Underwear Gnomes Part Two - Financial Advice

     Even though at the time of this publication no one is asking for a sequel, I thought I would share some simple financial tips that can apply not only to Homesteaders, but anyone really.

   

    A lot of this may sound like common sense, a lot of it may sound obvious.  However you would be surprised at exactly how many people don't take advantage of what's at hand because they are so used to doing things in a certain way that they get trapped.  We feel like we have to work this job, or feel that we have to go to this store or buy that product.  

    So before I get into this a little background about me, I've been doing financial sales and service for over 25 years and have worked for companies like PNC Bank, New York Life, the IRS and 3M.  That being said, even though I am a licensed Insurance agent, always talk to a local financial advisor in your area.  Nor is this a solicitation for business.

    First piece of advice I have for you is that when talking to a financial advisor is a simple one.  Remember that if you don't understand something.   Then that product is not for you!!!

    I do all these things mentioned here and they actually work.  Again, you are NOT going to get rich and you have to be smart about things.   But in the long run, you will be in a better position and that is the whole idea behind this article.    

    This really should go without saying and is the basis for all other financial advice.

    PAY YOURSELF FIRST!!!   Don't try to stay on a budget, that's bullshit and most people can't do it.   However if you take $50 out of your paycheck and have it placed in a simple savings account, that means that by the end of the year you will have saved  over $1000 dollars.  Try not to use or touch that money in savings, forget about it. 

    Trust me, it does get easier.   You will be surprised at how easy it is after a bit of time, and now you have money stashed away for a rainy day and a few other things.  See my comments about paying cash for everything below.  

    One of the biggest problems we face as individuals is that we feel savings should be done AFTER the bills are paid.  When in fact, it SHOULD be done before the bills are paid.  You can always adjust what you pay yourself...as long as you pay yourself first!

    Drop your bank and go with a Credit Union:  Credit Unions offer better interest rates on Deposits, lower interest rates on loans and generally have less strict standards than a bank does.  Generally speaking their fees are also lower.   Let's look at a real world example.   This link will take you to my Credit Union.   Now compare those rates to PNC Bank, who I used to work for years ago.  You may notice that the deposit rates for my Credit Union are 10X what the bank is paying.   Yes, you read that correctly.  So why are you still with a bank?

    Don't believe me?   Do the math, at the time I was writing this a 6 month CD via PNC bank was paying 0.01%.   My Federal Credit union was paying 0.10%.   Use this simple CD calculator.  

    Banks are for profit organizations that will give the better options (with higher returns) to those that invest more.   Credit Unions are designed to be non profit and organized around a particular group or community.  In this modern world, banks make it harder to leave them than is needed.  You have auto pay, debit card fees, etc.   If you need cash, don't use an ATM.  Get if off the cashier in the store.   Shop around for those auto rates, CD rates and loan rates by using sites like bankrate.com

    Again, your not going to get rich.  BUT you are being smarter with your money.  

    Avoid Credit Cards and pay cash.   Every now and again you will see a sign in a store or restaurant that says for the use of your credit/debit card they will add a small percentage to cover their costs.  That's because their bank is charging s service fee per transaction.   Consumers and business's have become better at avoiding that charge, and some banks have done away with it entirely (same with ATM fees) but they are still out there.

    I am NOT saying to get rid of the credit and debit cards completely.  Frankly you need to have some credit.   However if you can't pay for X in cash, do you really need it?  Also, if it's a mom and pop organization, ask if they will give you a small discount if you pay cash.   My wood pellets for the pellet stove I bought this winter were about 5% cheaper because I paid the guy cash for them.

   Frankly it all has to do with taxes and transaction fees which is something I'm not going to cover here.   He was happy to pass on that savings to me.  Paying cash also means that you become much more aware of your spending.   Try it for a week and see how much your habits change.

    Since we are are talking about being smarter with your money.   INVEST in No Penalty Certificates of Deposit (CD).   You are earning a higher rate on your money AND have the ability to access that money after the first seven (7) days generally speaking.  The nice part is there is no penalty for doing such.   However the withdrawal is all or nothing, meaning you have to take our all you invested  The nice thing is that you don't lose the interest that accumulated up to that date.  .    

    You can invest in a No Penalty CD for around $500 to $1000 in most cases and the interest rate on that is going to be higher than a savings account is.  Generally speaking I would recommend keeping at least one month's expenses in a No Penalty CD as a "rainy day" fund.   Three months would be better.

Learn to Barter!!!  This is basically trading your skills for someone else's skills.   For example, you might be willing to provide some produce to someone that can do small engine repair for you.   This is the basis for all economies.   You need X done and have Y.  Someone wants Y so they will do X in return.  Check out groups on Facebook, Reddit or even Craigslist.  Sometimes its as simple as providing a little sweat equality to get something done.

    Recently we had 3 trees taken down, all for nothing because the guys doing it are keeping the wood for their own use.

