Everything You Need to Know About Budgeting As a Freelancer

Could logging in to your computer from a deluxe treehouse off the coast of Belize be the future of work? Maybe. For many, the word freelance means flexibility, meaningful tasks and better work-life balance. Who doesn’t want to create their own hours, love what they do and work from wherever they want? Freelancing can provide all of that—but that freedom can vanish quickly if you don’t handle your expenses correctly.

“A lot of the time, you don’t know about these expenses until you are in the trenches,” says freelance copywriter Alyssa Goulet, “and that can wreak havoc on your financial situation.”

Nearly 57 million people in the U.S. freelanced, or were self-employed, in 2019, according to Upwork, a global freelancing platform. Freelancing is also increasingly becoming a long-term career choice, with the percentage of freelancers who freelance full-time increasing from 17 percent in 2014 to 28 percent in 2019, according to Upwork. But for all its virtues, the cost of being freelance can carry some serious sticker shock.

“There are many hats you have to wear and expenses you have to take on, but for that you’re gaining a lot of opportunity and flexibility in your life.”

– Alyssa Goulet, freelance copywriter

Most people who freelance for the first time don’t realize that everything—from taxes to office supplies to setting up retirement plans—is on them. So, before you can sustain yourself through self-employment, you need to answer a very important question: “Are you financially ready to freelance?”

What you’ll find is that budgeting as a freelancer can be entirely manageable if you plan for the following key costs. Let’s start with one of the most perplexing—taxes:

1. Taxes: New rules when working on your own

First things first: Don’t try to be a hero. When determining how to budget as a freelancer and how to manage your taxes as a freelancer, you’ll want to consult with a financial adviser or tax professional for guidance. A tax expert can help you figure out what makes sense for your personal and business situation.

For instance, just like a regular employee, you will owe federal income taxes, as well as Social Security and Medicare taxes. When you’re employed at a regular job, you and your employer each pay half of these taxes from your income, according to the IRS. But when you’re self-employed (earning more than $400 a year in net income), you’re expected to file and pay these expenses yourself, the IRS says. And if you think you will owe more than $1,000 in taxes for a given year, you may need to file estimated quarterly taxes, the IRS also says.

That can feel like a heavy hit when you’re not used to planning for these costs. “If you’ve been on a salary, you don’t think about taxes really. You think about the take-home pay. With freelance, everything is take-home pay,” says Susan Lee, CFP®, tax preparer and founder of FreelanceTaxation.com.

When learning how to budget as a freelancer it’s necessary to estimate your income and expenses before setting aside savings for tax payments.

When you’re starting to budget as a freelancer and determining how often you will need to file, Lee recommends doing a “dummy return,” which is an estimation of your self-employment income and expenses for the year. You can come up with this number by looking at past assignments, industry standards and future projections for your work, which freelancer Goulet finds valuable.

“Since I don’t have a salary or a fixed number of hours worked per month, I determine the tax bracket I’m most likely to fall into by taking my projected monthly income and multiplying it by 12,” Goulet says. “If I experience a big income jump because of a new contract, I redo that calculation.”

After you estimate your income, learning how to budget as a freelancer means working to determine how much to set aside for your tax payments. Lee, for example, recommends saving about 25 percent of your income for paying your income tax and self-employment tax (which funds your Medicare and Social Security). But once you subtract your business expenses from your freelance income, you may not have to pay that entire amount, according to Lee. Deductible expenses can include the mileage you use to get from one appointment to another, office supplies and maintenance and fees for a coworking space, according to Lee. The income left over will be your taxable income.

Pro Tip:

To set aside the taxes you will need to pay, adjust your estimates often and always round up. “Let’s say in one month a freelancer determines she would owe $1,400 in tax. I’d put away $1,500,” Goulet says.

2. Business expenses: Get a handle on two big areas

The truth is, the cost of being freelance varies from person to person. Some freelancers are happy to work from their kitchen tables, while others need a dedicated workspace. Your freelance costs also change as you add new tools to your business arsenal. Here are two categories you’ll always need to account for when budgeting as a freelancer:

Your workspace

Joining a coworking space gets you out of the house and allows you to establish the camaraderie you may miss when you work alone. When you’re calculating the cost of being freelance, note that coworking spaces may charge membership dues ranging from $20 for a day pass to hundreds of dollars a month for a dedicated desk or private office. While coworking spaces are all the rage, you can still rent a traditional office for several hundred dollars a month or more, but this fee usually doesn’t include community aspects or other membership perks.

If you want to avoid office rent or dues as costs of being freelance but don’t want the kitchen table to pull double-duty as your workspace, you might convert another room in your home into an office. But you’ll still need to outfit the space with all of your work essentials. Freelance copywriter and content strategist Amy Hardison retrofitted part of her house into a simple office. “I got a standing desk, a keyboard, one of those adjustable stands for my computer and a squishy mat to stand on so my feet don’t hurt,” Hardison says.

Pro Tip:

Start with the absolute necessities. When Hardison first launched her freelance career, she purchased a laptop for $299. She worked out of a coworking space and used its office supplies before creating her own workspace at home.

Digital tools

There are a range of digital tools, including business and accounting software, that can help with the majority of your business functions. A big benefit is the time they can save you that is better spent marketing to clients or producing great work.

The software can also help you avoid financial lapses as you’re managing the costs of being freelance. Hardison’s freelance business had ramped up to a point where a manual process was costing her money, so using an invoicing software became a no-brainer. “I was sending people attached document invoices for a while and keeping track of them in a spreadsheet,” Hardison says. “And then I lost a few of them and I just thought, ‘Oh, my God, I can’t be losing things. This is my income!’”

As you manage the cost of being freelance, consider digital tools and accounting services to keep track of invoices, payments and income.

Digital business and software tools can help manage scheduling, web hosting, accounting, audio/video conference and other functions. When you’re determining how to budget as a freelancer, note that the costs for these services depend largely on your needs. For instance, several invoicing platforms offer options for as low as $9 per month, though the cost increases the more clients you add to your account. Accounting services also scale up based on the features you want and how many clients you’re tracking, but you can find reputable platforms for as little as $5 a month.

Pro Tip:

When you sign up for a service, start with the “freemium” version, in which the first tier of service is always free, Hardison says. Once you have enough clients to warrant the expense, upgrade to the paid level with the lowest cost. Gradually adding services will keep your expenses proportionate to your income.

3. Health insurance: Harnessing an inevitable cost

Budgeting for healthcare costs can be one of the biggest hurdles to self-employment and successfully learning how to budget as a freelancer. In the first half of the 2020 open enrollment period, the average monthly premium under the Affordable Care Act (ACA) for those who do not receive federal subsidies—or a reduced premium based on income—was $456 for individuals and $1,134 for families, according to eHealth, a private online marketplace for health insurance.

“Buying insurance is really protecting against that catastrophic event that is not likely to happen. But if it does, it could throw everything else in your plan into a complete tailspin,” says Stephen Gunter, CFP®, at Bridgeworth Financial.

