Opportunity Funds

The following is a guest post by Akash Sky. Akash writes articles that teach people about investing using intuitive graphics and simple, plain English over at akashsky.com. Enjoy! 

I’m sure you have all heard of emergency funds, and I’m sure that many of you have them as well. But, have you heard of an opportunity fund? It’s similar to an emergency fund, except the purpose behind its use is different. In this article, we will discuss following:

  • what an opportunity fund’s purpose is
  • how large an opportunity fund should be
  • who stands to benefit most from an opportunity fund
  • where an opportunity fund should be stored
  • how an opportunity fund should be used

Alright, let’s start by discussing the purpose an opportunity fund.


What’s the purpose of an opportunity fund?

To better understand the purpose of an opportunity fund, let’s examine the purpose of an emergency fund. According to Investopedia, the purpose of an emergency fund is to improve financial security. In other words, the emergency fund is there to limit your downside potential (i.e. bad things like debt, homelessness, hunger, etc.). Now, take that purpose and reverse it.

The purpose of an opportunity fund is to maximize your upside potential. Basically, an opportunity fund’s purpose is to give you the financial fuel to make the most of an opportunity that comes across your way.


What type of person benefits most from an opportunity fund?

First off, I want to explicitly state that an opportunity fund is not for everyone. If you are simply looking to remove risk from your life and remain financially comfortable, an emergency fund is more than enough for you.

A person well-suited for an opportunity fund would have the following attributes:

  1. Is actively looking to increase their wealth / net-worth, even at the cost of accepting risk
  2. Can lock away / save additional money without negatively impacting their life


How much money should I set aside for an opportunity fund?

There are no hard rules for the amount of cash you need to have in your opportunity fund – you just need enough to make the most of an opportunity that is likely to come your way. In order to do that, you are going to have to do some introspection. You should try and answer the following question: what are some of the best opportunities that I have come across in the last 5 years?

Then. ask yourself: “How much capital / money would I have needed to take advantage of those opportunities?”. Of course, its hard to give an exact figure. For example, if you happen upon a killer real estate deal, your “opportunity fund” would need to be large enough for a down-payment, whereas if you come across a smaller opportunity like a correction in the stock market, you would only need a few thousand dollars.

In my case, I’ve got $5,000 in my opportunity fund. The opportunities that I’m expecting to capitalize on at the moment are corrections in the stock market, my personal blog, and small business ventures. In order to find out the dollar amount you need in an opportunity fund, you need to clearly define the opportunities that you want to take advantage of. Once you’ve done that, all you need to do is calculate the financial fuel you would need to make the most of those opportunities and then save that amount in the form of an opportunity fund.


Where should I place my opportunity fund?

Just like an emergency fund, an opportunity fund needs to be liquid. That means that you can’t store your opportunity fund in an investment that is difficult to convert to cash.

This means that savings accounts, CDs (if you are willing to take a slight penalty), and money market accounts are great places to store your opportunity fund. However, the best place (in my opinion) to store an opportunity fund is inside of a 1 year old I-Bond.

I-Bonds are a hybrid between CDs and savings accounts. After you lock away your money for 1 year, you are free to access it at any time. In addition, I-bonds carry less risk than savings accounts because they are immune to inflation and interest rates. To top it off, I-bonds often pay higher rates.


How should I use an opportunity fund?

Before we talk about how to use an opportunity fund, lets quickly talk about how to NOT use an opportunity fund. An opportunity fund is NOT extra spending money for when things go on sale. If you truly want to make the most of an opportunity fund, you need to spend it on opportunities that will provide long term benefit to you.

In order to properly use an opportunity fund, you need to be able to identify worthwhile opportunities when you come across them. In order to do so, you should ask yourself the following questions:

  • Is this opportunity likely to benefit me far into the future?
  • When is next time I can reasonably expect something like this opportunity to pop up again?

