How to Turn Your Home Into A Personal ATM

One of the goal posts for what we have accomplished in this life is the ability to enjoy a long, happy retirement.  But as the years go by and the horizon gets closer we look at what we have in cash and assets, and discover that we may not be able to retire comfortably and independently, if at all.  If you add up your annual living expenses – including personal care, mortgage, groceries, car notes and insurance, all of your fixed and variable costs – you will likely find that if you retire at 67 years old and live another 20 to 30 years beyond that, you will need over $1million in today’s money to maintain your current lifestyle throughout your retirement.

Most Americans are looking for ways to supplement their income to try to make up for the shortfall.  We max out our contributions to retirement plans at work.  We hold 401K’s, IRA’s, money markets and other investments, hoping that the market will keep going up (which it won’t) and we don’t lose significant value in our accounts; the closer you are to retirement the less time you will have to make up for any losses.  You may even try to adjust your lifestyle downward to conserve cash to save and invest but would you be able to make enough of an adjustment to make a real difference?  Many approaching retirement age have to be concerned about which direction the market is headed in the next few years.  In the stock market the investor has no control.

Mutual funds have for decades been heralded as the best way to benefit from the financial markets without a lot of knowledge about investing and without taking on too much risk.  This investment vehicle is touted as the best way to earn double-digit returns on your money, but OVER THE LONG TERM.  If you look at CD rates at bankrate.com you will see that the highest-yielding CD will return 2.3% compounded over a 5-year period.  As for money markets, for a deposit of $5,000 one bank will pay a grand total of 1.11% interest for the first year only; then the rate drops to 0.61%.  Meanwhile, what are banks doing with your money?  They’re lending it back to you and your neighbors at higher interest rates; they’re investing it in multiple ways, including lending to other banks overnight, to earn a higher rate of interest than they’re paying you, and profiting massively from the difference.

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Did you know that you have the power to do the same thing?  It’s called Private Lending, and you can use the equity in your property to do it.  Private lending a vital lifeline for real estate investors. And as a private lender you can participate in real estate investing without “getting your hands dirty” while earning a much higher rate of return than you ever will with banks or likely will in the stock market.

Since the market crash of 2008 real estate has picked up speed, and certain markets, like Philadelphia,  are moving at a feverish pace.  If you are in that region I am sure you have noticed and even been inconvenienced by the deluge of construction going on in and around the city.  Somebody is getting very rich!  Do you ever wonder how they do it?  Do you ever wonder how YOU could get in on the action, without having “important’ friends and millions in the bank?

As a homeowner you are potentially sitting in a bank of your very own.  If you have significant equity built up from years of paying down your mortgage you can access it through a home equity line of credit (HELOC).  You use the proceeds to help real estate investors like fix-and-flippers, for example, fund deals while you earn returns in your sleep, often well into the double digits!  It is perfectly legal and perfectly legitimate.  Moreover, you will be paid back your investment plus interest in four to six months. It is as simple as agreeing on a contract that explicitly lays out the terms on each side.  You hold either the first or second mortgage, and if for any reason the deal goes south the house is your collateral – just like a bank.  Private investing can provide virtually limitless financial growth, as you are able to compound your returns by continually lending.  Did you ever dream you’d grow up to own your own bank??

Sextant Financial Solutions, LLC (www.sextantfinancials.com) is a company positioned to take advantage of investment opportunities in some of the hottest areas of Greater Philadelphia, including Delaware County and Philadelphia County West and Southwest.  If you would like to learn more about ways to earn significant returns using your home’s equity or cash sitting in low interest-earning instruments such as a 401K, IRA and CD’s call 484-461-0114 or send an e-mail to sextantfinancials@yahoo.com.

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Debt & Delay

cbbfb2a7It is not hard to find advice on managing money.  There are print publications, websites, gurus, apps, non-profits, licensed professionals and people we know who give us their ideas on money: saving it, investing it, making more of it and how to spend it.

One of the biggest concerns Americans have about money is debt.  In our consumer-centric culture we rely on interest-bearing credit cards and loans to finance non-essential wants, in the process racking up mountains of debt that we end up struggling to pay.  We are bombarded with ads while checking e-mail, on social media and elsewhere designed to trigger our impulse to purchase on a whim.  Temptation to consume is everywhere.  But for the small business owner, being mindful of discretionary spending is especially important; the consequences of personal finance habits can have a big impact on their business aspirations.

Debt & Delay

According to the 50/30/20 rule, 30% of your income should be allotted for discretionary spending.

098689848723_2A disheartening consequence of having unmanageable “bad” debt is delay in attaining goals and dreams.  Bad debt is debt acquired for things that have no real value.  (Good debt is that which is acquired for things that we can use to increase our net worth today that could also continue to provide resources in the future; for example, a home mortgage.)  Money diverted toward paying the monthly interest on balances carried forward on credit cards represents an opportunity cost both in the moment and the near future.  This is especially true for entrepreneurs.  Access to capital is essential to start and grow a business.  Many entrepreneurs will apply for a bank loan and solicit investors for this purpose.  After loan officers and investors read the business plan, they will want to assess the owner’s financial credibility.  They may look at the credit report and bank accounts among other things, and usually require that the owner have some “skin in the game” to share in the risk (a certain percentage of the loan amount.)  The amount of his/her own cash and/or assets that the owner is expected to have invested in the business could be sizable.  Besides that, business owners always need a cushion for unforeseen hits to their budgets.   Even the most motivated entrepreneur with the best ideas can have trouble getting their business off the ground due to perpetual financial constraints.  An entrepreneur can spin his wheels for years and years, missing out on opportunities and delaying plans, due to large amounts of avoidable debt.