Budgeting as a freelancer allows you to select a healthcare plan that best suits your employment status, income and relationship status.

A good place to start when budgeting as a freelancer is knowing what healthcare costs you should budget for. Your premium—which is how much you pay each month to have your insurance—is a key cost. Note that the plans with the lowest premiums aren’t always the most affordable. For instance, if you choose a high-deductible policy you may pay less in premiums, but if you have a claim, you may pay more at the time you or your covered family member’s health situation arises.

When you are budgeting as a freelancer, the ACA healthcare marketplace is one place to look for a plan. Here are a few other options:

  • Spouse or domestic partner’s plan: If your spouse or domestic partner has health insurance through his/her employer, you may be able to get coverage under their plan.
  • COBRA: If you recently left your full-time job for self-employment, you may be able to convert your employer’s group plan into an individual COBRA plan. Note that this type of plan comes with a high expense and coverage limit of 18 months.
  • Organizations for freelancers: Search online for organizations that promote the interests of independent workers. Depending on your specific situation, you may find options for health insurance plans that fit your needs.

Pro Tip:

Speak with an insurance adviser who can help you figure out which plans are best for your health needs and your budget. An adviser may be willing to do a free consultation, allowing you to gather important information before making a financial commitment.

4. Retirement savings: Learn to “set it and forget it”

Part of learning how to budget as a freelancer is thinking long term, which includes saving for retirement. That may seem daunting when you’re wrangling new business expenses, but Gunter says saving for the future is a big part of budgeting as a freelancer.

“It’s kind of the miracle of compound interest. The sooner we can get it invested, the sooner we can get it saving,” Gunter says.

He suggests going into autopilot and setting aside whatever you would have contributed to an employer’s 401(k) plan. One way to do this might be setting up an automatic transfer to your savings or retirement account. “So, if you would have put in 3 percent [of your income] each month, commit to saving that 3 percent on your own,” Gunter says. The Discover IRA Certificate of Deposit (IRA CD) could be a good fit for helping you enjoy guaranteed returns in retirement by contributing after-tax (Roth IRA CD) or pre-tax (traditional IRA CD) dollars from your income now.

Pro Tip:

Prioritize retirement savings every month, not just when you feel flush. “Saying, ‘I’ll save whatever is left over’ isn’t a savings plan, because whatever is left over at the end of the month is usually zero,” Gunter says.

5. Continually update your rates

One of the best things you can do for yourself in learning how to budget as a freelancer is build your costs into what you charge. “As I’ve discovered more business expenses, I definitely take those into account as I’m determining what my rates are,” Goulet says. She notes that freelancers sometimes feel guilty for building business costs into their rates, especially when they’re worried about the fees they charge to begin with. But working the costs of being freelance into your rates is essential to building a thriving freelance career. You should annually evaluate the rates you charge.

Because your expenses will change over time, it’s wise to do quarterly and yearly check-ins to assess your income and costs and see if there are processes you can automate to save time and money.

“A lot of the time, you don’t know about these expenses until you are in the trenches, and that can wreak havoc on your financial situation.”

– Alyssa Goulet, freelance copywriter

Have confidence in your freelance career

Accounting for the various costs of being freelance makes for a more successful and sustainable freelance career. It also helps ensure that those who are self-employed achieve financial stability in their personal lives and their businesses.

“There are many hats you have to wear and expenses you have to take on,” Goulet says. “But for that, you’re gaining a lot of opportunity and flexibility in your life.”

The post Everything You Need to Know About Budgeting As a Freelancer appeared first on Discover Bank – Banking Topics Blog.

Source: discover.com

7 Tax Benefits of Owning a Home: A Complete Guide for Filing This Year

tax benefits of owning a homeTijana Simic / Getty Images

What are the tax benefits of owning a home? Plenty of homeowners are asking themselves this right around now as they prepare to file their taxes.

You may recall the Tax Cuts and Jobs Act—the most substantial overhaul to the U.S. tax code in more than 30 years—went into effect on Jan. 1, 2018. The result was likely a big change to your taxes, especially the tax perks of homeownership.

While this revised tax code is still in effect today, the coronavirus has thrown a few curveballs. For one, the Internal Revenue Service has delayed filing season by about two weeks, which means it won’t start accepting or processing any 2020 tax year returns until Feb. 12, 2021. (So far at least, the filing deadline stands firm at the usual date, April 15.)

In addition to this delay, many might be wondering whether the new realities of COVID-19 life (like their work-from-home setup) might qualify for a tax deduction, or how other variables from unemployment to stimulus checks might affect their tax return this year.

Whatever questions you have, look no further than this complete guide to all the tax benefits of owning a home, where we run down all the tax breaks homeowners should be aware of when they file their 2020 taxes in 2021. Read on to make sure you aren’t missing anything that could save you money!

Tax break 1: Mortgage interest

Homeowners with a mortgage that went into effect before Dec. 15, 2017, can deduct interest on loans up to $1 million.

“However, for acquisition debt incurred after Dec. 15, 2017, homeowners can only deduct the interest on the first $750,000,” says Lee Reams Sr., chief content officer of TaxBuzz.

Why it’s important: The ability to deduct the interest on a mortgage continues to be a big benefit of owning a home. And the more recent your mortgage, the greater your tax savings.

“The way mortgage payments are amortized, the first payments are almost all interest,” says Wendy Connick, owner of Connick Financial Solutions. (See how your loan amortizes and how much you’re paying in interest with this online mortgage calculator.)

Note that the mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions (there are more below) need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled.

And note that those amounts just increased for the 2020 tax year. For individuals, the deduction is now $12,400 ($12,200 in 2019), and it’s $24,800 for married couples filing jointly ($24,400 in 2019), plus $1,300 for each spouse aged 65 or older. The deduction also went up to $18,650 for head of household ($18,350 in 2019), plus an additional $1,650 for those 65 or older.

As a result, only about 5% of taxpayers will itemize deductions this filing season, says Connick.

For some homeowners, itemizing simply may not be worth it. So when would itemizing work in your favor? As one example, if you’re a married couple under 65 who paid $20,000 in mortgage interest and $6,000 in state and local taxes, you would exceed the standard deduction and be able to reduce your taxable income by an additional $1,200 by itemizing.

__________

Watch: Ready To Refinance? Ask These 5 Questions First

__________

Tax break 2: Property taxes

This deduction is capped at $10,000 for those married filing jointly no matter how high the taxes are. (Here’s more info on how to calculate property taxes.)

Why it’s important: Taxpayers can take one $10,000 deduction, says Brian Ashcraft, director of compliance at Liberty Tax Service.

Just note that property taxes are on that itemized list of all of your deductions that must add up to more than your particular standard deduction to be worth your while.

And remember that if you have a mortgage, your property taxes are built into your monthly payment.

Tax break 3: Private mortgage insurance

If you put less than 20% down on your home, odds are you’re paying private mortgage insurance, or PMI, which costs from 0.3% to 1.15% of your home loan.