If you are not likely to come across the opportunity again and it is likely to benefit you far into the future, it may be a worthwhile endeavor to use your opportunity funds on. Ultimately, deciding if the opportunity is right for you is a personal choice. However, having an opportunity fund allows you to have a choice to begin with. It’s up to you whether or not to use your financial fuel to take up an opportunity to change your life for the better.


Finishing thoughts

In the end, whether or not an opportunity fund is a good fit for you depends on your financial goals. If you want to actively grow your net-worth instead of cruise along, I highly recommend starting an opportunity fund. In the investment world, cash is king, and you’ll always need to have some of it on hand to pounce on any wonderful opportunity that comes your way. After all, fortune favors the bold, and it is much easier to be bold with an opportunity fund.

How about you all? What do you think about opportunity funds, and are they right for you?

Share your experiences by commenting below! 

Smart Money Moves for the New Year

The following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

The new year is often a time for renewal; people frequently vow to get healthier and be more responsible with money.  However, there’s no need to wait until the calendar turns to January 1st.  There is plenty you can do now to help your finances as you head into the new year.


Reduce the Interest You Pay

If you owe money, there are many ways you can cut the amount of interest that you’re paying so you can get out of debt more quickly.

Transfer credit card balances to a 0% APR card.  If you have a credit card balance and are paying high interest, take the time to stop that now.  If you have good credit, there are many 0% APR offers available.  Just do a simple Google search.  You’ll likely have to pay a transfer fee of 2 to 3% of the balance you’re transferring.  Crunch the numbers to make sure that the transfer fee is lower than the interest you would pay on the card you’re currently using.  Also, try to get an offer for 0% rate that lasts 15 to 18 months, giving you time to pay off the card.

Negotiate your interest rates.  If you don’t want to transfer your credit card balance, another option is to call your credit card company and ask them for a lower interest rate.  Really, it’s that easy.  This strategy works about 50% of the time, so it’s worth the time.  If the person you speak with tells you the company can’t change your interest rate, ask to speak to the supervisor who may be more likely to negotiate with you.

I did this about a year ago, and I was originally refused.  I asked to speak to a supervisor, and I was again refused.  I called back a few days later and again worked my way up to a supervisor.  This time, the supervisor not only reduced my rate by 3%, but he also gave me enough rewards points to cover the cost of my annual fee and additional to give me $50 cashback.  Persistence is key with this strategy.

If you try to call several times and don’t make any progress, tell them that you plan to move your balance to another card.  This is a last resort option and may provide the incentive the company needs to reduce your interest rate.


Be Mindful of Your Money

Money has a way of leaking out if we’re not careful.  There are several steps you can take to stop the leaks and keep more of your hard-earned dollars in your pocket!

Set up a budget.  If you have not done so already, take the time to set up a budget.  For years I did our budget with paper and pencil, but as our finances grew more complex as our family grew, I found this method increasingly frustrating.  A few months ago, I switched over to You Need a Budget! (YNAB), and I love it.  It’s made budgeting so much easier!

There are other budgeting tools available, too, like PearBudget, EveryDollar, Mint, CalendarBudget, Mvelopes, and many others.  Just find the tool that works best for you.

Delete ghost accounts.  Most of us have accounts that we’re still paying for regularly, but we no longer use.  Are you paying for a magazine subscription for a magazine you no longer read?  Do you still pay $40 to the gym, but you quit going months ago?  Take an afternoon to go through your checking and credit card accounts to see if you have any ghost accounts—things you’re paying for that you no longer use, need, or want.  You may be surprised to see that you have several!

Set up auto pay.  If you have trouble remembering to pay your bills on time or you don’t want to set reminders for yourself, consider setting up auto pay.  By utilizing auto pay, you can reduce the chance of having a late payment and suffering the accompanying late fee.

