How protective is your emergency fund?

By Jennifer Langley

Everyone should have an emergency fund regardless of their age or financial status. Not only can one of these funds protect you in the event of an emergency, but they are also a great way to learn about the importance of saving money. Even if you are just getting ready to move out of your parents' house for the first time, you should already be considering how much money you can put into your emergency fund on a monthly basis.

How to build an emergency fund

Most people in the U.S. live paycheck to paycheck, and this can make it very difficult to put any money aside. Unfortunately, these are also the same people who will find themselves in the most financial trouble if even one thing goes wrong. Therefore, it is necessary to make some sacrifices in order to build an emergency fund.


Even if you can only afford to put aside $5 a week, it is better than nothing, and over the course of the year you will save $260. Hopefully you will not have to touch the fund for many years, but if you end up with an unexpected car repair or other issue, it will be much better to have even $260 set aside than no money at all.

Why do I need an emergency fund?

Life is unpredictable, and it is always a bad idea to use a credit card to deal with an emergency situation, especially if you have limited financial resources. Consider for a moment where you are going to get the monthly credit card payments from before you simply move forward with a credit card purchase.

If you do not have an extra $100 a month to make a credit card payment, then you are not in a good position to rely on a credit card. Instead, you should have your own emergency fund in place that will help you replace your transmission, pay for a medical bill or cover your expenses if you miss a couple of days of work due to getting the flu.

No matter how well we take care of ourselves and our possessions, things will inevitably break down and we will eventually become sick. Therefore, the only way to keep ourselves from becoming buried by debt is to dip into an emergency fund instead.

What if I really cannot afford an emergency fund?

There are very few people who actually spend every dollar that they have in a careful way. Consider what your current bills are, and whether or not you actually need to keep all of them the way that they are. For example, if you have premium cable channels, you could easily save $20 or more a month to put into an emergency fund by canceling them.

Keep in mind that there are cheaper entertainment alternatives such as Netflix Instant Streaming if you are a movie addict. Another thing that a lot of people spend money on is a daily cup of coffee. Instead of getting it from a restaurant, you should make your own. The money that you save will give you a nice start to your emergency fund.

What if my emergency fund does not cover my expenses?

There will be some instances when your emergency fund will not have enough in it to cover all of your expenses, but it is always better to cover as much of the cost as possible from your fund. That way, if you do need to get a loan or use a credit card, you will be able to pay it back more quickly and in smaller installments.

This article was written by Jennifer Langley. Jennifer is an avid finance writer who stresses the importance of protecting oneself before venturing out into any endeavor.

* All images US-PDGov

Reasons to join a credit union

 Image attribution: Kenneth Allen. CC BY-S.A. 2.0

The benefits of joining a credit union are actually quite good because it's like banking with perks. With banks the managerial priority is usually to serve its shareholders by gaining profit from banking services. With credit unions the shareholders are members so the result becomes a more affordable banking experience. Credit Unions often serve their members with free services, lower borrowing costs, higher lending rates, and personalized service.

 • Free online bill pay

Online bill pay is a convenient way to pay bills and saves on stamps, time and gas going to the post office. Many credit unions offer free online bill paying services that allow members to literally pay bills through the credit union. Some bill payer services such as the one available at CINCO Credit Union can also be automated to withdraw a fixed amount of money from a pre-specified account every month as bills become due.  

• Free cashiers checks

Another benefit of banking with some credit unions is free cashiers checks. For those who only require one to three checks a month, this can save the cost and hassle of purchasing and managing a check-book. Cashiers checks are also guaranteed so the payee has greater financial assurance of the payers ability to pay. These types of checks are useful for important purchases such as down-payments, but can also be used for other transactions typically involving checks. The Navy Federal Credit Union is an example of a credit union that not only provides members with free cashiers checks, but also allows them to be ordered online. 

 • Free online banking 

Apart from online bill pay, free online banking allows a credit union member to track and monitor banking transactions easily and affordably. Some credit unions such as NIH Federal Credit Union offer free online financial software, free electronic statements or e-statements and have free  tax preparation software built in. Free online financial software can benefit members with financial planning and secure online financial record-keeping.  

• Lower cost credit cards

Credit cards can be expensive, but they can be less financially costly with no annual fees, lower interest rates and fewer surcharges. Credit unions tend to provide their members with competitive interest rates that are useful for consolidating credit card debt or re-directing credit card expenses normally put on higher interest cards. According to Bankrate, Inc. penalty fees on credit union credit cards are also lower. 