But here’s some good news for PMI users: You can deduct the interest on this insurance thanks to the Mortgage Insurance Tax Deduction Act of 2019—aka the Setting Every Community Up for Retirement Enhancement (SECURE) Act—which reinstated certain deductions and credits for homeowners.

“These include the deduction for PMI,” says Laura Fogel, certified public accountant at Gonzalez and Associates in Massachusetts. (This credit is retroactive, so talk to your accountant to see if it makes sense to amend your 2018 or 2019 tax return in case you missed it in past years.)

Also note that this tax deduction is set to expire again after 2020 unless Congress decides to extend it in 2021.

Why it’s important: The PMI interest deduction is also an itemized deduction. But if you can take it, it might help push you over the $24,800 standard deduction for married couples under 65. And here’s how much you’ll save: If you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut your taxable income by $1,500. Nice!

Tax break 4: Energy efficiency upgrades

The Residential Energy Efficient Property Credit was a tax incentive for installing alternative energy upgrades in a home. Most of these tax credits expired after December 2016; however, two credits are still around (but not for long). The credits for solar electric and solar water-heating equipment are available through Dec. 31, 2021, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York–based accounting firm.

The SECURE Act also retroactively reinstated a $500 deduction for certain qualified energy-efficient upgrades “such as exterior windows, doors, and insulation,” says Fogel.

Why it’s important: You can still save a tidy sum on your solar energy. And—bonus!—this is a credit, so no worrying about itemizing here. However, the percentage of the credit varies based on the date of installation. For equipment installed between Jan. 1, 2020, and Dec. 31, 2020, 26% of the expenditure is eligible for the credit (down from 30% in 2019). That figure drops to 22% for installation between Jan. 1 and Dec. 31, 2021. As of now, the credit ends entirely after 2021.

Tax break 5: A home office

Good news for all self-employed people whose home office is the main place where they work: You can deduct $5 per square foot, up to 300 square feet, of office space, which amounts to a maximum deduction of $1,500.

For those who can take the deduction, understand that there are very strict rules on what constitutes a dedicated, fully deductible home office space. Here’s more on the much-misunderstood home office tax deduction.

The fine print: The bad news for everyone forced to work at home due to COVID-19? Unfortunately, if you are a W-2 employee, you’re not eligible for the home office deduction under the CARES Act even if you spent most of 2020 in your home office.

Tax break 6: Home improvements to age in place

To get this break, these home improvements will need to exceed 7.5% of your adjusted gross income. So if you make $60,000, this deduction kicks in only on money spent over $4,500.

The cost of these improvements can result in a nice tax break for many older homeowners who plan to age in place and add renovations such as wheelchair ramps or grab bars in bathrooms. Deductible improvements might also include widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts.

The fine print: You’ll need a letter from your doctor to prove these changes were medically necessary.

Tax break 7: Interest on a home equity line of credit

If you have a home equity line of credit, or HELOC, the interest you pay on that loan is deductible only if that loan is used specifically to “buy, build, or improve a property,” according to the IRS. So you’ll save cash if your home’s crying out for a kitchen overhaul or half-bath. But you can’t use your home as a piggy bank to pay for college or throw a wedding.

The fine print: You can deduct only up to the $750,000 cap, and this is for the amount you pay in interest on your HELOC and mortgage combined. (And if you took out a HELOC before the new 2018 tax plan for anything besides improvements to your home, you cannot legally deduct the interest.)

The post 7 Tax Benefits of Owning a Home: A Complete Guide for Filing This Year appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

Shelter Insurance Review: Car, Home, and More

Shelter Insurance is a mutual insurance company that was founded in 1946 and operates out of Columbia, Missouri. This highly-rated, award-winning insurance company offers a wealth of insurance products across the states of Colorado, Iowa, Arkansas, Kansas, Kentucky, Indiana, Illinois, Mississippi, Missouri, Nebraska, Ohio, Nevada, Oklahoma, Tennessee, and Louisiana.

In this Shelter Insurance review, we’ll look at insurance policies, coverage options, customer satisfaction, liability cover, and more, before seeing how Shelter compares to other leading insurance companies.

Shelter Car Insurance Coverage Options

Shelter is a leading auto insurance company in Missouri and other serviced states. It isn’t always the cheapest (more on that below) but it does provide a wealth of coverage options, including:

Liability Coverage

Liability coverage is the most basic, bare-bones insurance type and one that is required in most states. Liability insurance covers bodily insurance (per person and per accident) and property damage. It essentially covers you for the damage you do to another driver and their property during a car accident.

Collision Coverage

An optional form of auto insurance that covers you for damage done to your own vehicle, regardless of who was at fault. If you have collision coverage on your auto policy, you will get a payout when you hit a guardrail, wall, tree or building.

However, it’s one of the most expensive add-ons and a lot of the damage you do to your own vehicle may not be severe enough to warrant paying the deductible.

Comprehensive Coverage

With comprehensive coverage, you will be covered for many of the things that collision insurance doesn’t cover. For instance, it provides protection against vandalism and damage from extreme weather events. It also covers you in the event of an animal collision, which is surprisingly not covered by collision insurance.

Personal Injury Protection

With PIP insurance, you will be covered for some of the personal losses you incur due to an injury sustained in a car accident. For instance, if you’re hit by another driver and suffer severe injuries that cause you to miss work, PIP will pay for the money you lose. It will also cover the money needed to cover traveling for doctor and hospital appointments, as well as childcare costs.

Medical Payments

By adding medical payments cover onto your policy you will be protected against hefty medical bills resulting from a car accident. This option is required in just a few states but the coverage limits are often set very low.

Underinsured and Uninsured Motorist Coverage

Uninsured motorists are a growing problem on America’s roads. If you’re hit by one of these drivers and don’t have collision insurance, you could be left severely out of pocket. But not if you have underinsured/uninsured motorist insurance.

This coverage option will protect you against bodily injury and property damage resulting from an accident with an uninsured or underinsured driver.

Roadside Assistance

Shelter car insurance policies offer optional roadside assistance cover, which gives you up to $100 per claim and covers you for expenses accrued when you are stranded by the roadside.

Roadside assistance is an emergency service designed to help you get back on the road or to tow your car to a nearby garage. It includes everything from lost key replacement to fuel delivery and tire changes.

Rental Car Reimbursement

If your car is stolen or damaged so badly that it needs to spend several days or weeks in a repair shop, rental car reimbursement can help you to stay on the road. It will cover you for the money you spend on rental cars, which means you won’t miss a single important car journey.

Your coverage will be limited to a specific time period and you will not be covered for rentals that extend beyond this period.

Accidental Death

A form of life insurance that covers you for accidental deaths, such as car accidents. If you die in an accident, for example, your spouse or family members will receive a payout. There are many more restrictions than you get with term life insurance policies, but the premiums are also much lower.

Disability Income Coverage

PIP can cover you if you suffer serious bodily injuries and miss work as a result, but what happens if you’re forced to miss up to a year of work? That’s where Disability Income Coverage comes in. With Shelter, you will be paid a sum of money every week for up to a year.