Check your tax withholding.  If you routinely get a tax refund, check your tax withholding.  You may want to claim more dependents so that you don’t get a big refund each tax season.  It’s far better if you put that money to work for you throughout the year rather than getting back a large lump sum in the spring.  Your accountant can help you determine the appropriate tax withholding.


Increase Your Savings & Retirement Contributions

Once you’ve lowered your interest rates and set up a budget, it’s time to look at your savings and retirement contributions.

Set aside money for Christmas.  Do you routinely put all of your Christmas shopping on credit card and then find yourself unable to pay it off quickly?  If so, you’re paying even more for the presents than you realize.

“You can figure out just how much your Christmas debt is costing you to carry by using calculators on the internet.  Plug in $1,000 at 17 percent (the prevailing credit card rate) in the calculator at www.bankrate.com, and you’ll find that your interest totals $94 over one year and $187 over two” (ABC News).

Rather than paying interest, take steps now so you’re prepared for next year.  If you spend $600 on presents, set aside either $11.50 a week or $50 a month.  When the 2017 shopping begins, you’ll have the cash to pay for your gifts.

Set up automatic savings withdrawal from your paycheck.  Most of us have trouble saving money.  One easy way to save more is to set up an automatic withdrawal from your paycheck to your savings account.  When I worked full-time, I did this.  At first, I missed the money from my paycheck.  But after a few paychecks, I forgot all about the money that was being deducted, and I learned to live on the paycheck I was getting instead of counting on the money that was being funneled into savings.

I truly forgot about this, so I was always in for a pleasant surprise when I checked my savings account balance.  It was growing steadily, with no help from me.

Simply go to the payroll department and fill out the form to have whatever amount of money you would like transferred to your savings account every paycheck.  You can likely also do this online.  A perfect time to make this adjustment is when you receive a raise.  You won’t yet be depending on the additional income, so you won’t miss it when it goes to savings.

Put money in your retirement savings.  If your employer offers a retirement savings match, make sure to allocate money for a retirement contribution, at least to the point that your employer matches.

If you’re in a better financial situation, consider adding to your Roth IRA or your regular IRA.  Remember that you have the first several months in 2017 to add to your account for 2016, which can help lessen your tax burden when you file your taxes.

Financial changes don’t happen overnight.  However, as we head into the new year, you can slowly make these changes so that you’re in a much better financial position in 2017.

How about you all? What financial changes do you plan to make for the new year?  What strategies would you recommend others implement?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/scruch/2304897733/in/

A First-Timer’s Guide to Closing a Real Estate Deal

The following is a guest post. Enjoy! 

Hopefully, you did everything right from the beginning: You were pre-approved by your financial institution for an affordable home loan; you researched your area extensively to find the perfect property for you; you hired a real estate agent you could trust to gain access to property details and help you navigate the complex seas of paperwork. Now, it’s time to close.

Whether you are buying your first family home or a commercial property for your business, closing is convoluted and seemingly interminable. Even with the help of an experienced real estate agent, you should learn about the closing process before you attempt to survive your first real estate deal. This guide will walk you through the most important steps of closing your deal, so you come through excited to finally own your own property.


Obtain Title Insurance

Though it might seem unnecessary, performing a quick title search and obtaining title insurance will safeguard your investment from conflicts down the road. It’s possible that a previous owner of your soon-to-be home left the house in a will to a long-lost relative or failed to pay debts taken against the house. If anyone shows up trying to claim ownership over your home, your title insurance should reimburse you, so you won’t take a significant loss due to the state’s poor record-keeping.


Open Escrow

“I’m in escrow!” is an exciting statement to shout, but before you do, you should know what “escrow” means. Escrow is an account held by a neutral third party to prevent you or the home’s seller from being scammed. Until both parties in the transaction finish the necessary paperwork, all the money involved will be stuck in escrow.