• Personalized service

Since credit unions are often relatively small in comparison to banks. This is helpful when seeking to develop a banking relationship with credit union staff and employees. Personalized financial services through a credit union can also assist with speedier and more helpful service. For example, obtaining help with the loan application process, with opening accounts and choosing between different financial products is facilitated through personalized financial assistance.

How to create a successful budget

 Image attribution: Stuart Miles. Standard royalty free license

A successful budget grows wealth and manages debt within an organized framework that easily manipulates and apportions money for maximum financial benefit. The traits of a budget are what help make it successful by providing the basis with which the budget can operate and assist with appropriately managing the budgeter’s life.

Capitalize

No budget can work without money to budget so a budget must be capitalized to be successful. Examples of sources for capitalizing a budget include income, capital gains, and interest earned from assets. Once a budget has been capitalized, the financial parameters within which the budget can operate are established.

Prioritize

Another trait of a successful budget is they are often prioritized. In other words, some expenditures and allocation of money may be more important than others. To determine which budget allotments should take priority, consider the affect on basic needs, cost of debt, reduction of debt, and amount of savings. For instance, a good budget accounts for basic short-term needs such as food while simultaneously preparing for longer term financial horizons.

Systematize

Systematization of a budget is a similar trait to prioritization except its focus is more on the functionality of the budget. For example, a successful budget might distribute money across a number of categorized goals such as retirement planning, emergency savings, high interest debt and so on.

Optimize

Optimization of money is a key trait of a successful budget because it allows that money to go as far as it can go. For example, if debt can be paid off within six months, and the money used to pay that debt is then re-allocated to savings for another six months will there be more savings over a course of one year than if an equal amount of debt payments and savings contributions had been made?

Accessorize 

A successful budget may also be accessorized, not necessarily by expensive financial software, but rather with useful budgeting techniques. Simple mathematical analysis of a budget is one such accessory. To illustrate, mathematical analysis is a useful if not essential accessory because it allows the budgeter to determine if one use of money has a more advantageous affect on net worth than another.

Since finances and people’s lives are diverse, a budget can vary from simple to complex based on the financial needs of the individual or household. For example, an overly complicated budget may be simplified to better meet the objectives and requirements of a straightforward financial plan. Moreover, successful traits of budgets reflect tailored financial allocations that meet specific needs, and goals using comfortable and suitable methods.

A look at financial freedom

Everyone knows how to gain financial freedom the hard way, but what isn’t quite so evident, is how to gain financial freedom quickly, easily and with no risk i.e. effortlessly. However, societal structure is not designed for this, but rather to the contrary. Perhaps if all humans were wealthy no one would work. Even so, how does one gain financial freedom in 30 words or less? i.e. with a straight answer that doesn’t wander off into the world of rhetoric, or semantics.

Image attribution: Africa; standard royalty free license

Since 30 words have already passed, the answer to that question should now be evident. That is to say, the answer to this question is, if financial freedom doesn’t already exist, chances are it can’t be found in 30 seconds or less. That’s a reality hurdle that can make attaining financial freedom that much more possible. Having said that, before explaining how to gain financial freedom, it is important to first define what financial freedom is as it is a loaded term that differs based on perception of what it is.

For one person financial freedom may be living a life of luxury without having to work, but for another it may simply mean being free of the concept of money altogether. The path toward financial freedom is different for both types of financial freedom. Being free of the idea of money altogether is actually harder to do because it is such a prevalent aspect of so many economic systems.

When effort is thought of as overcoming personal, cultural or economic friction, that effort is at least somewhat determined by the level of that friction. For example, one who does what comes naturally i.e. out of  un-manipulated personal choice while earning money doing so, can be thought to be making less effort than one who does something that earns money against his or her will. In such case, the former of the two makes less effort to gain financial freedom because the path to that financial freedom is more effortless. Thus, the first step toward gaining financial freedom effortlessly is to do what comes naturally.

For the person who seeks to avoid training his or her mind to acquire financial freedom, a more literal, and even more effortless notion of financial freedom is alluded to. The lottery winner almost fits this criterion, but is accompanied by the one key caveat of low probability. Thus, how to achieve financial freedom with high probability in addition to minimal effort is the question. The answer to this question is to find the financial opportunity that has high probability of success, is accessible, and requires little or no effort to implement.

Naturally, the next question in how to gain financial freedom might be, if financial opportunity is required, how does one find financial opportunity. Now the notion of financial freedom is gone, and instead replaced by the more accurate question of how to gain financial opportunity that pays. The easy answer is of course to look, but this would be followed up with the question, where does one look? The answer to this question varies, but can be quickly answered by saying, look where money is most easily acquired, but think in a way that is not designed for the macro-economic mass.

