Arizona Credit Repair Experts Explain Credit Denial Explanations

The Dodd-Frank Act of 2011 requires that lenders send a letter explaining why a consumer was denied credit or offered less-favorable credit terms.  Unfortunately, these letters are usually filled margin-to-margin with industry jargon and two-digit codes that don’t really help you to understand where you stand with your credit score.

In fact, studies have shown that less than 25% of Americans denied for a line of credit really understand why.  Of course it is easy to understand that your credit score is too low, and that it must be repaired before applying for a loan again.  Unfortunately, gleaning how to go about that is all but impossible from most rejection letters.

Credit Denial Codes At A Glance

There are three major credit bureaus which use the same set of “credit risk factor” codes when reporting to lenders and banks.  Examples of these codes and explanations offered for the code are as follows:

•    Reason 01:  Amount owed on accounts is too high.
•    Reason 04:  Too many banks or national revolving accounts.
•    Reason 14:  Length of time accounts have been established.
•    Reason 21:  Amount past due on accounts.
•    Reason 32:  Lack of recent installment loan information.
•    Reason 39:  Serious delinquency.
•    Reason 40:  Derogatory public record or collection filed.

As you can see, while some of the codes are relatively simple to understand, others will likely leave you scratching your head in confusion.

Research material is readily available on the internet to help explain some of the terminology, but it is often extremely difficult to understand what needs to be done to fix it – even if you are well-versed in the shop-talk of credit lenders.

Trust The Top Arizona Credit Repair Experts To Help

At the end of the day, even if you have the extra hours to devote to research, you will likely still have questions.  These questions can only be adequately explained by professional credit repair counselors and advisers.

Credit Absolute is proudly known as the most trusted Phoenix Credit Repair Company.  If you have questions concerning your recent credit denial, contact us today.

Source: creditabsolute.com

Income-Driven Repayment Plans for Federal Student Loans – Guide

According to first-quarter data released in May 2021 by the Federal Reserve Bank of New York, student loans are now the second-largest source of consumer debt, outpacing both credit card and car loan debt and second only to mortgage debt. And for many Americans, that debt has become unmanageable. According to CNBC, more than 1 million borrowers default on their student loans every year. And the nonprofit public-policy research organization Brookings expects up to 40% of all borrowers to go into default before 2023.

Unfortunately, defaulting on student loans can have dire consequences, including wage garnishment and destruction of your credit, making it nearly impossible to get another loan — private or federal.

Fortunately, there are multiple repayment options for federal student loan borrowers, including deferment and forbearance, student loan consolidation, and income-driven repayment (IDR) plans. If your federal student loan payments exceed your monthly income or are so high it’s difficult to afford basic necessities, you can lower your monthly student loan payment by taking advantage of one of the various IDR plans.

Pro Tip: If you have private student loans, the federal options are unavailable to you. But you can refinance them through Credible to earn a $750 bonus exclusive to Money Crashers’ readers. Learn more about refinancing through Credible.

How Income-Driven Repayment Plans Work

The default repayment schedule for federal student loans is 10 years. But if you have a high debt balance, low income, or both, the standard repayment plan probably isn’t affordable for you.

But if your payments are more than 10% of your calculated discretionary income, you qualify for the federal definition of “partial financial hardship.” That makes you eligible to have your monthly payments reduced.

That’s where IDR plans come in. Instead of setting payments according to your student loan balance and repayment term length, IDR plans set them according to your income and family size. Even better, if you have a balance remaining after completing your set number of payments, your debt may be forgiven.

These plans are beneficial for graduates right out of school who are not yet employed, are underemployed, or are working in a low-salary field. For these graduates, their paychecks often aren’t enough to cover their monthly student loan payments, and IDR means the difference between managing their student loan debt and facing default.

How IDR Plans Calculate Your Discretionary Income

IDR plans calculate your payment as a percentage of your discretionary income. The calculation is different for every plan, but your discretionary income is the difference between your adjusted gross income (AGI) and a certain percentage of the poverty level for your family size and state of residence.

Your AGI is your annual income (pretax) minus certain deductions, like student loan interest, alimony payments, or retirement fund contributions. To find the federal poverty threshold for your family size, visit the U.S. Department of Health and Human Services.

Using these guidelines, some borrowers even qualify for a $0 repayment on an IDR plan. That’s hugely beneficial for people dealing with unemployment or low wages. It allows them to stay on their IDR plan rather than opt for deferment or forbearance.

And there are two good reasons to take that option. Unless it’s an economic hardship deferment, which is limited to a total of three years, time spent in forbearance or deferment doesn’t count toward your forgiveness clock. However, any $0 repayments do count toward the total number of payments required for forgiveness.

Additionally, interest that accrues on your unsubsidized loans during periods of deferment and on all your loans during a forbearance capitalizes once the deferment or forbearance ends. Capitalization means the loan servicer adds interest to the principal balance. When that happens, you pay interest on the new higher balance — in other words, interest on top of interest.

But with IDR, if you’re making $0 payments — or payments that are lower than the amount of interest that accrues on your loans every month — most plans won’t capitalize any accrued interest unless you leave the program or hit an income cap. The income-contingent repayment plan (a type of IDR) is the sole exception. It capitalizes interest annually.

Student Loan Forgiveness

Any of your student loans enrolled in an IDR program are eligible for student loan forgiveness. Forgiveness means that if you make the required number of payments for your IDR plan and you have any balance remaining at the end of your term, the government wipes out the debt, and you don’t have to repay it. For example, let’s say your plan requires you to make 240 payments. After doing so, you still have $30,000 left on your loan. If you’re eligible for forgiveness, you don’t have to repay that last $30,000.

There are two types of forgiveness available to those in an IDR program: the basic forgiveness available to any borrower enrolled in IDR and public service loan forgiveness (PSLF).

Public Service Loan Forgiveness

The PSLF program forgives the remaining balance of borrowers who’ve made as few as 120 qualifying payments while enrolled in IDR. To qualify, borrowers must make payments while working full-time for a public service agency or nonprofit. Public service includes doctors working in public health, lawyers working in public law, and teachers working in public education, in addition to almost any other type of government organization at any level — local, state, and federal. Nonprofits include any organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. They do not include labor unions, partisan political organizations, or government contractors working for profit.

PSLF can potentially benefit those required to have extensive education to work in low-income fields, like teachers. Unfortunately, it’s notoriously difficult to get. According to Insider, the program is still rejecting 98% of applicants after an ongoing history of rejecting borrowers who believed they qualified but weren’t granted forgiveness.

But there may be hope. In May 2021, the Biden administration announced ongoing plans to review and overhaul all the federal student loan repayment, cancellation, discharge, and forgiveness programs, including public service loan forgiveness, to better benefit borrowers, according to Insider.

For the best chance at receiving PSLF, the ED recommends you fill out an employment certification form annually and every time you change jobs. Additionally, once you reach 120 qualifying payments, you must complete a PSLF application to receive the forgiveness.

IDR Loan Forgiveness

For all other IDR borrowers, each program requires them to make a set number of payments — from 240 to 300 — before they qualify to have their loan balances forgiven. At this time, because the program isn’t yet 20 years old and no borrowers have qualified, there is no specific application process for student loan forgiveness.

According to the ED, your loan servicer tracks your number of qualifying payments and notifies you when you get close to the forgiveness date. No one yet knows if there will be a standard application form or if it will be automatic. Hopefully, as the program reaches the age when borrowers can start using the benefit, the process will become standardized.

Drawbacks to Forgiveness

Forgiveness is one of the biggest advantages of IDR, especially for borrowers with high balances relative to their income. But there are pros and cons of standard student loan forgiveness. First, while forgiveness sounds like it could be a significant financial benefit, the reality is after making 20 to 25 years of IDR payments, the average borrower doesn’t have any balance remaining to forgive.

And if the government does forgive your balance, the IRS counts that as income, which means you have to pay income taxes on the amount forgiven. If you have a high balance remaining and can’t pay your taxes in full, that means making multiple additional payments — this time to the IRS — just when you thought you were finally done with your student loans.

The American Rescue Plan Act of 2021, signed into law by President Joe Biden on March 11, 2021, makes a crucial change to this student loan policy. According to Section 9675, borrowers receiving a discharge of their student loans no longer have to pay income tax on any balances forgiven through Dec. 31, 2025.