GAP Insurance

If you bought your car on finance and wreck it soon after, the insurance payout may not be enough to cover the losses due to the interest payments and the rapid deprecation that new cars experience. With GAP insurance, you will be covered for that extra amount. As a result, this type of car insurance is often required by auto loan companies.

New Car Replacement

If you have a car that is less than a year old and has fewer than 15,000 miles on the clock, you can apply for the new car replacement program, which gives you a like-for-like replacement. This is an essential addition for anyone driving an expensive new vehicle as the losses could be catastrophic without it.

Other Shelter Insurance Options

Shelter offers multiple additional insurance options, many of which can be bought along with your car insurance, allowing you to save money with a multi-policy discount.

As with Shelter car insurance, we recommend comparing rates to other insurance companies, making sure you’re getting the best coverage for the lowest rates. There are a huge number of insurance companies in the United States offering the same coverage options found at Shelter, and many of them are cheaper:

Homeowners Insurance

A homeowners policy from Shelter will protect your property and everything in it. You can get cover for the dwelling, personal property, medical payments, personal liability, living expenses, and more.

Shelter also offers additional coverage options pertaining to electronics, sewer damage, earthquake damage, loss of farming equipment, and more.

Renters Insurance

If you rent your home, you won’t need property insurance, but you still need to protect your personal property and that’s where renter’s insurance comes. If your flat/house is burgled and you lose expensive items, including heirlooms, jewelry, artwork, and electronics, you will be covered.

Umbrella Insurance

With a minimum liability of $1 million, umbrella insurance will step in and provide cover above and beyond what you are offered elsewhere. If you have a lot of personal assets and are worried about being sued above what your liability insurance can pay, this is the policy for you.

Business Insurance

A business insurance policy from Shelter will protect your business against property loss, equipment damage, liability claims, and more. This is essential for all businesses and at Shelter you can choose a range of customization options to make sure the policy is perfectly suited to your needs.

Flood Insurance

Your home insurance policy doesn’t cover you for flood damage and this is true whether you’re with Shelter or not. However, you can add flood insurance to your Shelter insurance policy, with the rates dependent on where you live and how common floods are in your area.

Life Insurance

In addition to accidental death cover, Shelter also has term life and whole life insurance policies. These provide payouts to your loved ones in the event of your death.

Your age, activity, medical history, and health will dictate the size of your insurance premiums and your death benefit.

Shelter Car Insurance Cost

We ran some car insurance quotes and found that Shelter was consistently more expensive than providers like GEICO, Allstate, State Farm, and Progressive. In fact, when comparing quotes for young drivers, Shelter car insurance premiums were more than double those offered by GEICO and were also substantially higher than other major carriers.

In many states, including Kentucky and Louisiana, Shelter ranked as one of the most expensive providers. The rates were a little more promising in Missouri, but you’ll probably still get better offers elsewhere.

Regardless of what you think about Shelter Insurance and whether or not you have had good experiences with them in the past, we recommend getting quotes from other providers first.

Of course, it isn’t all about price, but it takes some incredibly impressive customer support and benefits for a $3,000 policy to take precedent over one that costs $1,500 or less, and we’re not convinced Shelter has that level of support or those benefits.

Bottom Line: Shelter Insurance Review

Shelter is a dedicated, capable, and financially strong insurance provider that offers extensive coverage for both drivers and homeowners. It has good reviews from policyholders, has high ratings from AM Best, JD Power and the Better Business Bureau (BBB), and there are very few complaints when compared to other providers.

Shelter serves a number of states and if you reside in one of these, it’s worth getting a quote. Just don’t forget to check other providers and don’t assume Shelter will offer the best rates. In our experience, it’s more likely to be one of the most expensive providers in your state, but you won’t know until you check.

Visit www.ShelterInsurance.com to learn more and to discuss an auto policy and/or home insurance policy with one of their representatives.

Shelter Insurance Review: Car, Home, and More is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

What Is Uninsured Motorist Insurance?

What is Uninsured Motorist Insurance?

If you buy or lease a car, you’ll need to arrange for insurance coverage. Not only is it the law in most states, it will also protect your bank account in the event of an accident. However, if you’re involved in an accident and the other driver doesn’t have car insurance, you could run into problems. That’s the thinking behind uninsured motorist insurance. 

Compare checking accounts here. 

Uninsured Motorist Insurance Basics

If two people who both have car insurance get in a car crash, they exchange insurance information. The other driver’s insurance company generally pays your expenses if you’re in a crash. So what happens if the other driver doesn’t have insurance? There’s no one to pay you, cover your car repair or replacement or foot your medical bills if you’re injured. Your own car insurance may cover those costs, but it depends on the plan.

That’s where uninsured motorist insurance comes in. Uninsured motorist insurance policies offer protection against property damage or personal injury resulting from a run-in with an uninsured driver. There are a lot of bad drivers out there, and plenty of people who drive regularly but can’t afford car insurance. Have a run-in with one of them and you could end up covering your own medical and car repair bills.

In 22 states and the District of Columbia, drivers are required to have uninsured motorist insurance, so if you have vehicle insurance you’re covered in the event of a crash with an uninsured driver. But if you live in a state that doesn’t require uninsured motorist coverage, your regular car insurance policy may not protect you from bills if you’re in a crash with a driver who doesn’t have car insurance.

Check out our budget calculator.

Is Uninsured Motorist Insurance Necessary?

What is Uninsured Motorist Insurance?

If you live in a state that requires uninsured motorist coverage as part of the minimum coverage requirement for all auto insurance policies, you have at least some protection from uninsured drivers. You can always call your insurance company to check on the kind of coverage you have and discuss your coverage options.

If you live in a state that doesn’t require uninsured motorist coverage, the question becomes: Should you buy uninsured motorist insurance as an add-on policy to your regular car insurance? Before you decide, it’s worth pricing it out.

First, you can call your car insurance provider and check what level of coverage you already have against uninsured motorists. Your existing plan may provide some level of protection against medical bills and/or car repair bills resulting from a crash with an uninsured motorist.

If you don’t have any coverage or if you think your coverage levels are insufficient, you can ask your insurance provider how much it would cost you to add uninsured motorist insurance to your coverage package. You can also get quotes from other car insurance companies and opt for the policy that provides the best coverage for the lowest price.

Uninsured motorist insurance can give you some extra protections, too, such as coverage in the event that a hit-and-run driver crashes into your car or in the event that you’re struck by a vehicle as a pedestrian. So even those with built-in protection against uninsured motorists through their regular car insurance may be tempted to add extra coverage.

Related Article: All About Car Loan Amortization

Bottom Line

What is Uninsured Motorist Insurance?

Just because you have car insurance that you’re paying for every month doesn’t mean you’re protected in all eventualities. If reading this article has made you nervous that you might not have enough – or any – protection against uninsured motorists, this could be a good time to get your insurance company on the phone, particularly if you live in a state with a high percentage of uninsured drivers.

