in fact paying someone to invest into their plan.

What Do the Fees Look Like?

There is a lot of confusion around the charges these plans can have. The largest of three standard fees is known as the investment management fee. The costs can vary from up to 2% to 3% of assets for actively managed funds down to 10 basis points for institutional shares of index funds. There is also a plan administration fee paid to businesses that run day-to-day management of the plan. Expect to pay around $100-$200 if it’s out of pocket. The last of the three is the 12b-1 charge – a recurring fee used to fund commissions for salespeople and brokers.

On top of these three main fees, count on an individual service fee for additional services, like loans from your 401k or for using a brokerage window.

David Walters, CPA and certified financial planner with Palisades Hudson Financial Group said that altogether, the charges can range from 50 basis points (which is half a percent) up to 3%. He believes people should be suspicious of those that ask over 1%. He also noted that it could make a significant difference in what workers get to spend when they retire.

A report by the liberal think tank Demos found that married couples who invested consistently and never made withdrawals would have lost up to $154,000 in fees, about a third their entire savings.

Are There Any Stats?

It may not always be possible to get the best plans out there. Small companies, in particular, have more fees as they don’t have any negotiating leverage to reduce them. They often do not in-house experts to research plans and find the best deal for the employees.

Yoav Zurel, CEO of FeeX, says one shouldn’t assume that working for a large company means you will have minimal fees or optimal investment options. He adds that only about 40% of the largest companies have optimized their 401k.

The good news is that according to BrightScope, 401k charges have been dropping annually since 2009, and the pattern is expected to continue.

This is most likely because more people are learning to pick the best plans possible for them. Brooks Herman, Bright Scope’s director of research, said that it’s because of the rise in plan sponsor awareness. In 2012, the Department of Labor mentioned that companies are to disclose fund fees to their customers each year.

Rick Meigs, president of 401khelpcenter.com, said that even with that, few people ever take the time to read over their plans. Still, he commented there is always that one individual from the pool of employees that will take the time to read it and when they take the time to do go through it, it benefits the majority.

Is it Possible to Make a Bad Plan Work?

FeeX has researched and analyzed annual reports and individual plans. They suggest alternative investments within each plan to lower charges.

Even with new disclosures, some workers may still be stuck with less than ideal plans. If you are in that predicament, Walters believes it’s best to find workarounds to place yourself in a better financial position.

You can begin by using index plans as they often have lower charges and 88% of plans include them. However, don’t think that’s the only answer. S&P 500 funds can charge 80 basis points when you can get the same thing from Vanguard for only five basis points. Nearly 50% of 401k plans have brokerage windows that allow you to invest in any mutual fund, exchange-traded stock or fund which is available at any brokerage. Doing so may also help with lowering costs as you have access to an entire universe of low-cost fund options and exchange traded funds.

It’s time to start taking financial matters into your hands. Start talking to your spouse about it if you are married, and sit down with your boss. Talk to your boss about improving the plan for the company as a whole.

If you are currently working in a small business, the company owner will likely be the plan’s biggest participant and shouldering a majority of the charges. Keep that in mind and remember to tread gently when bringing up the topic. Zurel, of FeeX, says you should never accuse your employer of anything, and instead, believe that they are doing the best that they can. After all, they too have the same interest as you and would like to have lower fees themselves.

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Personal Finance

Is Your Money Flying Out the Window?

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Most people will tell you that they find it odd that they cannot seem to grow money in their savings account enough though they strategically ensure ways to cut spending their money. You are not the only one that feels this way. It’s the most common issue that people struggle with today.

People can start to feel frustrated when they have the willpower to save, but the results don’t reflect the effort. When this happens, people will become discouraged from wanting to continue then stop, and this cycle can be quite a dangerous one.

Saving your cash and not spending your cash are completely different things. Most believe they are the same. There are various forms of the “no spending, not matching savings” issues. Let’s say, for example, you choose to make your lunch at home and take it to work with you over the next few days so you can save yourself some money. However, you notice two weeks later, you savings account is no higher from the time you started. Or how about when you are ecstatic that gas prices are lower, which could are decreasing which you know will translate into a reduction of spending gas by $160 each month. In both of these instances, you only took half the necessary steps you should be doing to save cash.

Let’s take a deeper look as to why not spending your money doesn’t equate to savings. The true culprit is online banking. From the time banks have come into existence, they’ve altered the financial world and started implementing a couple of odd habits. Most people love instant gratification, and electronic devices give them that. Individuals will look on their phones or their PCs to look at the balance of their checking account more often than they should, and this is where the problem happens.