That won’t help most borrowers currently enrolled or who plan to enroll in IDR. The first to become eligible for forgiveness only did so in 2019 — those who’ve been enrolled in income-contingent repayment since its beginning in 1994, as noted by the National Consumer Law Center. But some experts believe this change could become permanent, according to CNBC.

Note that balances forgiven through PSLF are always tax-exempt.

What Loans Are Eligible for IDR?

You can only repay federal direct loans under most IDR plans. But if you have an older federal family education loan (FFEL), which includes Stafford loans, or federal Perkins loan — two now-discontinued loan types — you can qualify for these IDR plans by consolidating your student loans with a federal direct consolidation loan.

Note, however, that consolidation is not the right choice for all borrowers. For example, if you consolidate a federal Perkins loan with a direct consolidation loan, you lose access to any Perkins loan forgiveness or discharge programs. Further, if you consolidate a parent PLUS loan with any other student loans, the new consolidation loan becomes ineligible for most IDR plans.

Private financial institutions have their own programs for repayment. But they aren’t eligible for any federal repayment program.


4 Types of Income-Driven Repayment Plans

There are four IDR plans for managing federal student loan debt. They all let you make a monthly payment based on your income and family size. But each differs according to who’s eligible, how your loan servicer calculates your payments, and how many payments you have to make before you qualify for forgiveness.

If you’re married, some calculations can depend on your spouse’s income if you file jointly. Because you can lose some tax benefits if you file separately, consult with a tax professional to see whether married filing jointly or married filing separately is more advantageous for your situation.

Regardless of your marital status, each IDR plan works differently. Your loan servicer can help you choose the plan that’s best for you. But it’s essential you understand the features, pros, and cons of each IDR type.

1. Income-Based Repayment Plan

Income-based repayment plans (IBRs) are likely the most well-known of all the IDR plans, but they’re also the most complicated. Depending on when you took out your loans, your monthly payment could be a more substantial chunk of your discretionary income than for newer borrowers, and you could have a longer repayment term. On the other hand, unlike some other IDR plans, this one has a favorable payment cap.

  • Monthly Payment Amount: You must pay 15% of your discretionary income if you were a new borrower before July 1, 2014, and 10% if you borrowed after that date. If the amount you’re required to pay is $5 or less, your payment is $0. If the repayment amount is more than $5 but less than $10, your payment is $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: For IBR, discretionary income is the difference between your AGI and 150% of the poverty level for your family’s size and state of residence. Your loan servicer includes spousal income in this calculation if you’re married filing jointly. They don’t include it if you’re married filing separately.
  • Payment Cap: As long as you remain enrolled in IBR, your payment will never be more than you’d be required to pay on the 10-year standard repayment plan, regardless of how large your income grows.
  • Federal Loan Interest Subsidy: If your monthly payments are less than the interest that accrues on your loans, the government pays all the interest on your subsidized loans — including the subsidized portion of a direct consolidation loan — for up to three years. It doesn’t cover any interest on unsubsidized loans.
  • Interest Capitalization: If your monthly payments are no longer tied to your income — meaning your income has grown so large you’ve hit the payment cap — your servicer capitalizes your interest.
  • Repayment Term: If you borrowed any student loans before July 1, 2014, you must make 300 payments over 25 years. If you were a new borrower after July 1, 2014, you must make 240 payments over 20 years.
  • Eligibility: To qualify, you must meet IBR’s criteria for partial economic hardship: The annual amount you must repay on a 10-year repayment schedule must exceed 15% of your discretionary income. If you’re married and filing jointly and your spouse owes any student loan debt, your loan servicer includes this debt in the calculation. IBR excludes only the parent PLUS loans from eligibility.
  • Forgiveness: Your remaining loan balance is eligible for forgiveness after you make 20 or 25 years of payments, depending on whether you borrowed before or after July 1, 2014.

2. Pay-as-You-Earn Repayment Plan

The pay-as-you-earn (PAYE) plan is possibly the best choice for repaying your student loans — if you qualify for it. It comes with some benefits over IBR, including a potentially smaller monthly payment and repayment term, depending on when you took out your loans. It also has a unique interest benefit that limits any capitalized interest to no more than 10% of your original loan balance when you entered the program.

  • Monthly Payment Amount: You must pay 10% of your discretionary income but never more than you would be required to repay on the standard 10-year repayment schedule. If the amount is $5 or less, your payment is $0. If the amount is more than $5 but less than $10, you pay $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: For PAYE, your servicer calculates discretionary income as the difference between your AGI and 150% of the poverty line for your state of residence. If you’re married and file jointly, they include your spouse’s income in the calculation. They don’t include it if you file separately.
  • Payment Cap: As with IBR, as long as you remain enrolled, payments can never exceed what you’d be required to repay on a standard 10-year repayment schedule, regardless of how large your income grows.
  • Federal Loan Interest Subsidy: If your monthly payments are less than the interest that accrues on your loans, the government pays all the interest on your subsidized loans for up to three years. It doesn’t cover any interest on unsubsidized loans.
  • Interest Capitalization: If your income has grown so large you’ve hit the payment cap, your servicer capitalizes your interest. But no capitalized interest can exceed 10% of your original loan balance.
  • Repayment Term: You must make 240 payments over 20 years.
  • Eligibility: To qualify, you must meet the plan’s criteria for partial financial hardship: the annual amount due is greater than 10% of your discretionary income. If you’re married and filing jointly and your spouse owes any student loan debt, this debt is included in the calculation. Additionally, you can’t have any outstanding balance remaining on a direct loan or FFEL taken out before Sept. 30, 2007. You must also have taken out at least one loan after Sept. 30, 2011. All federal direct loans are eligible for PAYE except for parent PLUS loans.
  • Forgiveness: As long as you stay enrolled, you remain eligible for forgiveness of your loan balance after 20 years of payments if any balance remains.

3. Revised Pay-as-You-Earn Repayment Plan

If you don’t meet the qualifications of partial financial hardship under PAYE or IBR, you can still qualify for an IDR plan. The revised pay-as-you-earn (REPAYE) plan is open to any direct federal loan borrower, regardless of income. Further, your payment amount and repayment terms aren’t contingent on when you borrowed. The most significant benefits of REPAYE are the federal loan interest subsidy and lack of any interest capitalization.

However, there are some definite drawbacks to REPAYE. First, there are no caps on payments. How much you must pay each month is tied to your income, even if that means you have to make payments higher than you would have on a standard 10-year repayment schedule.

Second, those who borrowed for graduate school must repay over a longer term before becoming eligible for forgiveness. That’s a huge drawback considering those who need the most help tend to be graduate borrowers. According to the Pew Research Center, the vast majority of those with six-figure student loan debt borrowed it for graduate school.

  • Monthly Payment Amount: You must pay 10% of your discretionary income. If the amount you must pay is $5 or less, your payment is $0. And if the repayment amount is more than $5 but less than $10, your payment is $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: Your discretionary income is the difference between your AGI and 150% of the poverty line for your state of residence. If you’re married, they include both your and your spouse’s income in the calculation, regardless of whether you file jointly or separately. However, if you’re separated or otherwise unable to rely on your spouse’s income, your servicer doesn’t consider it.
  • Payment Cap: There is no cap on payments. The loan service always calculates your monthly payment as 10% of your discretionary income.
  • Federal Loan Interest Subsidy: If your monthly payment is so low it doesn’t cover the accruing interest, the federal government pays any excess interest on subsidized federal loans for up to three years. After that, they cover 50% of the interest. They also cover 50% of the interest on unsubsidized loans for the entire term.
  • Interest Capitalization: As long as you remain enrolled in REPAYE, your loan servicer never capitalizes any accrued interest.
  • Repayment Term: You must make 240 payments over 20 years if you borrowed loans for undergraduate studies. If you’re repaying graduate school debt or a consolidation loan that includes any direct loans that paid for graduate school or any grad PLUS loans, you must make 300 payments over 25 years.
  • Eligibility: Any borrower with direct loans, including grad PLUS loans, can make payments under this plan, regardless of income. If you have older loans from the discontinued FFEL program, they are only eligible if consolidated into a new direct consolidation loan. Parent PLUS loans are ineligible for REPAYE.
  • Forgiveness: As long as you remain enrolled, your loans are eligible for forgiveness after 20 years of payments for undergraduate loans or 25 years for graduate loans.