Photo credit: Â©iStock.com/bowdenimages, Â©iStock.com/bowdenimages, Â©iStock.com/vm

The post What Is Uninsured Motorist Insurance? appeared first on SmartAsset Blog.

Source: smartasset.com

15 Items to Keep in Your Tornado Safe Space

Did you know the U.S. has an average of more than 1,000 tornadoes recorded each year?

There are two regions with an excessively high frequency of tornadoes. Florida is one and “Tornado Alley” in the south-central United States is the other, according to NOAA.

If you’re in the part of the country that’s prone to tornadoes, you need to have a safe room to go to when the weather turns bad.

Your safe spot will shield you from the wind, hail and flying debris. A safe location should have no windows and could be a basement, storm cellar or an interior room on the lowest floor of your apartment building. An interior closet or bathroom in your apartment is also a safe place to hunker down in.

Items to keep in your tornado safe space

When you have to go to your safe space, you never know how long you’ll be there. It could be 30 minutes and it could be for several hours. You need to be prepared, not only with essentials but also with things to keep you and your family distracted and calm. We’ve organized a list to help get you through the storm with useful items for your safe space.

1. Water and snacks

Water and munchies are a must for everyone in your safe space. Plan ahead with water bottles and non-perishables. Keep foodstuffs organized.

Have a bag you can grab to take with you to a storm shelter or your safe space in your apartment.

water bottles

2. Baby and toddler food

Have a baby in the family? Be sure to have formula, bottles and baby food with utensils ready for your tornado safe space. Or, pack it to take to a shelter.

If you’ve got a toddler, have Cheerios and other favorites in resealable plastic bags for easy accessibility.

3. NOAA radio

You should get a weather radio so you can listen to NOAA Weather Radio. It will keep you tuned in to emergency info about tornado watches and warnings.

4. Footwear

You don’t know what the conditions will be like during the weather event and post-storm climate. FEMA recommends wearing closed-toe shoes like boots or sturdy sneakers. A likelihood of broken glass and other rubble that could prove dangerous.

shoes

5. Protective gear

In case of the tornado hitting full out in your area, be ready for anything. Keep bike helmets to protect from falling debris with you. Have a helmet for everyone in the family.

And if you have room and the time to drag it, bring a mattress with you. It could protect the entire family in case of flying glass, doors or other debris.

6. First aid kit

Prepare a small backpack with Band-Aids, antiseptic wipes and more, or buy a first aid kit that’s already full of necessities.

If a tornado warning occurs, you can grab the backpack on your way to a storm shelter, or stash one in your apartment’s safe space.

7. Sanitation and hygiene supplies

How long will you be in your tornado safe spot? Only Mother Nature knows for sure. Since it’s always better to be ready ahead of time, have a few personal hygiene supplies on hand. Think disposable towels, hand sanitizers, portable tissue packs, toilet paper and trash bags.

hand sanitizer

8. Necessities for kids

Be sure to pack a safe space or shelter bag with necessities, such as diapers and wipes for babies. Also, have a go-bag with anything special your toddler needs. Include favorite washcloths that could prove useful.

9. Flashlights

Power losses are likely when high winds blow. Be sure to have a battery-operated lantern and other flashlights. Also, plan ahead with extra batteries.

10. Cell phone chargers

Don’t risk your cell phone going to black. You may not have power, so be prepared with a portable universal battery cell phone charger. Find one with USB ports for several phones.

11. Personal docs

It’s always smart to keep important documents in one place. In a storm situation, keep them in a waterproof bag. Safeguard your passport, insurance papers and your checkbook.

12. Activities for kids

If you have little kids, be sure to have supplies to keep them busy while you wait out the wind. It will be a good distraction.

Charge iPads charged, bring crayons and coloring books, a board game and favorite stuffed animals for nap time. Have pillows and blankets, too.

coloring book

13. Adult distractions

Adults need their own versions of safe space distractions. Have your iPad mini and access to the novel you’re reading (or listening to). Bring your crossword puzzle book and the like.

Have pillows and a blanket in your safe space, too. These things could help make the waiting period for the storm to pass more bearable.

14. Dog or cat accessories

Does your dog or cat get traumatized in thunder, wind and rain? Have a thunder vest or shirt that they can wear. It can squash anxiety through gentle, constant pressure.

Create a spot where cats will feel safe to hide under a blanket. Also have water, food, treats and toys for your pets.

15. Meds and eyeglasses

Remember to keep your medications and eyeglasses (and contact lenses) with you in a storm. Keep headache pills and other medications you take in your safe space, or in the shelter bag you’ve packed. Include daily prescriptions, insulin, epinephrine auto-injectors and anything else you may need, along with contact lens solution and eye drops.

After the storm

According to the Weather Channel, it’s critical to be sure that a storm has truly passed before going outside. Check for updates on your NOAA Weather Radio, local broadcasts or cell phone. These outlets will be able to provide the latest weather information related to the storm where you live.

The post 15 Items to Keep in Your Tornado Safe Space appeared first on Apartment Living Tips – Apartment Tips from ApartmentGuide.com.

Source: apartmentguide.com

How Much Money Do You Need to Buy a House?

Understanding how much money you need to buy a house can give you an idea of how much you should expect to save.

You’re probably excited about the thought of buying your first home? If so, you have every right to be.

But how much money do you need to buy a house? A calculator can help you determine that. But the average cost of buying a $300,000 is typically around $17,000.

In this article, we’ll go over the main costs of buying a house including the down payment, inspection cost, appraisal cost, closing cost, etc.

Check Current Mortgage Rate

How much money do you need to buy a house?

Out of Pocket Cost of buying a house

The five main out of pocket costs of buying a house are 1) the down payment; 2) inspection cost; 3) the appraisal cost; 4) earnest money and 5) closing costs. These out of pocket costs or upfront costs are money yo need to pay before you become the owner of the property.

In addition, some lenders also require you have some cash reserves to cover 2 to 3 months of the mortgage repayments.

Determining how much cash needed to buy a house depends on the type of loan you’re using.

Let’s suppose you’re buying a $300,000 house with an FHA loan.

An FHA loan requires a 3.5% of the home purchase price as a down payment as long as you have a 580 credit score. So, for the down payment alone, you will need $10,500.

Here’s a quick breakdown for how much cash needed to buy a $300,000 house:

  • Down payment: $10,500
  • Inspection cost: $300
  • Appraisal cost: $300
  • Closing cost: $6000

So, $ 17,100 is how much money you need to buy a house.

Whether you’re buying a house with a 20% down payment or 3.5% down payment, you can certainly find a loan with both the price and features to suit your needs as a first time home buyer. You can compare First Time Home Buyer home loans on the LendingTree website.

The down payment

The biggest cost of buying a house is obviously your down payment. But that depends on the type of loan you are looking for.

For example, a conventional loan requires a 20% down payment. You can pay less than that, but you will have to pay for a private mortgage insurance – which covers the lender in case you default on your loan.

A 20% down payment however can also mean that you’ll get a better interest rate, which also means you’ll save money on interest.