Reasons to Use Online Banking

Online banking saves time, money and space by automating transactions, reducing billing times, check writing and billing expenses. Online banking can even reduce filing cabinet space that may always seem too full. Online banking may also makes use of secure websites; if you see https in a website address, this means information you provide in online banking transactions can only be read by you and the bank. Encryption of financial data is another reason why online banking is safe.

• Automated transactions

Automated transactions allow banking clients to perform a transaction without even being there for the transaction. These transactions can occur on a one time, or repeated basis. For example, Automated Clearing House (ACH) deposits, pay check deposits, and pre-scheduled bill payment can all be automated using some online banks' electronic banking.

• Bill payer services

Another reason to use online banking is electronic bill payment or e-bill payment. These can be set up through a banks online banking software and once the recipient data is entered, the information is already there for future transactions saving even more time. E-bill payments are set up using account numbers and company information.

• Secure website services

Many people have concerns about the safety of online banking, however online banking may be even safer than in person banking. This is because computers are not subject to human error reducing the probability of this type of error by up to 50 percent.  Also, as time has progressed, so has the experience and technology used to prevent identity theft. Additionally, savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) regardless of whether transactions are performed online or not.

• Data encryption

Data encryption is a technique used to protect information transferred over the internet. Encrypted data makes use of ciphers that allow only senders and recipients to scramble and unscramble banking information for the purpose of protecting it. These ciphers are incorporated into online bank programming and are secured by time sensitive online banking.

• Multiple banking privileges

If the above reasons aren't enough to consider online banking perhaps knowing the amount of transactions that can be performed online will. A number of services can be performed using online banking including fund transfers, deposits, withdrawals, bill paying, personal information updates and more.  These transactions can all take time, money and space when done the traditional way.

In summary, there a multiple reasons why online banking is a good idea. There are even online money orders through sites like Payko that lower the need to drive to the nearest post office or money order dealer. Online banking doesn't necessarily eliminate the need for in person banking, but can definitely reduce the number of times one has to go to a bank or post office to perform financial transactions or pay bills.

A Savers Guide To Individual Development Accounts

Individual Development Accounts (IDA's) are sponsored savings accounts for low-income earners. These types of accounts are designed to help people leverage their savings for specific saving's goals and make the realization of purchasing a home, car or education more possible. IDA's were established in 1996 by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996: (PRWORA) in part to combat poverty in the United States in addition to building wealth and improving individual financial planning. This article will outline the benefits, qualification and application process for IDA's.

Benefits of Individual Development Accounts

Individual Development Accounts serve a number of useful purposes including 1) building a money consciousness, 2) facilitating prosperity and 3) assisting households meet productive and useful financial objectives. IDA's typically require the savings to be used for specific asset and/or development purchases in the future, some of those assets include the following:

• Home
• Vehicle
• Education
• Business development
• Equipment

IDA's also match funds, meaning either Government agencies and/or Non-profit organizations involved in community development add additional funds into the savings accounts based on qualification, savings goals, and applicable laws and policies. The matching program is better than some 401(K's) and 403(B's) and may consequently be a more beneficial use of limited funds by low income households in the short term as it makes possible cornerstones of financial stability such as home ownership.

In addition to fund matching, some States also allow tax credit for contributions to IDA's, these states include Arkansas, Colorado, Connecticut, Hawaii, Indiana, Kansas, Maine, Missouri, Oregon and Pennsylvania according to the National Conference of State Legislatures (www.ncsl.org) Participants in the Individual Development Account program may also qualify for similar benefits such as Temporary Assistance for Needy Families (TANF), Food Stamps, and Child care assistance without these benefits being included in the income qualification amount..

How to qualify for an Individual Development Account

Each U.S. state and the District of Columbia that maintains and IDA program has its own criteria for qualification. Generally the qualification requirements include an income limit proportional to household size, state or district residency, net worth, and home ownership status. Individuals who qualify for IDA's may also be required to attend workshops, and/or classes to make proper use of the account and goal set using the account. The general qualifications for an IDA are listed below:

• Legal U.S. residency
• Net asset value below $10,000.00
• Individual and household income below State specific values
• Age at or above 18 years

Income and asset qualification involves factoring in liabilities, and other sources of income such as Social Security Income, pension income and/or social security income which may or not disqualify an IDA applicant from eligibility. Receipt of other assistance such as child care and Section 8 housing subsidization may not be factored into the income defining process.