4. Income-Contingent Repayment Plan

The income-contingent repayment plan (ICR) is the oldest of the income-driven plans and the least beneficial. Your monthly payments are higher under ICR than any other plan, and you must make those payments over a longer term. Additionally, although they limit the amount of capitalized interest, it’s automatically capitalized annually whether you remain in the program or not.

There is one major plus: Parent PLUS loans are eligible. But you must still consolidate them into a federal direct consolidation loan to qualify.

  • Monthly Payment Amount: You must pay the lesser of 20% of your discretionary income or what you would pay over 12 years on a fixed-payment repayment plan. If you’re married and your spouse also has eligible loans, you can repay your loans jointly under the ICR plan. If you go this route, your servicer calculates a separate payment for each of you that’s proportionate to the amount you each owe.
  • Discretionary Income Calculations: For ICR, your servicer calculates discretionary income as the difference between your AGI and 100% of the federal poverty line for your family size in your state of residence. If you’re married filing jointly, your servicer uses both your and your spouse’s income to calculate the payment size. If you’re married filing separately, they only use your income.
  • Payment Cap: There is no cap on payment size.
  • Federal Loan Interest Subsidy: The government doesn’t subsidize any interest.
  • Interest Capitalization: Your servicer capitalizes interest annually. However, it can’t be more than 10% of the original debt balance when you started repayment.
  • Repayment Term: You must make 300 payments over 25 years.
  • Eligibility: Any borrower with federal student loans, including direct loans and FFEL loans, is eligible for ICR. For parent PLUS loans to qualify, you must consolidate them into a federal direct consolidation loan.
  • Forgiveness: As long as you remain enrolled, your loans are eligible for forgiveness after 25 years of payments.

How to Apply for Income-Driven Repayment Plans

To enroll in an IDR plan, contact your student loan servicer. Your servicer is the financial company that manages your student loans and sends your monthly bill. They can walk you through applying for IDR and recommend the most beneficial plan for your unique situation. You must complete an income-driven payment plan request, which you can fill out online at Federal Student Aid or use a paper form your servicer can send you.

Because your servicer ties payments on any IDR plan to your income, they require income information. You must submit proof of income after you complete your application. Proof of income is usually in the form of your most recent federal income tax return. Have this handy when applying over the phone. They also need your AGI, which you can find on your tax return. You must also mail or fax a copy of your return before your application is complete.

It generally takes about a month to process an IDR application. If you need them to, your loan servicer can place your loans into forbearance while they process your application. You aren’t required to make a payment while your loans are in forbearance. But interest continues to accrue, which results in a larger balance.

You can change your student loan repayment plan or have your monthly payments recalculated at any time. If an IDR plan is no longer advantageous to you, you lose your job, you switch jobs, or there’s a change in your family size, contact your student loan servicer to either switch your repayment plan or have your monthly payments recalculated.

You aren’t obligated to do so if the change would result in higher monthly payments. However, you must recertify each year.

Recertification

You must recertify your income and family size annually by providing your student loan servicer with a copy of your annual tax return. You must recertify even if there are no changes in your family size or income.

Loan servicers send reminder notices when it’s time to recertify. If you don’t submit your annual recertification by the deadline, your loan servicer disenrolls you, and your monthly payment reverts to what it would be on the standard 10-year repayment schedule.

You can always reenroll if you miss your recertification deadline. But there are a couple of reasons not to be lax about recertification.

First, if your income increases to the point at which your monthly payment would be higher than it would be on the standard 10-year repayment schedule, you can’t requalify for either the PAYE or IBR plans. But if you stay in the program, your payments are capped no matter how much your income increases.

Second, if you’re automatically disenrolled from your IDR plan because of a failure to recertify, any interest that accrues during the time it takes to get reenrolled is capitalized. That means your servicer adds interest to the balance owed. Even after you reenroll in your IDR plan, you begin earning interest on the new capitalized balance, thereby increasing the amount owed. And that’s true even if you place your loans into a temporary deferment or forbearance.


How to Choose an IDR Plan

The easiest way to choose the best IDR plan is to discuss it with your loan servicer. They can run your numbers, tell you which plans you qualify for, and quote you monthly payments under each plan.

Don’t just choose the plan with the lowest monthly bill unless you can’t afford a higher payment. Instead, balance your current needs with the long-term costs of any plan. For example, one plan might offer a lower monthly payment but a longer repayment term. Further, although your interest rate remains fixed on all the IDR plans, some offer benefits like interest subsidies that can reduce the overall amount you must repay.

Even if you think you’ll qualify for PSLF, which could get you total loan forgiveness in as little as 10 years, it’s still worth it to weigh your options. Currently, too few borrowers qualify for PSLF, so it might not work out to pin your hopes on it until the program becomes more streamlined.

Note that IDR plans aren’t suitable for everyone. Before enrolling in any IDR plan, plug your income, family size, and loan information into the federal government’s loan simulator. The tool gives you a picture of your potential monthly payments, overall amount to repay, and any balance eligible for forgiveness.


Final Word

If you’re struggling to repay your student loans or facing the possibility of default, an IDR plan probably makes sense for you. But they aren’t without their drawbacks. It pays to research all your options, including the possibility of picking up a side gig to get those student loans paid off faster.

Student loan debt can be a tremendous burden, preventing borrowers from doing everything from saving for a home to saving for retirement. The faster you can get rid of the debt, the better.

Source: moneycrashers.com

60/40 Stock & Bond Portfolio – Guide to Asset Allocations, Pros & Cons

The stock market is a system that tends to follow tradition. Traditionally, investors have been expected to start young, build a buy-and-hold portfolio, and be careful with asset allocation in order to avoid high levels of risk.

Much has changed in investing over the past couple of decades with robo-advisors making moves for many investors, access to the market widely available through discount brokers, and a rise in short-term trading.

Still, many people feel more comfortable investing in the traditional ways, which is what makes the highly traditional 60/40 portfolio so popular.

Read on to learn about the 60/40 portfolio model, how to build one for yourself, and its pros and cons.

What Is the 60/40 Portfolio?

The 60/40 portfolio has been around for decades and is more of an investment strategy than a defined portfolio because there are no assets set in stone that build up the portfolio.

The strategy is based on a safe asset allocation strategy that has been used in retirement accounts for so long that it’s hard to pin down where it started or who first developed it.

The 60/40 portfolio strategy suggests 60% of your investment assets should be invested in equities like stocks, exchange-traded funds (ETFs), and mutual funds.

The other 40% of the portfolio’s assets should be invested in fixed-income securities like U.S. Treasury bonds, corporate bonds, and other debt securities that produce income through interest rates or a discount on the price of the security.

The idea is that by diversifying your portfolio across asset classes that experience different levels of volatility and risk, you’ll be able to access the gains the stock market provides during bull markets while minimizing losses during downturns or all-out bear markets.

Pro tip: David and Tom Gardener are two of the best stock pickers. Their Motley Fool Stock Advisor recommendations have increased 597.6% compared to just 133.7% for the S&P 500. If you would have invested in Netflix when they first recommended the company, your investment would be up more than 21,000%. Learn more about Motley Fool Stock Advisor.


The Investment Thesis Behind the 60/40 Portfolio

The 60/40 portfolio is based on a strategy of diversification that many believe provides the perfect balance between risk and reward. The thesis is simple.

Most experts agree that it’s nearly impossible to time movements in the stock market, but they also agree that by avoiding stocks altogether, you’re robbing yourself of the opportunity to produce significant returns. Despite their inherent volatility, it’s important to maintain exposure to the stock market while working to balance the risk of those equities falling on hard times.

That’s where fixed-income securities come into play. These investments come with significantly lower risk. Once these securities mature, investors are paid back their entire initial investment amount.

The interest payments received throughout the life of the investment (or the difference between the price of buying the security and the price paid at maturity) acts as the return.


Who Should Take Advantage of the 60/40 Portfolio?

Because the 60/40 portfolio is highly customizable, it’s a great fit for just about any investor. As you’ll learn, the portfolio can be adjusted for different risk levels and investment strategies.

However, there is one concern with the portfolio. The strategy is based on a strict asset allocation of 60% equities and 40% fixed-income investments. However, many experts disagree on what an optimal asset allocation looks like.