For an FHA loan, you only need 3.5% down payment as long as your credit score is 580.

FHA loans are very popular these days. Not only it’s easier to get qualified (low down payment and low credit score), but also your down payment can come from a friend, a relative or your employer.

Using our example above, you only need $10,500 for a down payment for a $300,000 house.

If you’re using a VA loan then you pay $0 down payment.

Check to see if you’re eligible for an FHA loan or VA loan

How much money do you need to buy a house also depends on other factors, such as whether you are a first time home buyer or not. Your state may have a range of programs that may contribute toward your down payment.

So visit your local government office to find out if you are eligible for any down payment assistance for first time home buyers.

Inspection cost

Another upfront cost of buying a home is the inspection cost.

It is highly recommended to perform inspection for your home for any defects so there are no surprises later on.

Inspections typically cost between $300 to $500, but it depends on the property and your local rates.

Compare home loans for first time home buyers with LendingTree

Appraisal cost

Before a lender can give you a loan to finance a house, they will want to know how much the house is worth. So appraisal means an estimate of the home’s value. A home’s appraisal usually costs between $300 to $500. A home appraisal will also determine what your property tax will likely be.

If you’re pay the home appraisal, it will be deducted from the closing cost. (see below).

Earnest money

Earnest money is a deposit you will have to pay upfront as soon as an offer is accepted, while you working on other aspects such as getting the home inspected, etc…

This deposit is part of the down payment, and it is usually between 1% to 3% of the final sale price. It is held by an escrow firm or attorney until the closing process is completed.

So if the sale is successful, that money is applied to your down payment. If it’s not, you get 100% of your money back.

Closing costs

The closing costs are fees by the lenders. They typically cost 2% to 5% of the final price. The costs include fees for homeowner’s insurance, title insurance, title insurance, property tax, HOA dues, private mortgage insurance.

It’s possible to lower these costs by comparing mortgage options.

Other costs of buying a home:

In addition to upfront costs, there are other recurring costs associated with buying a home. They include moving fees, repair costs, furniture, remodeling, etc. So consider these costs when making your budget to buy a house.

So how much money do you need to buy a house? The answer is it depends on the type of loans you’ re using. But if you’re buying a $300,000 house with an FHA loan, which requires a 3.5% down payment, $ 17,100 is how much money you need.

For more information about upfront costs of buying a house, check out this guide.

Read more cost of buying a house:

  • How Much House Can I Afford?
  • How Long Does It Take to Buy a House?
  • Buying a House for the First Time? Avoid these Mistakes
  • 5 Signs You’re Not Ready to Buy a House

Work with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). So, find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post How Much Money Do You Need to Buy a House? appeared first on GrowthRapidly.

Source: growthrapidly.com

7 Key Home-Buying Numbers to Know When Shopping for a House

There’s a lot that goes into buying a new home, starting with finding the right one all the way down to finalizing the paperwork. Somewhere in that process, you’ll likely find yourself trying to decipher myriad new terms and figuring out what they mean for you.

We’ve compiled this list of seven key numbers you’ll need to know when buying a home — plus the details on how understanding these terms can help you land your dream home.

Here are seven all-important home-buying numbers to know.

1. Cost per Square Foot

One of the first numbers you’ll encounter when shopping for homes is cost per square foot. While this number is based on a relatively simple calculation, it’s an important one to understand since ultimately it helps you determine how much house you’re getting for your money.

“Cost per square foot is simply the list price divided by the number of livable square feet,” said Tyler Forte, founder & CEO of Felix Homes. “This number is important because it allows a homeowner to compare the relative price of homes that are different sizes.”

But there’s more to consider, he said. “While cost per square foot is an important metric, you should also consider the layout of the home. In many cases, a home with an open floor-plan may seem larger even if it has a smaller livable square footage.”

Forte defines livable square footage as any interior space that’s heated and cooled, which is why a garage wouldn’t necessarily fit the bill. One of the best ways to understand how much home you can afford is to break it down by cost per square foot, which will vary from city to city and neighborhood to neighborhood.

Work with your real estate agent to understand the differences in cost for various properties to map out what areas and homes are within budget.

2. Earnest Money Deposit

Once you’ve found a home you like enough to bid on, you’ll quickly start hearing about something called an earnest money deposit (EMD). This is a type of security deposit made from the buyer to the seller as a gesture of good faith.

The amount of the EMD is set by the seller, typically running anywhere from 1% to 2% of the home’s purchase price. The key thing to keep in mind about EMDs is that they represent your commitment to buying the home, and can be useful in making a compelling offer in a competitive sellers’ market.

“An earnest money deposit is very important because it’s the skin in the game from the home buyer,” said Realtor Jason Gelios of Community Choice Realty. “If a home buyer is up against other offers, the EMD can make or break them getting the home.”

“I’ve seen lower offers won due to a higher EMD amount, because sellers view the higher EMD as a more serious buyer,” he added.

The money you put toward your EMD comes off the purchase price for the home, so there’s no reason to be stingy. If you really love the house and have the available cash, you might even consider offering more than the deposit amount your seller is asking. Either way, be sure to start saving up for your EMD early and factor it into any other cash you set aside for your down payment.

3. Interest Rates

Since most home purchases involve a mortgage, you’ll want to familiarize yourself with current interest rates. Interest rates dictate how much you’ll pay your lender every year to borrow the amount of your mortgage, so you’ll want to shop around for the best deal.

“Your interest rate is the annual percentage rate you will be charged by the lender, and the lower the rate you receive, the lower your monthly payment,” said real estate developer Bill Samuel of Blue Ladder Development. “You should speak with a handful of lenders when starting the process and get a rate quote from each one.”

While interest rates are mostly determined by your creditworthiness (aka credit score) and the type of loan you’re getting, they’ll still vary between lenders. Even a half-point difference in rates can amount to a big difference in your monthly mortgage payment — as well as the grand total you pay for your house.

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4. Credit Score

Speaking of credit scores, you’ll want to know yours before you get serious about buying a home. Since your credit score helps determine the type of mortgage (and mortgage rate) you qualify for, you need to meet the basic minimum credit score requirements before diving headlong into buying a home.

Forte broke down the term a little more: “A credit score is the numerical grade a rating agency assigns to you,” he says. “Commonly referred to as a FICO score, this grade is made up of many factors such as credit utilization, and the length of your credit history.”

If your credit score is low (under 600), spend some time figuring out why and how you can boost it. Just remember, the better your credit score, the better your interest rate — and the more money you’ll save in the long run.

5. Debt-to-Income Ratio

Another personal finance term that comes into play when buying a home is your debt-to-income ratio (DTI). Much like creditworthiness, this number is used by lenders to determine how much of a loan you qualify for and at what rate.

“When looking to get approved for a mortgage, a buyer should know what their debt-to-income ratio is,” said Gelios. “This is the amount of debt you owe per month as compared to your gross monthly income.”