    If you can, find a Bartering Club or Network.   They are out there.    Everyone has skills that are in demand somewhere.  A club or network is going to provide you with some level of security and will often have simple contracts to follow.  

    So, lets talk about a few other things.   Since most homesteaders have some sort of property, lets talk about that for a moment.   I have a little over two acres and I'm considering either building a tiny home on part of that property or renting it out to someone with either a tiny home or trailer.

    Now, yes it will take a bit of money to put in water, power and a driveway but here is the nice thing about that.   In my area, the average rent is $700.   I have a $1000 dollar a month mortgage.   I'm able to write off most of the costs for the water, power and driveway as a business expense on my taxes and now I'm only paying $300 a month for my mortgage.  I live in an are with five (5) Colleges and Universities near by; so I should be able to rent that place 9 months out of the year without issue.

    Now, lets say I mention to my renter that I need some help on my property.   Instead of him/her paying me rent, I'll drop the rent $200 bucks if they give me anywhere between 10 - 20 hours of their time each week to help me with the animals and or garden.   I've still reduced my bills by $500 and now have them helping me out for a reduction in the rent.   This is an example of a bartering arrangement and has some nice advantages in taxes for you both.

    Both my brother and I have owned property where we lived on one floor and the renter on the second floor to reduce our mortgage payments or for extra income.  Their seems to be almost a stigma about living with roommates past a certain age.  That somehow you "can not take care of yourself."; where the truth is that having room mates or renters cuts back on your expenses.   Hell, Air BNB built their entire business model on that simple fact.

Of course, check with your local county ordinances but generally speaking the more rural, the more relaxed things are.  

   

    If you don't want to rent out to someone, how about renting out your land to animals?   Leasing your land to have someone else use it to graze there animals is an option.   Or perhaps you can rent it out for other people to garden?   Land - Lease agreements are normally between a farmer's and  a commercial entity but I see no reason why it can't be between homesteader to homesteader.   It might be particularly helpful for someone that finds out they bought to much land, and can't work it all properly. 

That being said, the final piece of advice isn't going to apply unless you have at least $5000 dollars available, and if you followed my advice you will have that saved up pretty quickly.

   The reason why that is a magic number is because it allows you to buy something called Single Premium Life Insurance. (SPL)   That $5,000 dollar figure is the lowest premium that I've seen offered by any insurance company.  Generally speaking they are sold for a lot more.  For example, I once split the Commission on a $50,000 SPL that my boss considered "small potatoes." 

    Now for my purposes, I'm going to be making up some numbers because in reality it's going to depend on your health, if you smoke, etc.  Everyone is an individual and although these numbers have some basis in reality, talk to your local financial professional about your unique situation.

    Basically Single Premium works like this; you pay the company $5000 as a one time premium and they give you $25,000 in coverage. HOWEVER you now have access to about $15,000 dollars that you can borrow if needed at a relatively low interest rate (roughly 5 to 8% ).   You are never required to pay that loan money back, but I highly recommend paying at least the interest back every year.  People get themselves in trouble when they start to pay interest on the int erst and it snowballs.   This is why you see people with 10 thousand or more just in credit card debt (see above).

    You have created for yourself a fixed rate line of credit that will last you till the day you die.  As you pay down that loan, that money is immediately available to you for other uses down the line.   Just be smart about it.

    Here's another advantage of taking that type of loan.   Your credit score doesn't matter.  Your income doesn't matter.  Since it's Life Insurance its not subject to a lot of what banks look at.   As long as the amount you owe on the policy doesn't exceed the Face Value (in my example $25,000) you should be fine.  Or if you want to think of it this way.   You just tripled your "rainy day fund" practically overnight.

    Now a few quick warnings on SPL however.  

1. Because of the cash value and the fact that you can borrow against these, a lot of companies will try to offer you a variable rate.   DO NOT go that route.   Get a fixed rate.  Rates are low now, but will go up in the future.   Locking that rate in means no surprises to your budget. 
2. Do not get fooled into buying an annuity.  That's something different and has different regulations for what we are looking to do here!  Good agents will listen to you, if your agent doesn't; show them the door.  Annuities are fine for tax free income when your ready to retire.  This is all about having that cash value available to you as a business loan.  Make no mistake about it.  Your homestead is a business.
   
3. They have their own unique tax situation; called a Modified Endowment Contract (MEC).  In a nutshell, it may be considered taxable income for you...BUT again, there are ways around that too.  Talk to your Financial Advisor.
   

     Now you know one one of the directly little secrets of Insurance, and why this product is popular with small business and investors.   

    The final and best thing that I can recommend is to step back about once every two or three years and just review.   Ask yourself "What could I be doing differently?"   "Is this bank really offering me the best rate."  "Where can I cut back?  Where can I expand?"

    This isn't "out of the box" thinking or something revolutionary.  It's just a matter of simplifying your life and being a little smarter.   We "homesteaders" are already recycling and reusing things.  We are already saving money on food, etc.  Why not try making some money on other things?