Because your goals and appetite for risk are likely to change over time, many suggest using your age to determine the split between equities and fixed-income investments.

For example, instead of allocating 40% of your assets to bonds and other debt securities and 60% to equities in all cases, this variation on the strategy suggests if you’re 21 years old, you should allocate 21% to fixed-income securities and 79% to equities.

This variation involves adjusting your holdings as you age to include more fixed-income assets and fewer equities, becoming more conservative as you near retirement.

Ultimately, a 60/40 portfolio is a traditional, moderate-risk portfolio that could result in slower growth than other options. By following the 60/40 portfolio to the letter, your risk may be too heavily moderated or too aggressively accepted, depending on your age and investment goals.


Pros and Cons of the 60/40 Portfolio

As with any other portfolio strategy, there are pros and cons that should be considered before diving into the 60/40 portfolio.

60/40 Portfolio Pros

There are several reasons to consider following the 60/40 strategy in your own portfolio. Some of the most exciting aspects of the portfolio include:

  1. Diversified to the Max. The portfolio, although made up of only a few assets at most, is designed to be highly diversified, offering complete exposure to whichever sector of the market you prefer. The mix of underlying assets in each fund acts as an insurance policy against volatility.
  2. Fully Customizable. The portfolio doesn’t outline the exact funds you should invest in, just that 60% of your investments should be in equities and 40% should be in fixed-income assets. This leaves you the option to choose the investment strategy, level of risk, and asset exposure of the funds you buy within the predefined allocation. Few portfolios offer this level of customization.
  3. Evenly Balanced Risk. Through the strict asset allocation rule, risk is evenly balanced. While there are opponents to the idea of fixed allocation, this is a tried-and-true strategy that’s been used for decades.
  4. Easy Management. Finally, there are very few assets to keep track of here. This makes maintaining balance and managing your portfolio an extremely simple process.

60/40 Portfolio Cons

While there are plenty of reasons to be excited about deploying this portfolio strategy, there are also a few drawbacks that should be considered before diving in. They include:

  1. Fixed Allocation. Asset allocation is fixed at 60% stocks and 40% bonds, which is rather modest for younger investors and a bit risky for those nearing retirement. Most financial advisors suggest following a fluid allocation strategy that changes as your risk tolerance and goals change.
  2. Low Bond Yields. In recent years, the market has been experiencing historically low bond yields as a result of a low-interest-rate environment. By allocating such a large percentage of your portfolio to fixed-income investments, you could be missing out on much of the gains the bull market has to offer.

Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.


How to Duplicate the 60/40 Portfolio

As mentioned above, the contents of a 60/40 portfolio aren’t set in stone. It’s more of a guide explaining how you may want to go about asset allocation that can be applied to several different investment strategies.

As a result, there are several ways to go about building the portfolio — a task made easier by the abundance of low-cost ETFs on the market today.

Here are six popular ways to build a 60/40 portfolio for yourself based on your investing strategy and risk tolerance. The funds mentioned here are low-cost Vanguard index funds, but you can choose any fund you like that gives you exposure to the same types of assets.

The Low-Risk 60/40 Portfolio

For investors with a low risk tolerance who want access to the market as a whole, the build of the portfolio is best as follows:

  • 60% in Vanguard Total Stock Market Index Fund ETF (VTI). One of the most diversified ETFs on the market today, the VTI is designed to give investors exposure to the total United States stock market. The past performance of the fund has been stellar, beating others in its category relatively regularly over the past 10 years.
  • 40% in Vanguard Intermediate Term Treasury ETF (VGIT). The VGIT is focused solely on intermediate-term, high-quality U.S. Treasury securities. While these government bonds come with relatively low yields compared to longer-term options, their yields are stronger than short-term bonds and liquidity is reasonable.

The Moderate-Risk 60/40 Portfolio

While the low-risk 60/40 portfolio is a great option for many, investors know that the lower the risk associated with the investment, the lower the potential for gains.

One great way to slightly increase the risk while greatly expanding your earnings potential when using this portfolio strategy is to include international stocks in your equity holdings and swap out Treasury bonds for corporate bonds in the bond portion of the portfolio.

Here’s how that looks:

  • 60% in Vanguard Total World Stock ETF (VT). The VT ETF fund was designed to provide exposure to a highly diversified list of stocks, both in the U.S. and around the world. While the international side of the portfolio increases the risk, it also increases potential profitability, as emerging market growth tends to outpace growth in established markets like the United States.
  • 40% Vanguard Total Corporate Bond ETF (VTC). On the bond market, corporate bonds are known for paying higher yields than Treasury bonds but do come with increased risk. By investing in the VTC fund rather than VGIT, it’s possible to increase the earnings on the fixed-income side of your portfolio.

The High-Risk 60/40 Portfolio

Finally, if you’re willing to accept higher levels of risk, the potential returns of the 60/40 portfolio can be increased by including some different asset classes into both the equity and fixed-income sides of the equation.

Among your equities, consider mixing in some small-cap holdings. Small-cap stocks are known for high levels of volatility and risk, but they’re also known for the potential to outpace the returns of their large-cap counterparts.

On the fixed-income side, look into real estate investment trusts (REITs). These real estate investments are riskier than bonds but have much greater potential to increase your profitability while providing a source of predictable returns in the form of exceptional dividends.

Adjusting the portfolio for a high-risk investor is as simple as investing in the following funds:

  • 30% in Vanguard Total World Stock ETF (VT). The VT fund remains an anchor in this investing strategy, providing access to a diversified group of U.S. and international holdings. This fund should represent about 30% of your holdings in the high-risk rendition of the 60/40 portfolio, or half of your equity allocation.
  • 30% in Vanguard Small-Cap ETF (VB). The VB fund is made up of a diversified group of small-cap stocks, providing exposure to high-growth opportunities in smaller companies. This fund takes the other 30% allocation on the stocks side of the portfolio in this model.
  • 20% in Vanguard Total Corporate Bond ETF (VTC). About half of your fixed-income allocation, or 20% of the total portfolio, should be invested in the VTC fund to gain exposure to corporate bonds.
  • 20% in Vanguard Real Estate ETF (VNQ). Finally, the VNQ fund is an index made up of investable REITs, which gives you broad access to real estate investments while maintaining diversification within the asset class. This fund takes up the other half of your fixed income allocation, representing 20% of the portfolio.

The Growth 60/40 Portfolio

If you’d rather focus on a growth strategy than simply making bucket investments in diversified groups of equities, the growth 60/40 portfolio is the way to go. Here’s what it looks like:

  • 60% in Vanguard Growth Index Fund ETF (VUG). The VUG fund was designed to provide diversified exposure to U.S. large-cap growth stocks. These are companies that have a proven history of generating significant growth, but provide a level of safety in that they are all large-cap, established companies. In the growth rendition of the portfolio, this fund represents 60% of your investment allocation.
  • 40 % Vanguard Intermediate-Term Treasury ETF (VGIT). The other 40% of the portfolio would be invested in the VGIT, offering stability through intermediate-term Treasury securities.

The Value 60/40 Portfolio

If you’re following a value investing strategy, the best way to take advantage of this portfolio is to invest the stock portion of your assets into a value-centric fund like the Vanguard Value Index Fund ETF (VTV).

This fund provides diversified exposure to large-cap value stocks, meaning these are large-cap companies with valuation metrics that suggest they’re trading at a discount.

You can then invest the remaining 40% of your assets using the VGIT for your bond holdings.

The Income 60/40 Portfolio

Finally, those focused on income investing can also take advantage of this portfolio with one small tweak. As with the traditional 60/40 portfolio, 40% of your assets should be allocated to the VGIT, providing safety through investments in intermediate-term Treasury securities.

The other 60% of the portfolio should be invested in the Vanguard High Dividend Yield ETF (VYM). The VYM is made up of a wide range of stocks known for paying high dividend yields.

By investing in the fund, you’ll gain diversified exposure to stocks of all sizes in various sectors that all have one thing in common — they all have a history of offering investors a high dividend yield. That’s music to an income investor’s ears.

Pro Tip. M1 Finance offers expert pies designed around several portfolio strategies, including the 60/40 portfolio. If you’re not interested in building your own, use a prebuilt expert pie on M1 Finance to add the portfolio to your holdings.