For example, if you earn $6,000 per month but have to pay $3,000 in bills, this would be a debt-to-income ratio of 50%. Gelios says lenders typically view any DTI above 40% as high risk, and with good reason. If over half of your income is accounted for in bills, that would make it significantly harder to make a big mortgage payment every month.

Understanding your DTI isn’t just good for lenders, it also helps put your personal finances in perspective when deciding how much house you can afford.

6. Down Payment

The all-important down payment: Many homebuyers use this number to help them determine when they’re actually “ready” to buy a home — based on how much of a down payment they have saved up.

“A down payment is the amount you contribute to the transaction in cash,” said Forte. “Most home purchases are a combination of cash in the form of a down payment and a loan from a mortgage company.”

The old rule of thumb on home purchases was to put down 20%. If that sounds like a lot of money, it is. (Home price $250,000, time 20% = $50,000. Ouch.) For many buyers, a 20% down payment just isn’t feasible — and that’s okay. Forte said the down payment can be as low as 3% of the sales price with a conventional loan, although 10% is more typical.

Remember that any amount you pay up front will ultimately save you money in interest on your mortgage — and putting more money down will lower your monthly payment. Take some time to calculate what your monthly mortgage payment will be based on various down payments. That way you’ll know exactly what to expect and how much of a down payment you should aim to save up.

Pro Tip

Keep in mind that for any down payment of less than 20%, you may be required to pay private mortgage insurance (PMI), another expense that adds to your monthly payment. 

7. Property Taxes & Other Expenses

Long before you close on a home, you need to be ready for ongoing expenses such as property taxes, homeowner’s insurance and any potential HOA fees. These expenses tend to slip through the cracks, but it’s important to know about them before you become a homeowner.

“One of the most overlooked and underestimated numbers when buyers actually locate a home and win an offer on it is the tax amount,” said Gelios. “Too many times, I’ve seen real estate agents list what the seller is paying in taxes at that time. If time allows, a home buyer should contact the municipality and ask for a rough estimate as to what the taxes will be if they closed on the home in X month.”

Since taxes almost always increase when homes change ownership, it’s good to get an updated quote before those payments become your responsibility.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Buy a Second Home that Pays for Itself

Recent data from the U.S. Census Bureau shows that home sales were up more than 17% in June 2020 from the month before, and up more than 13% compared to the year prior. Those who have the means to buy a second home are wise to take on mortgage debt (or reorganize their current debt) in today’s low interest environment.

With low 30-year mortgage rates, owning a rental property that “pays for itself” through monthly rental income is especially lucrative with a significantly lower mortgage payment. If you’re curious about buying a second home and renting it out, keep reading to find out about the major issues you should be aware of, the hidden costs of becoming a landlord, and more. 

Important Factors When Buying a Short-Term Rental

The issues involved in buying a rental home varies dramatically depending on where you plan to purchase. After all, buying a ski lodge in an area with seasonal tourism and attractions might require different considerations than buying a home in a major metropolitan area where tourists visit all year long.

But there are some factors every potential landlord should consider regardless of location. Here are a few of the most important considerations:

  • Location. Consumers rent vacation homes almost anywhere, but you’ll want to make sure you’re looking at homes in an area where short-term rentals are popular and viable. You can do some basic research on AirDNA.co, a short-term rental data and analytics service, or check competing rentals in the area you’re considering.
  • Property Management Fees. If you plan to use a property management company to manage your short-term rental instead of managing it yourself, you should find out how much other owners pay for management. Also, compare listing fees for your second home with a platform like Airbnb or VRBO.
  • Taxes. Property taxes can be higher on second homes since you don’t qualify for a homestead exemption. This means higher fixed costs each month, which could make it more difficult to cover your mortgage with rental income.
  • Competition. Check whether a rental area you’re considering is full of competing rentals that are never full. You can find this information on VRBO or Airbnb by looking at various rentals and checking their booking calendars.
  • Potential Rental Fees. Check rental sites to see how much you might be able to charge for your second home on a nightly, weekly, or monthly basis. 

5 Steps to Rent Your Second Home

Before purchasing a second home, take time to run different scenarios using realistic numbers based on the rental market you’re targeting. From there, the following steps can guide you through preparing your property for the short-term rental market.

1. Research the Market

First, you’ll want to have a general understanding of the rental market you’re entering. How much does the average short-term rental go for each night or each week? What is the average vacancy rate for rentals on an annual basis? 

Research your local rental market, the average price of rentals in your area, various features offered by competing rentals, and more.

Action Item: Dig into these figures by using AirDNA.co. Just enter a zip code or town, and you’ll find out the average nightly rate, occupancy rate, revenue, and more. Although some of the site’s features require a monthly subscription, you can find out basic information about your rental market for free.

2. Know Your Numbers

You need to know an array of real numbers before renting your second home, including the following:

  • Average nightly rate
  • Average occupancy rate
  • Fixed costs, such as your mortgage payment, taxes, and insurance for the rental
  • Property management fees and costs for cleaning between tenants
  • Additional fixed costs for things like trash pickup, internet access, and cable television
  • Costs for marketing your space on a platform like VRBO or Airbnb, which could be a flat fee or 3% of your rental fee depending on the platform

You’ll use these numbers to figure out the average monthly operating cost for your second home, and the potential income you might be able to bring in. Without running these numbers first, you wind up in a situation where your short-term rental doesn’t pay for itself, and where you’re having to supplement operating expenses every month. 

Action Item: Gather every cost involved in operating your specific short-term rental, and then tally everything up with monthly and annual figures that you can plan for.

3. Buy the Right Insurance

If you plan on using your second home as a short-term rental, you’ll need to buy vacation rental insurance. This type of homeowners insurance is different from the type you’d buy for your primary residence. It’s even unique from landlord insurance coverage since you need to have insurance in place for your second home and its contents.

Some vacation rental policies let you pay per use, and they provide the benefits of homeowners insurance (like property coverage, liability, and more) plus special protection when your property is rented to a third party. 

Action Item: Shop around for a homeowners insurance plan that’s geared specifically to vacation rentals. See our top picks for the best homeowners insurance companies out there.

4. Create a Property Management Plan

If you live near your second home, you might want to manage it yourself. There’s nothing wrong with this option, but you should plan on receiving calls and dealing with problems at all hours of the day. 

Many short-term rental owners pay a property management company to communicate with their tenants, manage each rental period, and handle any issues that pop up. Property managers can also set up cleanings between each rental and help with marketing your property. 

Action Item: Create a property management plan and account for any costs. Most property managers charge 25% to 30% of the rental cost on an ongoing basis, so you can’t ignore this component of owning a short-term rental. 

5. Market Your Space

Make sure you appropriately market your space, which typically means paying for professional photos and creating an accurate, inviting listing on your chosen platforms. Your property manager might help you create a marketing plan for your vacation rental, but you can DIY this component of your side business if you’re tech- and media-savvy. 

Action Item: Hire a photographer to take professional photos of your rental, and craft your rental description and listing. 