Negotiate Closing Costs

Escrow isn’t free, but odds are you aren’t sure how much it should actually cost. Most escrow companies will try to take advantage of your ignorance and inflate their fees unnecessarily. By displaying your knowledge of the system (and using a few smart negotiating tactics), you can lower your closing costs and save some money. So-called junk fees to watch out for include:

  • Administrative fees
  • Application review fees
  • Appraisal review fees
  • Ancillary fees
  • Email fees
  • Processing fees
  • Settlement fees

Complete a Home Inspection

Do you know the difference between a wall crack caused by foundation settling and one caused by water damage? Can you tell just by looking how old the pipes are in the master bathroom? Can you recognize black mold? Most likely, the answer to all these questions ― and any questions about home repair or construction ― is “no.” That’s why you need to hire a home inspector to survey your desired property before you close the sale: You should know exactly what you’re in for before laying down cash.

You should also consider hiring a pest inspector to look for signs of damage due to wood-eating insects. If an infestation is discovered, most mortgage companies require the seller to resolve the issue before closing.


Based on what your home and pest inspectors find, you might be able to lower the price you previously agreed to. Because you will likely need to complete some amount of repairs, you should ask that the seller to lower the cost by at least as much as the cost of the repairs ― or else request they complete the repairs themselves.

Set Your Rates

If you didn’t seek pre-approval ― which you should have, by the way ― it is time to lock down your interest rate. The best lenders will watch the market for a dip in rates, but you should avoid becoming too obsessed with obtaining the lowest possible number. Interest rates fluctuate several times every day, so your goal should be to obtain a reasonable rate that you can afford.

Funding Escrow

Finally, you can enter escrow. When you signed your purchase agreement, you likely deposited some earnest money into your escrow account to convince the seller that you do intend to buy the house. By now, both parties are certain about each other’s intentions, and it is time for you to move a more significant amount of money into your escrow account. You should deposit the full amount of your down payment (less the earnest money) and closing costs.

Sign the Papers

The last step of closing on your deal is signing the paperwork. In total, there should be about 100 pages worth of material, detailing the agreements of the sale, and you should read absolutely all of it. Because a home purchase will impact your finances for decades, you must know for certain that the contract says what it is supposed to. You don’t want any surprises in the way of rising interest rates or unknown fees down the road.

How to Painlessly Switch Mortgages When You Need a New Home

The following is a guest post by George. George writes at Sobredinero.com, a personal finance site for Latinos in the US. Enjoy!

Let me tell you about a man named David. The first thing that attracted David to his condo when he first bought it was how close he was to his job. On top of that, it was near a trendy area packed with nightclubs, bars, and fancy restaurants. It was perfect for David when he was single with no kids. However, David started a family and his housing needs changed.

With a wife, one child, and another child on the way, waiting 10 years to build equity and then liquidate that equity in his condo was not an option for David. He was ready to trade in his two-bedroom downtown condo for a three-bedroom home in the suburbs.


Analyze the Options

David knew which house he wanted, but like most people, he could not afford to pay for two mortgages at the same time and even though he was fairly certain that his condo would sell quickly for the asking price, he did not want to risk his family’s financial security.  He thought about moving to the new house and renting out his condo to cover the mortgage while he had the condo on the market. However, after speaking with the condo board president and reading the homeowner’s association paperwork, David discovered that renting out his home would require a lengthy and rigorous vetting process with the board.  He did not have the time or money to do that.

David also considered borrowing against his 401k for the second mortgage, but if he were to leave his job before paying back the loan, he would be obligated to pay the outstanding balance of the loan within 60 days or be hammered with taxes and penalties. He learned fact by reading through the 401k materials he’d received at orientation three years earlier and he also learned that those terms were common for 401k plans. That was a dicey and expensive option.

After thoroughly weighing all of the possibilities, David decided to put his condo up for sale and simultaneously file for a second mortgage. This sounds risky on the surface, but David knew that the bank would only grant the second mortgage after the condo sold. This practice protects the interests of both the lender and the borrower.