Keep Your Portfolio Balanced

Regardless of which rendition of the 60/40 portfolio you choose to go with, it’s important to make sure to maintain balance. The entire thesis behind the portfolio is to provide meaningful returns while creating a safety net by balancing higher-risk equities with lower-risk fixed-income investments.

As time passes, some investments will rise in value and others may fall. As a result, your investment portfolio will fall out of balance. If the balance becomes too skewed, the portfolio may fail to meet your investment objectives.

The good news is that the 60/40 portfolio strategy is a buy-and-hold strategy, meaning you won’t be required to rebalance your portfolio monthly. However, it is best to take a look at your portfolio on at least a quarterly basis.

Moreover, with so few assets, maintaining balance is a relatively simple process. When one asset grows to take up more than its allotted percentage, simply sell a little of it and buy more of its counterpart to bring the portfolio back to the 60/40 balance.


Final Word

There’s a reason the 60/40 portfolio is one of the most talked-about strategies on Wall Street. For decades, investors have been deploying this strategy, which has worked to build wealth over time.

However, as times change, the traditional investing models are being replaced with newer, more fluid options. While the traditional 60/40 concept has been a go-to for some time, it’s not the best fit for all investors, nor is it optimized for investing during a bull market where bond yields are chronically low and stocks are on the rise.

Nonetheless, when markets are flat or falling bearish, and you feel a safer approach is best, the portfolio is a great fit. Moreover, if you’re willing to take the time to customize and are interested in REITs rather than heavy bond allocation, the portfolio can be adjusted to fit your needs.

Source: moneycrashers.com

10 Ways to Save Money on School Uniforms for Kids

According to the National Center for Education Statistics, 1 in 5 public schools required students to wear uniforms as of the 2017-18 school year. These can be anything from identical outfits marked with the school’s name or logo to a basic color scheme, such as plain white shirts and tan pants.

According to 2011 research from the University of Nevada, Reno College of Education, a school uniform policy can have many benefits for students. It can make it easier to get ready for school, boost self-esteem, reduce bullying, and improve classroom discipline. But it has one big downside for parents: the cost. According to CostHelper, a school wardrobe of four or five uniforms can cost anywhere from $100 to $2,000.

One reason uniforms often cost more than regular clothes is that parents have less choice about where to buy them. If you can only get your kids’ school wardrobes from the official school store, you must pay whatever that store charges. However, you can get around this problem with the right shopping strategies. The first tip to try: shopping secondhand.

Ways to Save With Secondhand School Uniforms

Clothes are one thing it nearly always pays to buy secondhand if you can. With school uniforms, that’s doubly true.

Since young children grow so fast, their outgrown uniforms can still have lots of life left in them. Naturally, these previously worn uniforms don’t look brand-new, but neither do most school clothes after a few weeks of wear. Secondhand school uniforms cost much less than new ones, and in some cases, they’re free.

1. Try Uniform Swaps

If you have two children attending the same school, the younger kid can wear the older one’s hand-me-downs. But if you have only one child or your kids go to different schools, you can end up with clothes in good condition and no one to hand them down to.

A uniform swap is a way to expand your hand-me-down family. By pooling resources with other parents, you can pass on your child’s outgrown uniforms to younger students at your school and receive uniforms from older students in turn.

Some schools hold official uniform exchanges. For example, at St. Catharine School in Ohio, you can trade in gently used school uniforms for larger sizes or pick up other people’s trade-ins at significantly reduced prices. Other schools, like St. Stephen’s Academy in Oregon, give parents points for their trade-ins, which they can use for purchases or donate.

If your child’s school doesn’t have an official uniform exchange, hold a clothing swap party of your own. Invite other parents over, lay out all your outgrown uniform items, and see who can use them.

If you don’t have the space to meet and exchange clothes in person, start a social media group where parents can post photos and descriptions of their kids’ outgrown clothes. When you find someone who has the size your child needs or needs the size you have to give, you can contact each other to arrange a pickup.

2. Shop at Thrift Stores

If you live in or near a large city with a large student population, there’s a good chance you can find outgrown school uniforms at local thrift stores. Check the stores closest to your child’s school to maximize your chances of finding them.

Even in smaller cities and towns, thrift stores are an excellent place to look for basic pieces that are often part of a school uniform. Dress shirts, solid-color polo shirts, and chino pants are likely to show up on their racks. You can’t count on finding the pieces you need in your child’s size, but if you do, they’ll be significantly cheaper than new clothes.

To find thrift stores in your area, do an Internet search on “thrift stores” or “thrift shops” with your town’s name or zip code. Also, check the websites of the largest store chains — such as Goodwill, Salvation Army, and Value Village — to find their nearest locations.

3. Find Sellers Online

If you can’t find suitable secondhand clothes for your child’s uniform at local stores, try looking online. Start consulting your local Craigslist and Facebook Marketplace groups in early July, and look for new listings every other day or so. That gives you roughly two months to find all the pieces you need to build a complete school wardrobe for your child. Just be sure to contact sellers quickly when you find something you need so someone doesn’t beat you to it.

Another reliable source for secondhand uniforms online is eBay. You can create saved searches for each specific garment your child needs, such as “navy shorts size 8,” and receive daily emails of all new listings for your saved search. You can pick up pieces one at a time or — if you’re lucky — find a lot of uniform clothing all in the same size.


Ways to Save on New School Uniforms

The biggest downside of secondhand shopping is that you can’t be sure of finding what you need. If the start of the school year is approaching and you still don’t have a complete school wardrobe for your child, don’t panic. There are ways to buy new uniform-appropriate clothes and still keep costs down.

4. Buy the Minimum

For starters, don’t buy more of any component than you really need. Your child may need a clean shirt for school every day, but kids can usually get away with wearing the same skirt, pants, or sweater several days in a row. Jackets and ties can go even longer between cleanings.

How many pieces your child needs depends on how often you intend to do laundry. Mothers discussing their kids’ school wardrobes on Mumsnet generally say they include:

  • Five to 10 shirts
  • Two to five sweaters
  • Two to five skirts or pairs of pants or shorts

On top of that, you can add one or two school blazers and one or two dresses or jumpers if your uniform includes these pieces. And your child also needs at least one pair of school shoes and enough socks and underwear to last the week.

If you shop smart, you can put together this minimalist kids’ wardrobe for less than the $240 average parents reported spending on back-to-school clothes in a 2019 National Retail Federation survey. CostHelper says it’s possible to find pants and skirts for as little as $5 each, tops for as little as $3, and shoes starting at $15. That’s less than $100 for the whole wardrobe.

5. Visit Cheaper Stores

If your school’s uniform consists of basics like solid-color tops and pants, there’s no need to buy them at the official school store. Many major retail chains sell uniform-appropriate clothes for kids at quite reasonable prices. In fact, several retailers offer lines of kids’ clothes designed explicitly for this purpose, such as:

6. Shop Online

If stores in your area don’t carry the school uniform pieces you need at prices you like, try shopping online. Some online retailers specialize in school uniforms, and others have sections devoted to them. Good places to shop online include:

  • Amazon. The e-tail giant has an entire section called The School Uniform Shop. It provides links to uniform-appropriate garments from many popular brands, including Nautica, Izod, and Dockers. Alternatively, you can search for “school uniforms” to find apparel for girls and boys. Check out these Amazon savings tips for more ways to save.
  • French Toast. Online retailer French Toast deals in school uniforms for all ages, which you can search by school or gender. The site also offers two- and three-packs of identical shirts or pants for a discounted price per piece.
  • Lands’ End. The school uniform shop at Lands’ End offers sturdy clothing in all sizes, from toddler to adult. Clothes are covered by the brand’s unconditional lifetime guarantee. There’s even a selection of adaptive garments for kids with disabilities. This apparel combines easy-to-use magnetic closures with decorative buttons for a uniform look.
  • Lee Uniforms. For teens and young adults, the Lee Uniforms store on Amazon offers school- and work-friendly pieces. The selection is limited, but the prices are excellent.
  • SchoolUniforms.com. As its name implies, SchoolUniforms.com specializes in uniform basics, from blazers to plaid pleated skirts. Garments come in a range of sizes to fit children ages 3 and up, including plus sizes.

When shopping for uniforms online, you can save still more by using a mobile coupon app like Rakuten or Ibotta. If you prefer to shop from a computer, install a money-saving browser extension like Capital One Shopping to help you find great prices and available coupon codes.