Risks of Purchasing a Short-Term Rental

Becoming a landlord isn’t for the faint of heart. There’s plenty that can go wrong, but here are the main risks to plan for:

  • Government roadblocks. In destinations from New York City to Barcelona, government officials have been cracking down on short-term rentals and trying to limit their ability to operate. New rules could make running your business more costly, difficult, or even impossible. 
  • Your home could be damaged beyond repair. If you read the Airbnb message boards and other landlord forums, you’ll find an endless supply of nightmare rental stories of houses getting trashed and rentals enduring thousands of dollars in damage. 
  • Housing market crash. If the housing market crashes again like it did in 2008, you might find you owe more than your second home is worth at a time when it’s increasingly difficult to find renters. 
  • Reliance on tourism. As we’ve seen during the pandemic, circumstances beyond our control can bring travel and tourism to a screeching halt. Since short-term rentals typically rely on tourism to stay afloat, decreases in travel can affect the viability of your business, quickly.
  • High ongoing costs and fees. Higher property taxes, property management fees, cleaning fees and maintenance costs can make operating a short-term rental costly in the long-term. If you don’t account for all costs and fees involved, you might wind up losing money on your vacation home instead of having the property “pay for itself”.

The Bottom Line

A short-term rental can be a viable business opportunity, depending on where you want to buy and the specifics of the local rental market. But there are a lot of factors to consider before taking the leap. 

Before investing hundreds of thousands of dollars, think over all of the potential costs and risks involved. You’ll want to ensure that you’ve done comprehensive research and have run the numbers for every possible scenario to make an informed decision.

The post How to Buy a Second Home that Pays for Itself appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Understanding Long-Term Care Insurance

A lot of us don’t like to think about this, but inevitably there will come a time where we will all need help taking care of ourselves. So how can we start preparing for this financially?

Many people opt to purchase long-term care insurance in advance as a way to prepare for their golden years. Long-term care insurance includes services relating to day-to-day activities such as help with taking baths, getting dressed and getting around the house. Most long-term care insurance policies will front the fees for this type of care if you are suffering from a chronic illness, injury or disability, like Alzheimer’s disease, for example. 

If this is something you think you’ll need later on, it’s crucial that you don’t wait until you’re sick to apply. If you apply for long-term care insurance after becoming ill or disabled, you will not qualify. Most people apply around the ages of 50-60 years old. 

In this article, we will discuss long-term care insurance, how it works and why you might consider getting it.   

How long-term care insurance works

The process of applying for long-term care insurance is pretty straight forward. Generally, you will have to fill out an application and then you’ll have to answer a series of questions about your health. During this point in the process, you may or may not have to submit medical records or other documents proving the status of your health. 

With most long-term care policies, you will get to choose between different plans depending on the amount of coverage you want. 

Many long-term care policies will deem you eligible for benefits once you are unable to do certain activities on your own. These activities are called “activities of daily living” or ADLs:

  • Bathing
  • Incontinence assistance
  • Dressing
  • Eating
  • Getting off and/or on the toilet
  • Getting in and out of a bed or other furniture

In most cases, you must be incapable of performing at least two of these activities on your own in order to qualify for long-term care. When it’s time for you to start receiving care, you will need to file a claim. Your insurer will review your application, records and make contact with your doctor to find out more about your condition. In some cases, the insurer will send a nurse to evaluate you before your claim gets approved. 

It’s very common for insurers to require an “elimination period” before they start reimbursing you for your care. What this means is that after you have been approved for benefits and started receiving regular care, you will need to pay out of pocket for your treatments for a period of anywhere from 30-90 days. After this period, you will get reimbursed for your out-of-pocket expenses and from there.

Who should consider long-term care insurance

Unfortunately, the statistics are against our odds when it comes to whether or not we will eventually need some type of long-term care. Approximately half of people in the U.S. at the age of 65 will eventually acquire a disability where they will need to receive long-term care insurance.  Of course, the problem is, long-term care can be really expensive. Unless you have insurance, you’ll be paying for your long-term care completely out-of-pocket should you ever need it.

Your standard health insurance plan, including Medicare, will not cover your long-term care. The benefits of buying long-term care insurance are that:

  • You can hold on to your savings: Many uninsured seniors have to dip into their savings account in order to pay for their long-term care. Because it’s not cheap, many of them drain their life savings just to be able to pay for it.

 

  • You’ll be able to choose from a larger variety of options: Being insured gives you the benefit of being able to choose the quality of care that you prefer. Just like with anything else, you get what you pay for when it comes to healthcare. Medicaid offers some help with long-term care, but you’ll end up in a government-funded nursing home. 

 

How to buy long-term care insurance

If you’ve recently started thinking about shopping for long term-care insurance, you’ll want to keep a few things in mind:

  • Do you mind being insured on a policy with an elimination period?
  • Can you afford all of the costs including living adjustments?
  • Are you interested in a policy that covers both you and your spouse, otherwise known as “shared care”?

There are a few different ways to go about getting long-term care benefits. You can either buy a policy from an insurance broker, an individual insurance company, or in some cases, your employer. Obtaining long-term care insurance through your employer is probably going to be cheaper than getting it as an individual. Ask your employer if it’s included in your benefits. 

Many people also opt to shop for hybrid benefits insurance policies. This is when a long-term care policy is packaged in with a standard life insurance policy. This is becoming a lot more common in the world of insurance. Keep in mind that the approval process may be slightly different for a hybrid insurance policy than of that of a stand-alone long-term care insurance policy. Make sure to ask about the requirements before you apply. 

Best long-term care insurance packages

There are not very many long-term care insurance companies that exist as there once was. It’s hard to wrap our heads around purchasing something that we don’t yet need. However, here are a few examples of companies that offer competitive long-term care packages:

 

  • Mutual of Omaha: This company offers benefits of anywhere between $1,500 and $10,000. While the main disadvantage of this company’s packages is that they do not cover doctor’s charges, transportation, personal expense, lab charges, or prescriptions, you CAN choose to receive cash benefits instead of reimbursements. This company also offers discounts for things like good health and marital status. This company’s insurance policies offer a wide range of options and add-ons so you can make sure that all your bases are covered.

 

 

  • Transamerica: This company’s long-term policy, TransCare III, is good if you don’t want to hassle with an elimination period. If you live in California, this may not be the best choice for you because California’s rates are a lot higher than the rates in other states. Your maximum daily benefit can be up to $500 with this program, with a total of anywhere between $18,250-$1,095,000. 

 

 

  • MassMutual: Popular for their SignatureCare 500 policy which comes in both base and comprehensive packages, is a long-term care and life insurance hybrid. This is very appealing to many seniors wanting to kill two birds with one stone. This company also has a 6-year period as one of their term options, which is pretty high.

  • Nationwide: This program sets itself apart from many other programs available because it allows you to have informal caregivers like family, friends, or neighbors. You will receive your entire cash benefit every month and it is up to you to disperse the funds as you would like. Currently, this company does not have their pricing available online, so you will need to speak with an agent to discuss prices.

 

Understanding Long-Term Care Insurance is a post from Pocket Your Dollars.

Source: pocketyourdollars.com