Factor in the Real Cost

Once David decided on the list and file simultaneously route, he put in some research on mortgage terms. Taking on a mortgage is not just about paying back the amount of the loan itself. Smart borrowers also consider the interest rate, total annual cost, monthly payment terms, and the total payment. Additionally, ancillary costs such as bank fees, housing association requirements, taxes, and transportation need to be factored into the real cost of a new home purchase. David used a mortgage calculator to help him understand the true costs of his mortgage options.


Time It

David had everything in place and the only thing left to do was to sign the paperwork. To cancel a mortgage and acquire a new one requires the bank as well as a notary public, so David made sure to schedule the two transactions in one meeting and ensure a smooth process.

This didn’t always used to be the case. Historically, purchasing and selling a home at the same time was a long process. Say for example if David had purchased that condo recently to “flip” (buy for a low price and quickly re-sell at a higher price with inexpensive upgrades), he might not have been able to sell the condo because of restrictions that prevented a home sale if the home been had purchased within 90 days. However, the Federal Housing Administration has eliminated this restriction.


Get the Happy Ending

At the end of everything, David and his family turned out just fine. The condo sold, the mortgage terms for the new home were agreeable, and everyone settled into a more comfortable arrangement. Gone are the days of being tied to a house simply because you signed a mortgage. Granted, it’s not as easy to move when owning a piece of property as it is for renters, but it is certainly possible in today’s modern housing market, and the last thing you want to do is be unhappy with your home. Happy house hunting! Be sure to check out more advice about mortgages here, or here.

5 Money-Saving Hacks for Your Student Loans

The following is a guest post. Enjoy! 

Taking out student loans can provide you with the opportunity to earn a degree, learn a trade, and improve job prospects. In other words, the benefits you’ll gain in the long run make borrowing well worthwhile.

What’s even better is that there are myriad ways to save money when you take out student loans, as well as when you start to pay them back. Here are some money-saving hacks every student should know about.

  1. Be frugal

It’s always best to borrow as little money as possible. There’s no shame in taking advantage of any student loan funds you’re eligible for, but the less you borrow, the less you have to repay down the road. Sure, it’s tempting to use your extra funds for a spring break vacation, but remember you’ll have to pay interest on that trip later on.

  1. Refi high-interest loans

When you apply for and accept student loans to pay for college, you may end up with a combination of both federal and private loans at a variety of interest rates. If you can, it’s best to pay off the high-interest loans first to avoid extra expense.

However, you might also consider refinancing your student loans. You just have to make sure it makes sense to do so. This means crunching numbers to see whether or not the savings you’ll enjoy are worth the expense of refinancing.

  1. Automatic payments

Many lenders offer incentives to borrowers that set up an automated payment schedule and allow funds to be automatically withdrawn from their bank account each month (or more frequently). To find out if you’re eligible for any discounts associated with automatic payments, simply check in with your loan service. Then there are companies like Ameritech Financial that help you to lower and refinance your student loan debt which is gaining a lot of popularity with recent college graduates.

  1. Paying on principle

There’s absolutely nothing wrong with paying the minimum on your loan payments every month. This is the required amount to avoid delinquency and paying it diligently is essential to improving your credit rating.

You may not realize, however, that you can also apply additional funds to the principle owed in order to reduce debt faster and shave some money off your interest payments over time. You just have to make sure to note that any extra you pay should go toward the principle so that it isn’t mistakenly applied to your next payment due (including interest).

  1. Taking advantage of applicable benefits

You may be able to take advantage of tax deductions based on your interest payments on student loans, so you should definitely discuss the prospect with your tax advisor or contact the IRS to ask if you are eligible.

You might also qualify for federal or state repayment forgiveness programs, depending on your major and where you live. In addition, many companies offer some form of education reimbursement as part of a benefits package. You may be surprised by the benefits available to you through government programs and employment opportunities, and all you have to do is look for them.