Capital One Shopping compensates us when you get the browser extension using the links provided.

7. Wait for Sales

If your school has an official uniform store, call that store and see when it plans to offer discounts or promotions. In many cases, uniforms go on sale in October, after most parents have already bought their kids’ clothes for the year. You can save money on school uniforms by buying just enough pieces to get through September and waiting until October to stock up.

If the school uniform is a generic outfit available from many stores, keep an eye out for sales at all the stores in your area. Consider signing up for emails from your favorite local stores to let you know when uniform clothing goes on sale. Sometimes, these emails also provide coupons, which can boost your savings still more.

Timing your purchases can help at department stores too. Clothes often go on sale at the end of the season — for example, summer clothes in September or winter coats in March. If you plan ahead, you can save by buying school uniforms for next year during these end-of-season sales.

If you’re unsure when and where school uniforms are most likely to go on sale in your area, create a Google Alert for the term “school uniform sale” with your location or zip code. Whenever a new sale pops up, you’ll receive an email about it. You can also use the term “school uniform clearance” to learn about end-of-season clearance sales.

8. Check Out Clearance

Even when a department store isn’t having a sale, there’s usually a clearance rack you can check for marked-down clothing. Since school uniforms tend to be plain clothes without a lot of eye appeal, there are often at least a few pieces that don’t sell and end up on the clearance rack.

For example, the frugal-living bloggers at Life Your Way and Joyfully Thriving both report finding uniform pieces for less than $5 on the clearance racks at stores like Gap and Macy’s.

9. Buy Bigger Sizes

If your child is still growing, there’s a good chance the uniforms you buy now won’t fit by the end of the year. However, you can make them last as long as possible by sizing up.

Choosing clothes with an extra inch to spare in the legs and sleeves gives your kid room to grow into them. Some uniform pants and skirts come with adjustable waistbands, so they’ll accommodate your child’s growth in width as well as height.

And if you find a great price on a particular piece your child needs, you can buy next year’s sizes now. Assuming they plan to attend the same school for the foreseeable future, you know they’ll need the same uniform next year, so buying multiple sizes at once lets you get them all at the best possible price.

10. Buy to Last

If your child has stopped growing but still has a few more years of school to go, you can save money by choosing quality clothing that will last. These well-made pieces may cost more upfront than cheaper brands, but they pay off in the long run. A $50 blazer that wears out after one year costs $50 per year, but a $100 blazer that lasts for four years costs only $25 per year.

For example, clothes from Lands’ End come with a lifetime guarantee. If they don’t last your child until graduation (or they outgrow them), you can return them for a full refund. Clothing from Dickies, available at Walmart, is also guaranteed for its “expected life,” though they don’t define the term. Clothes from Target’s Cat & Jack line come with a one-year guarantee.

Another way to make school uniforms last as long as possible is to choose the darkest colors allowed. On light-colored clothes, minor spots or stains show up more vividly, making them unfit for school wear. Darker-colored clothing, such as maroon, navy, or forest green, hides these minor flaws.


Final Word

Saving on school uniforms doesn’t end when you’ve made your purchases for the year. If your kid’s uniforms become unwearable due to rips, stains, or lost buttons, you’ll have to replace them in a hurry — possibly at full price. To avoid this problem, handle school uniforms with care to make them last as long as possible.

Always follow the washing instructions and line dry or dry flat when possible to avoid wear and tear from the dryer. Treat stains promptly, repair rips, and replace buttons.

If your sewing skills are up to it, you can even get another year or two of life out of garments by letting down the cuffs or adjusting the waistband to fit your child’s larger size. Following all these steps reduces waste, so you can also pat yourself on the back for being green.

One final tip: Label all your kids’ school clothing with their names. When all the students in a school wear the same outfit, it’s easy for them to grab someone else’s sweater or jacket by mistake. Sewing in a name tag or writing on the care tag with a permanent marker increases the chances misplaced clothes will find their way home again.

Source: moneycrashers.com

12 Ways to Increase Rental Income From Your Vacation Home

Bought a vacation rental and wondering how to maximize your income from it?

First and foremost, shift into the mindset of an entrepreneur in the hospitality industry. You’re a businessperson now, and you need to think like one. In particular, focus on creating a strong product, marketing it, and building efficient business processes.

Ways to Increase Your Vacation Rental Income

Vacation rental properties rarely offer truly passive income. Even if you outsource property management, you still need to manage the manager. Instead, think of your vacation rental property as a side business you operate in addition to your full-time job.

Once you start approaching your vacation rental as a hospitality business, you can start optimizing that business to earn more revenue with less labor on your part.

1. Start With Strategic Finishes

After purchasing the property, your first project is putting it into marketable shape as quickly as possible. That includes any needed repairs, updates, and improvements. Don’t go overboard, but look for any obvious indicators of age in the property, including anything that looks dated or unattractive.

You should also be planning out your automation processes at this point, because they may impact your property updates. For example, you may decide to install a smart lock or key code lock on the front door (more on that later).

Think about any other smart home upgrades that may improve your marketing. Would guests feel more comfortable with a smart security system in place?

As you plan out your property’s finishes, keep resiliency in mind.

Aim to “tenant-proof” your property as much as possible, with scratch- and waterproof flooring such as luxury vinyl tile and door stoppers behind each door. Consider semi-gloss or glossy paint finishes to more easily wipe away scuffs, and use the same paint color throughout for easy touch-ups.

Your guests won’t be gentle with your property, so make it as indestructible as possible.

When your property repairs and updates are finished, it’s time to furnish and decorate it. You don’t need to buy furniture new; no guest expects to be the first person to have sat on the couch. But furniture needs to be tasteful and in good condition.

A word to the wise: Don’t decorate blandly. You are not operating a hotel, and one of the reasons guests choose to stay in a privately owned vacation home over a hotel is to get a more authentic experience. Tie in some local flavor and add a bit of your own personality.

Draw the line at political statements, though. I once stayed in an Airbnb filled with political posters and found them to be obnoxious and unprofessional.


2. Automate & Systematize Guests’ Stay

The less your guests must rely on you personally, the smoother their stay will be for both of you.

Find a way to automate guests’ check-in and checkout process, particularly their access to the unit. That could mean a smart door lock, a keypad lock, a lockbox, or keys left with a community office or doorman.

Note that smart door locks don’t have to cost an arm and a leg. You can buy the ULTRALOQ U-Bolt Pro for under $200, or go a little lower-tech with the AmazonBasics keypad lock for under $50.

Self-entry allows guests to arrive on their own schedule, rather than wasting both of your time in coordinating entry with you present.

But systematizing your renters’ stay doesn’t end at physical entry. You also need to plan for other frequent needs, such as gaining Wi-Fi access, and make them extremely intuitive and easy for your guests.

Create a concierge document that starts with bullets for the most common issues, such as the Wi-Fi network and password. You can then direct guests to longer explanations as needed. Consider a Google Document that you can both print physically for the unit and send a link digitally to guests before they arrive.

Automate this communication with guests. Create automated messages that go out to guests 48 hours before their arrival that include details like how to access the property, Wi-Fi information, and how to use any confusing appliances. Your concierge document can also include tips for local restaurants, attractions, and other entertainment.

As you systematize your vacation rental business, create policies for every contingency. That includes lost key policies and fees, late checkout procedures, pet policies and fees, your maid or cleaning service (which can be set up quickly through Handy.com), and backup contacts for times when you aren’t available.

In addition to operating a hospitality business, you also face standard landlord headaches like property repairs. Prepare for maintenance by building a network of contractors you can contact for immediate service, to minimize the risk of bad reviews and losing Airbnb guests over maintenance issues.


3. Perfect Your Pricing

One of the most fundamental building blocks for success as an Airbnb host is pricing.

To begin, ignore what long-term rental properties charge for monthly rents. Rather, look at them, but only to run a comparative cash flow analysis to determine which leasing model would generate more profit for your property.

Your competition as a vacation rental operator doesn’t include long-term rentals, but rather hotels and other comparable vacation units. Get a sense of what hotels and similar vacation rentals charge in your immediate area. Consider aiming for around 20% less on a nightly basis than nearby hotels.

Keep in mind that your pricing can and should rise as you establish yourself and your unit.

In the beginning, with few or no reviews, you’ll probably need to entice your first guests with bargain pricing. Once you establish legitimacy through reviews, you can raise your pricing to meet or slightly surpass nearby competitors. (More on building reviews shortly.)