Where to apply for an Individual Development Account 

Each U.S. State may have a number of IDA programs, thus a little research may be required to locate the IDA programs in one's state. A good website to help locate these programs is www.cfed.org which has an IDA directory search form by State. Once a program is located, contacting the program administrator that may be a non-profit organization is the next step. This organization will then require application documentation and verify qualification for the IDA.

Depending on the efficiency of the program, bureaucratic procedure, demand and funding for reach IDA program, application and qualification times may vary. Each organization participating in an IDA program may be able to answer specific questions regarding application requirements, qualification, class scheduling, matching limits, processing time etc. Some examples of organizations that may facilitate IDA programs and as listed by www.cfed.org include community development organizations, social service agencies, and faith based services.

Summary

Individual Development Accounts originated in the 1996 Public Opportunity and Work Reconciliation Act. These Act enabled funding of assistance for the IDA program with the goals of assisting individuals and households with limited income and resources to better attain financial stability. The IDA program is available to persons with limited asset worth after liabilities are deducted, low household income as defined by the State, and residential requirements.

The IDA is helpful in a number of ways and does not always factor in additional sources of government assistance into income calculation. Qualifying and applying for an Individual Development Account involves identification State administrators of the program, eligibility criteria and the application process, and can help individuals and/or households achieve educational, home-ownership, business development and asset related goals.

Sources:

1. http://thomas.loc.gov/cgi-bin/query/z?c104:H.R.3734.ENR:
2. http://www.ncsl.org/programs/econ/housing/IDAshousing05.htm#IDA
3. http://www.cfed.org/focus.m?parentid=2&siteid=374&id=374
4. http://www.wid.org/publications/ida-fact-sheet-policy-implications

Financial Freedom

Everyone knows how to gain financial freedom the hard way, but what isn’t quite so evident, is how to gain financial freedom quickly, easily and with no risk i.e. effortlessly. However, societal structure is not designed for this happened, but rather to the contrary. Perhaps if all humans were wealthy no one would work. Even so, how does one gain financial freedom in 30 words or less? i.e. with a straight answer that doesn’t wander off into the world of rhetoric, or semantics.

Since 30 words have already passed, the answer to that question should now be evident. That is to say, the answer to this question is, if financial freedom doesn’t already exist, chances are it can’t be found in 30 seconds or less. That’s a reality hurdle that can make attaining financial freedom that much more possible. Having said that, before explaining how to gain financial freedom, it is important to first define what financial freedom is as it is a loaded term that differs based on perception of what it is.

For one person financial freedom may be living a life of luxury without having to work, but for another it may simply mean being free of the concept of money altogether. The path toward financial freedom is different for both types of financial freedom. Being free of the idea of money altogether is actually harder to do because it is such a prevalent aspect of so many economic systems.

When effort is thought of as overcoming personal, cultural or economic friction, that effort is at least somewhat determined by the level of that friction. For example, one who does what comes naturally i.e. out of  un-manipulated personal choice while earning money doing so, can be thought to be making less effort than one who does something that earns money against his or her will. In such case, the former of the two makes less effort to gain financial freedom because the path to that financial freedom is more effortless. Thus, the first step toward gaining financial freedom effortlessly is to do what comes naturally.

For the person who seeks to avoid training his or her mind to acquire financial freedom, a more literal, and even more effortless notion of financial freedom is alluded to. The lottery winner almost fits this criterion, but is accompanied by the one key caveat of low probability. Thus, how to achieve financial freedom with high probability in addition to minimal effort is the question. The answer to this question is to find the financial opportunity that has high probability of success, is accessible, and requires little or no effort to implement.

Naturally, the next question in how to gain financial freedom might be, if financial opportunity is required, how does one find financial opportunity. Now the notion of financial freedom is gone, and instead replaced by the more accurate question of how to gain financial opportunity that pays. The easy answer is of course to look, but this would be followed up with the question, where does one look? The answer to this question varies, but can be quickly answered by saying, look where money is most easily acquired.

Tips for choosing a credit counselor

Credit counselors can assist in negotiating lower interest rates with credit card companies in addition to guiding clients through important steps in building better credit ratings, regaining financial control, consolidating debt and making pre-existing debt obligations more manageable.

Choosing the right credit counselor and deciding if one needs credit counseling might best be considered in advance with care. A credit counselor should be able to perform specific tasks related to credit repair in accordance with ethical standards.  To locate a government approved credit counseling service this U.S. Department of Justice credit counselor locator can be used.

When credit counseling may be useful

While not everyone needs a credit counselor, in some cases when debt is unmanageable, the services a credit counselor can offer may be useful. When seeking out credit counseling services, a few upfront questions may help determine if they are the right service for a clients debt management needs.