A lot of people believe that looking at their current balance is the true depiction of what their savings account actually contains, so they may spend down to the last dime. Let’s say you believe that your account has $500, but when you look at it, it’s actually m$1024. Discovering this causes variations in the average person’s spending behavior even though there are likely several reasonable explanations as to how their balance is more than they suspected. More often than not, transactions have not been posted yet, or a check or a payment did not get cleared.

If someone were a chronic balance spender, they would probably find themselves spending more. Think about waking up in the middle of the night and feeling hunger, so you decide to walk inside of the kitchen to get a late night snack. When you rummage and search the pantry to get those tasty bite-sized brownies you love so much, you are sure the box is close to finished. However, you’re pleasantly surprised when you learn that there are more cookies in the box. You decide to treat yourself with more cookies. Whenever we are given a lot of a particular resource, we tend to use up that resource more than we intended.

It works the opposite way as well. Whenever we have to work with spare resources, we will end up using fewer resources than we would like. Whenever you don’t spend cash, you don’t think about how much money you have in the bank.

Any time you notice you don’y use up a certain amount of money that you normally spend, the best thing for you to do is immediately move the money from your checking’s account and straight into your savings account. Are your saving yourself a hundred or so buck each month because you don’t have to put as much money towards certain things anymore? Then you should start putting the money you would have spent on gas to your savings account every time you fill up your gas tanks. Did you make lunch and take it with you to your job? You should be moving the extra money to your savings account that you didn’t spend dining out.

It really is that simple.

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Personal Finance

Peer to Peer Lending Are Giving Banks a Run For Their Money

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Peer to Peer Lending Are Giving Banks a Run For Their Money

People usually think of going to bank when they need to take out a loan. Banks may give people who are already their customers certain discounts on interest rates, which is a major factor we look at when choosing a lender so that we can go with them.

Banks are usually hesitant to give small business loans because of their lack of financial history. They would rather avoid having any risky investments into their portfolios. Because of that it has been quite hard for small business owners. Normally, getting approved for loans can take a long time. On top of that, consumers have to worry about the high costs of advanced underwriting and understanding their interest rates.

However, banks are in losing out to competitors recently with a company that is giving them a run for their money. Lending Club has been grabbing business from banks quite aggressively, and they are on the verge of reducing loan portfolios from balance sheets.

The Lending Club is positively altering the financial sector to make financing for consumers more gratifying and making advances much more affordable. The company matches investors with borrowers that are based on their risk appetite. The Lending Club is involved with rendering an online market that matching investors with borrowers. The platform lets members join in to trade standard or customized program loans.

Their model is a peer-to-peer lending platform. It’s a practice of delivering cash to certain consumers and all without the need of a financial intermediary. The Lending Club, in particular, is posing a real threat to most banks. According to Lending Club, the borrowers who come to them get almost 33% off the typical interest rates most credit card companies charge.

The latest quarterly results showed that the Lending Club Corporation experiences a whopping 92% year-over-year increase in regards to loan origination. As of now, the primary loan they make is for personal loans. They’re also pushing to help small businesses out as well.

The good thing about Lending Club is that they are not obligated to follow this kind of strict rules that the banks also do, thus creating a gleaming window of opportunity for them to grow their business. A vast majority of analysts look optimistically at the Lending Club’s prospects in the long run. Nine out of the nineteen analysts that covered the Lending Club stock recommended buying it. Seven of the nineteen suggested that there be a hold. At the end of October, the Lending Club stated that their earnings for the third quarter fiscal year for 2015. They happily announced that they were able to surpass even what analysts originally suspected to be both their earnings and revenue. Their earnings per Share, or EPS, came in at $0.04, which was double the amount the consensus estimated to be $0.02. On top of that, their revenue currently stands at $116.3 million, against the analysts’ predicted amount of $108 million.

The Lending Club stock traded up 3.11 at $12.58 at this past Wednesday’s close. During the same trading session, the S&P500 index rejected around 1.3%. Still, they experienced a slight increase of 0.08%. It proves that the Lending Club Corporation can do better in the market.
The Lending Club is currently well-positioned to report both fabulous operating and financial results. The Lending Club should continue to focus aggressively on marketing activities to make use of any opportunities in the future. While they are currently giving their customers a huge discount on the interest charge of a loan, it’s likely the company will continue to be successful in creating a low-cost platform that will have the ability to generate enormous earnings for them and savings for their customers.

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