Remember, pricing doesn’t end at your nightly rate. It also includes your cleaning fee, additional guest fees, pet fees, and any other fees you charge. By all means, charge a cleaning fee, but don’t use it as a backdoor gimmick to charge higher rates. Price it based on your actual cleaning fees, and keep your nightly rates transparent.


4. Incentivize Longer Stays

As with long-term rentals, the greatest labor and costs in managing short-term rentals come from turnovers. From cleaning to coordinating access with guests and answering their questions, it costs far more time and money to rent to 10 guests in a one-month period than to a single guest staying for an entire month.

What’s more, short bookings can actually cost you the more lucrative longer bookings. If someone rents your unit for one night, it prevents a prospective two-week guest from being able to book your unit for that block.

So, price accordingly. Charge a higher nightly rate for stays under a week, and then offer a discount for guests who stay at least seven days. Keep graduating that discount the longer they stay, up to a month.


5. Consider Pet-Friendly Policies — For a Price

Pet owners often have a hard time finding hotels and vacation rentals that accommodate their four-legged family members. That means a shortage of supply, which in turn creates an opportunity.

There’s certainly no shortage of demand. More than two-thirds of American households own a pet, according to the 2019-2020 survey by the American Pet Products Association.

Of course, pets cause more wear and tear on your rental property. That means you should charge extra for them to make it worth your while.

By accepting pets, you can not only collect more money on a nightly basis, but you can also attract more potential guests and achieve higher occupancy rates. And in the vacation rental business, profits come down to occupancy.

Young Woman Wearing Sweater Cuddling Pet Cat


6. Take a Multipronged Approach to Marketing

Putting together the perfect vacation rental listing is both an art and a science. Start your marketing with a killer rental listing.

First, hire a professional real estate photographer to take photos. It’s less expensive than you think, and it’s a one-time marketing expense that will continue paying off for years to come.

Photos should include several shots from different angles of each important room in the home. Pay particular attention to the kitchen, living spaces, bedrooms, and bathrooms. Show the photos to someone who has never been inside your property and ask them if they can visualize the layout and space.

Feature a few exterior shots as well, including the front of the property and any outdoor living spaces.

When filling out your listing profile, tick off each amenity, and select the bed sizes for each bedroom. Then in your written description, emphasize the property’s best features, and mention the most important amenities again.

If your location is a selling point, emphasize that as well. Include highlights like “Five-minute walk to the waterfront!” or “One block from the metro station!” Mention specific landmarks and tourist attractions nearby to boost your search rankings within vacation rental platforms — more on that momentarily.

Although Airbnb is the undisputed leader in the online vacation rental space, it is not the only player. Advertise your unit for rent on multiple platforms, including VRBO, Booking.com, and Craigslist. A previous player in this industry, HomeAway, was acquired by VRBO and merged in 2020.

But don’t stop there. Research ways you can market your vacation rental on social media, such as through local tourist groups on Facebook, or even paid Facebook ads.

The better your marketing reach, the higher your occupancy rate will be, which ultimately determines your bottom line.


7. Optimize for Search Rankings

Imagine your vacation rental is one of a hundred available in its neighborhood. A prospective guest logs into Airbnb and searches for units in that neighborhood — which ones does Airbnb display first, at the top of the page rather than buried at the end of that long list?

Vacation rental platforms have their own search algorithms, just like Google does. If you want your listings to appear first, you need to take pains to optimize for those algorithms.

First, listing platforms reward responsiveness. The faster you respond to inquiries, the higher the platforms will list your unit. Make it a priority to respond as quickly as possible, and if you can’t give prospects a precise answer immediately, at least reply back with a quick “I’ll check into that and follow up with you shortly.”

As with Google, click-through rate matters. That refers to the percent of users who see your listing title who actually click on it. So, boost your click-through rate by putting thought into your listing titles to make them irresistible. Your thumbnail photo also helps your click-through rate, so make it gorgeous.

Accept instant bookings, rather than requiring prospects to wait until you’ve manually reviewed them. Listing platforms include this as a search filter, so many prospects will never even see your listings if you don’t accept instant bookings.

Keep your calendar up to date. Airbnb rewards recency — the more recently your calendar was updated, the better.

Likewise, keep your listings up to date. Every two or three months, tweak your listings, perhaps to emphasize seasonal attractions in your area. This also makes a great time to review your listing for completeness within the listing platform, which also impacts your search rank.

“Completeness” refers to the percentage of available fields and selections that you’ve filled out. Even if you filled out every field before, they don’t remain static — listing platforms constantly add new features and options, and you need to stay current with them if you want your listings to appear before alternatives.

Be sure to mention local attractions in your listing description because some prospects search specifically for easy access to famous landmarks or other attractions. You want to make sure your listing appears front and center for those who do.

And, of course, the more positive ratings and reviews you have, the more platforms reward you with higher rankings.


8. Accrue Reviews ASAP

You can put together the best listing in the world, but if you have no reviews, guests will be reluctant to book with you.

Start with a simple two-pronged approach to scoring reviews. First, price your property competitively to beat your competition if you don’t have many reviews. Second, put together a guest follow-up strategy for securing reviews.

That strategy should include asking no fewer than three times for a review.

Mention it at the end of your checkout instructions message, then again in a post-checkout message thanking them for staying with you. Then leave a review for them as well, and message them to let them know you left a glowing review for them, and ask them if they would be willing to do the same if they enjoyed their stay.

Your goal is to reach 10 positive reviews as quickly as possible. When prospective guests see reviews in the double digits, they feel more confident in booking, and your occupancy rate will rise.


9. Create an Experience

As outlined above, you can and should automate your booking, check-in, and check-out processes as much as possible. Aim to make them so easy an 8-year-old could do it.

Send a series of messages out on an automated schedule. Spell out everything the guest needs to know about getting into your property and staying there comfortably.

Assemble a concierge document about how to use the various appliances in your unit, the best local restaurants, and standout local attractions. Mention both the famous nearby amenities they already know about and the insider scoop on local secrets.

For example: “Drop by the Bulldog for an iconic Amsterdam bar experience, but then walk over to Door 74, a tiny, hidden speakeasy with no signage and a Prohibition-era vibe.”

It’s those more unique guest experiences your renters will remember and rave about later both publicly in their reviews and privately to their friends.

Leave a bottle of wine or some other gesture that they wouldn’t receive at a hotel. You don’t need to spend much money on it, and half your guests won’t drink it anyway, but it makes a great first impression. Underneath it, leave a brief handwritten note welcoming them by name. And, of course, chocolates on the pillows don’t hurt either.

People remember the little things, the small touches that remind them why they chose an alternative to bland corporate hotels.

Bottle Of Wine Rose Red Woman Relaxing At Home Sofa Barefoot


10. Explore Co-Hosting

If you manage your own vacation rental, and other nearby units also serve as vacation rentals, start networking with the other neighboring owners. You can co-host for each other, or simply have one owner co-host for all the neighborhood units as a side hustle.

Co-hosts share property management responsibilities, such as communicating with guests, managing check-ins and checkouts, coordinating repairs, and more. See Airbnb’s explanation for a full list of responsibilities that co-hosts can perform. In compensation, the primary host can pay co-hosts a percentage of the nightly rate, a percentage of the cleaning fee, or both.

They can make an affordable and convenient way to outsource management, whether temporarily — for example, while you’re on vacation — or permanently. Or, if you live near the units yourself, co-hosting for neighboring vacation rentals offers an easy side gig to earn some extra money on other people’s properties.


11. Protect Yourself & Your Property

One way to protect your property is to physically make it damage-resistant, as mentioned above. But protection doesn’t end there.

Think carefully about the security deposit you charge. Charge as much as you think you can without scaring off guests.

Platforms such as Airbnb include some protections for hosts, and you should familiarize yourself with them. If you don’t use a platform and rent independently, look into other ways you can protect against damage, such as preauthorizing the guest’s card for an additional damage deposit, but not running the charge unless they cause damage.

But your guests aren’t the only people you need to worry about. If you buy the property with a family member, friend, or other partner, it inevitably causes conflict to one degree or another.

The most common disputes involve one partner wanting to use the property more often than the others, financial disputes over expenses, and disputes when one owner wants to sell and the others can’t afford to buy them out.