Unmanageable, avoidable, high-interest debt can cause delay in living as well.  We probably all have a wish list of things we’d like to do and things we’d like to see.  Travel pages on Instagram are some of the most popular on the platform.  They portray idyllic destinations both abroad and at home and we can just picture ourselves on that beach or walking those shop-lined streets.  A nice trip to Morocco, Tanzania, Singapore or Brazil can cost thousands.  But most Americans have less than $500 in their savings account.  People put off weddings until enough money is saved to have the kind of wedding they would like.  In so many areas we delay living our lives to work for money to pay debt.

Or as soon as we pay debt off or down we begin the cycle again.  When we don’t have the cash to do and have the things we want we often turn back to our credit cards.  When we in the habit of using credit there is always something else for which to use it.  If we cannot save or save less than we should, we remain cash-poor and resort to credit once again.

2017 is the year to end this vicious cycle of debt and delay!  It will require discipline, planning and keeping our long-term vision in focus.

There are behaviors to void and behaviors to embrace:

  AVOID                                                                  EMBRACE

Impulse buying/Giving in to temptation                     Delayed gratification

Using credit cards                                                                 Paying with cash

Lending money you can’t afford to not get back      Paying Yourself First

Scrambling for money in an emergency                       Building an Emergency Fund

Spending Every Penny                                                      Saving 10-20% of Income

Redundancy                                                                          Reusing/Recycling/Repurposing

Spending for unnecessary things                                  Spending for experiences

Expensive outings with friends & family                    Free to low-cost events

Delayed Gratification:  Do you have a closet full of clothes that you hardly ever wear?  A house full of belongings you hardly ever use?  You were probably excited to buy them.  But you got over it quickly.  If we choose to take the time to save the cash for a purchase instead of whipping out the credit card, after a while that item may not seem as desirable.

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Credit Cards:  Take a look at the interest payment you make on each card every month.  Have you ever added them up? Get a monthly total of interest you pay to make it viscerally clear how much your debt is actually costing you; money that you are not able to invest into your future. Remember this feeling every time you consider using a credit card to buy something you don’t need or could put off until you have the cash.

And have $1,000 saved before attacking your debt.

Lending Money You Can’t Afford to Get Back:  Judge Judy would be out of business if people would say “no” to friends and family who ask them to borrow money that they cannot afford to lend.  Such a loan is really a gift by another name.  A generous spirit is beautiful, but it should not cause you stress and damage your relationships.  Part of becoming successful is knowing when to say “no.”

Scrambling For Money In An Emergency:  On the other hand, it doesn’t feel good when you have to resort to asking family and friends for money to bail you out in a pinch.  Things happen.  There’s no shame in needing and asking for help.  Sometimes it’s unavoidable.  The best thing to do is save as much as possible when times are good, not spend it all.  An emergency fund should be at least three, but ideally six, months of living expenses.  Start where you are towards a specific target based on a realistic idea of how much you live on every month.  But strive to consistently save 20% of your net income (after taxes), before spending or paying bills. Visit www.bankrate.com to compare savings account interest rates.  I like Barclay’s.

Don’t neglect to invest – and I don’t mean CD’s!

200520930-001Redundancy:  As stated above, many of us have lots of stuff we don’t use and eventually forget about.  It is good to take an inventory of those junk drawers and crowded basements to avoid re-purchasing items we need down the road for a project or errand that pops us.  Otherwise try to sell excess belongings, especially duplicates, on auction sites like ebay, apps like 5miles, or sites like craigslist.

Spending On Unnecessary Things:  A lot of times when we shop, especially women, it can feed a need for satisfaction, accomplishment or escapism.  How about putting that money and effort toward investing in experiences?  Concerts, art shows, international travel, charity, lessons to learn a skill or develop a talent.  Good experiences that allow us to de-stress, meet new people, learn new things and really LIVE can satisfy the same needs while also allowing us to grow as individuals.

Expensive Outings:  I have a small group of girlfriends that I love spending time with.  We schedule regular outings to eat, go to cultural events and hang out.  I found myself spending much more than I would intend to and promising myself that the next time I will stick to a budget.  In 2017 I am going to be more disciplined about this.  Being honest with my friends about my need to reign in spending will help me to keep focused.  I have a specific saving and investing goal for the year and I am going to be ruthless in achieving it.

It can be challenging for entrepreneurs to remain motivated and inspired.  The things of life can distract us and make our dreams seem farther and farther out of reach.  Controlling spending and debt can help to secure some peace of mind and allow us to leap forward when the right opportunity comes about.