I’ve seen all of these disputes play out in my own family, and can attest firsthand to how vicious they can get — vicious enough to permanently poison relationships, even close family relationships.

Protect yourself by signing an agreement with your partners upon buying a property detailing exactly how you’ll split revenue, responsibilities, and access to the property, and spelling out the process you’ll follow if one partner wants to sell while others don’t.

A little foresight today can save a lot of stress and infighting tomorrow.

Further protect yourself with contingency plans in the event that laws or market conditions change.

Local regulation presents a real threat to vacation rental owners — cities like New York, San Francisco, and Santa Monica all but outlaw private properties being offered to short-term guests. Your city could change its regulations at any time, and you need a backup plan to protect against such seismic shifts.

Run the numbers to calculate how your property would create cash flow as a long-term rental, as one contingency plan. As another, look into leasing your property as a furnished corporate rental, for example, to travel nurses.

As a last resort, you can always sell the property, but it typically takes a few years for properties to appreciate enough to cover the closing costs from both the initial purchase and the eventual sale. But always have contingency plans in place, to protect against losses if conditions change.


12. Optimize Your Taxes

Vacation rental owners can benefit from both investment property tax breaks and small business tax breaks.

As a business owner, you can deduct expenses that you might otherwise have to itemize in order to take, allowing you to take the standard deduction while still deducting specific expenses. For example, you could potentially deduct for travel, home office, and charitable donations from your business, all while still taking the standard deduction. Just be careful not to get carried away and trigger an audit with the IRS.

Meanwhile, real estate investors get their own tax benefits. You can deduct costs from property management to maintenance, utilities to depreciation.

Beware, however, that a few cities — such as Santa Monica — require vacation rental owners to pay additional taxes. Make sure you include that expense when you run the cash flow numbers before you invest in a vacation rental in one of those cities.


Final Word

It’s a fun idea to own a vacation rental you can occasionally use yourself while earning some extra income.

But in many markets, it remains a competitive industry, and often property owners find themselves losing money at the end of the year without enough occupancy, particularly during slow seasons.

Always run conservative numbers when you calculate cash flow, and never lose sight of the fact that the property is an investment. Don’t get attached to any given property, or even to the idea. In real estate as well as stocks, emotion is the enemy of investing.

Even if the cash flow numbers work for a prospective vacation rental, run them for contingency plans such as using the property as a long-term rental. You never know when market conditions will change; look no further than the collapse of the travel industry in 2020 during the coronavirus pandemic and the energetic rebound in 2021.

Source: moneycrashers.com

The Annuity Everyone Needs — and Anybody Can Get

Senior holding cash
Roman Samborskyi / Shutterstock.com

Finding and purchasing the right annuity — especially one with built-in inflation protection — can be a difficult and expensive chore.

But if you are smart and flexible, virtually any American retiree can grab such an annuity on the cheap.

By waiting until age 70 to claim Social Security, you can create an annuity that will pay out the maximum monthly income for which you are eligible.

Even better, the federal government will adjust the payment upward each year to account for inflation — all at no extra cost to you. That is a virtually unheard-of benefit in the world of annuities, where inflation adjustments typically are available only as an expensive add-on feature.

All of this means delaying claiming your Social Security benefits can be a great way to add a little extra financial peace of mind to your golden years.

As Social Security expert Jeff Miller — co-founder of Social Security Choices, a company that provides advice on Social Security claiming decisions — wrote in a Q&A for Money Talks News:

“Social Security is an annuity, and delayed claiming is by far the cheapest annuity you can buy.”

How to get this benefit

To some degree, anyone who collects Social Security gets this built-in annuity benefit. Even if you claim early — such as when you are first eligible at age 62, or any time thereafter up to age 70 — you will get a guaranteed inflation-adjusted payment each month, year after year.

But delaying Social Security until age 70 is the best way to get the biggest payoff if you want to use your benefits in place of a traditional annuity.

By waiting, you get a larger check for the rest of your lifetime. As the Social Security Administration explains, for each year you delay claiming Social Security beyond what’s known as your “full retirement age,” your benefit increases by up to 8%.

Now, there can be good reasons not to delay claiming your Social Security benefits. We outline a few of them in “5 Reasons You Should Claim Social Security ASAP.”

So, you need to determine which claiming strategy makes the best sense for you — and a company like Social Security Choices can help with that decision, as we detail in “A Simple Way to Maximize Your Social Security.”

But if you have saved a lot of money for retirement and want extra peace of mind, delaying Social Security can be a great way to create the maximum inflation-protected income for which you are eligible. And you get that protection without having to pay another dime beyond what you contributed in FICA taxes during your working years.

Sound like a strategy that might work for you? The key to making it a reality is to work later into life and keep a steady income until age 70 — or to have a nest egg big enough to see you through the early years of retirement until you begin claiming Social Security later.

You can get help with saving for retirement by reading:

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

This Is the Best Age to Buy Long-Term Care Insurance

Man in a nursing home
Rawpixel.com / Shutterstock.com

Long-term care is jaw-droppingly expensive. The national median cost for staying in a private room at a nursing home is $105,852 per year, according to Genworth Financial.

Receiving care in your home is cheaper, but even a home health aide will set you back almost $55,000 a year, assuming they provide care for 6.5 hours a day.

Don’t assume Medicare will pick up the tab, either. It doesn’t provide coverage for ongoing custodial care such as that typically provided by assisted living and nursing home facilities.

State Medicaid programs will pay for nursing home care but only after you’ve depleted almost all your assets first.

Buying long-term care insurance is one way to cover the cost of care, but policies can come with their own hefty price tag.

Premiums will be lower if you buy coverage when you’re younger, but you may end up paying for years on a policy before you need it. Wait too long, and you could be denied coverage.

So what’s the sweet spot for purchasing long-term care insurance? It seems to be in your 50s.

Consider long-term care insurance before age 60

Premiums for long-term care insurance climb as you age, but that’s not the main reason you want to buy early. Instead, you want to have some coverage in place in your 50s before any health issues could waylay your application.

“Something as simple as going to physical therapy could cause a denial,” says Erin Ardleigh, founder and president of Dynama Insurance, which is based in New York City but helps clients nationwide. “Waiting until 60 (to buy insurance) can be risky.”

At age 65, more than one-third of long-term care insurance applicants are denied, according to 2020 data from the American Association for Long-Term Care Insurance.

More than half of applications for those age 75 and older are denied.

Long-term care insurance costs by age

Once you hit your 60s, insurance prices start to go up significantly as well.

The following is an example of how monthly premiums increase based on an applicant’s age.

These estimates, provided by a Mutual of Omaha calculator, assume a single female in Manhattan is applying for coverage of $5,000 a month for 36 months.

  • Age 45: $234 per month
  • Age 55: $293 per month
  • Age 65: $422 per month
  • Age 75: $820 per month

While most policies are designed to have level premiums, there is no guarantee they won’t go up, Ardleigh says. Premiums may also depend upon whether someone is buying insurance as part of a couple and what elimination period is included in the policy. The elimination period is the amount of time that must pass after you begin needing care before benefits are paid.

Buying some coverage is better than none

Ardleigh recommends her clients buy policies that have, at a minimum, a $5,000 a month benefit for 24 months. A higher monthly benefit means the opportunity to stay in a nicer facility should you need care. However, purchasing more than three years of coverage may be unnecessary for many people, since the average nursing home stay lasts just two to three years.

If a policy with those minimums is too expensive, any coverage will be better than no coverage.

“Imagine it’s snowing,” Ardleigh suggests as an analogy. “Anything you put on is going to help when you go outside.”

While a light jacket isn’t as good as a heavy winter coat, it’s better than walking outdoors without any outerwear.

If you can’t afford a traditional long-term care policy or aren’t sure if you’ll need long-term care, a hybrid life insurance policy is another option. These policies provide coverage for long-term care, and any benefits not used during the policyholder’s lifetime are passed on to heirs as a death benefit.

“We’re definitely seeing people who are younger buying long-term care insurance through hybrid policies,” Ardleigh says.

While not everyone will have the same long-term care insurance needs, everyone needs to have a long-term care plan. Talk to a trusted insurance broker and get quotes from several companies and product lines to help you decide what is the best way to prepare for covering the costs associated with home health, assisted living and nursing home care.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com