• Negotiation of lower interest rates: If a credit counseling company or representative cannot offer to negotiate better terms for credit card interest, they may not be performing all the functions credit counselors are assumed to be capable of.

• Debt Consolidation: Consolidating debt may involve finding a creditor willing to take on a lump sum loan for more reasonable payment terms for their own profit and as part of a credit counseling program. If a credit counseling service can offer debt consolidation assistance, they might be a good choice.

• Avoid Bankruptcy: Bankruptcy stays on credit records for several years and can damage one's credit report to the point new creditors for car loans, mortgages and other loans may thing twice before offering loans. Credit counseling is designed to take steps that avoid client bankruptcy.

• Improve credit score: Another use of credit counseling is to help improve credit score. Building credit can be a straightforward matter i.e. pay bills on time, don't have too much debt etc. However, credit counseling services may have additional ways and suggestions as to how to increase credit scores faster and more efficiently.

What to look for and where to find credit counseling

Locating a suitable credit counseling involves searching in the right places, asking the right questions such as those pertaining to the above financial issues in addition to questions that ascertain the organizations legality, cost, ability and know how. A few important questions and concerns are the following:

• Cost: A credit counseling service is there to help one get out of debt, not further into debt. Fees should be reasonable and fair. Some organizations may offer sliding scale services but anything over $50-100/month can be on the high side.

• Legality: There may be class action law suits, or formal complaints against the credit counseling business. The company should honestly state if such law suits are pending especially if the phone calls are recorded. If not, the Federal Trade Commission or Better Business Bureau may be off assistance in this matter.

• Terms of Service: If the service can't offer to do anything with certainty, they may not be worth considering especially if one is paying over $50/month for the assistance. The terms of service and/or customer agreement should clearly state what functions the credit counseling service provides.

• Licensing and Professional Endorsements: The more credentials an organization has the better. Such qualifications can include certifications from the Better Business Bureau, operating licenses and endorsements from reputable and/or creditable financial institutions.

There are many credit counseling services available to consumers. Finding the right one first involves narrowing one's search down to locality. A service that has a physical location in one's city or within driving distance is a good place to start as this gives one the opportunity to investigate the company first hand and be able to tackle issues in person with a person rather than just a voice on the phone. A few places one might consider inquiring about credit counseling are illustrated below:

• Local Financial Institution or Bank: A good place to ask is one's own bank or credit union. Banks may be aware of the more reliable and credible services and may be able to offer friendly and helpful advice themselves.

• Non-Profit Credit Counseling: When a company offering credit counseling is not-for profit, there motivation generally isn't greed by virtue of their corporate status. For this reason, they may offer sliding scale and/or lower fees than for profit services.

• Consumer Interest Organizations: As mentioned above, The Federal Trade Commission can be of assistance in researching a credit counselors credibility. They may also be helpful in locating a reputable service in one's area in addition to the Better Business Bureau. The websites for both these organizations are listed at the bottom of this article.

In summary, credit counseling services should ideally be useful in the above mentioned ways, affordable, credible and local. One's finances are an important part of daily life and regaining financial control and avoiding bankruptcy involve some significant financial steps. Credit counseling services that are able to meet most if not all the parameters laid forth in this article can assist with these financial concerns.

Sources:

1. http://www.ftc.gov (Federal Trade Commission)
2. http://www.us.bbb.org (Better Business Bureau)

An overview on new bank fees

Bank fees not constrained by banking regulation are on the rise according to reports across the U.S. Observers claim the new bank fees and fee increases are due to interest and fee restrictions imposed by the Credit Card Act of 2009. However, larger banks may also be trying to offset smaller profit margins and $50 billion in higher aggregate Federal Deposit Insurance Corporation (FDIC) fees arising out of the Financial Regulatory Reform law enacted in July, 2010.

Some of the new bank fees that are beginning to emerge are account transfer fees, inactivity charges and maintenance fees. These are bank fees that are new for some banks seeking to supplement revenue, but are not necessarily new types of fees. Additional fees pointed to by the NASDAQ stock exchange and Investopedia are minimum balance fees, overdraft protection fees, ATM charges, check fees and even miscellaneous fees.

Essentially, if it comprises a financial service and it's legal, there's little reason to think some financial institutions won't consider implementing new account cost structures. So which financial institutions are less likely to charge new bank fees and why? According to the Financial Reform law and the Baltimore Biz Journal, smaller community banks and credit unions are less targeted by the new financial reform law.  However,  a smaller financial institution such as a credit union with limited assets, is also more likely to issue smaller loans and provide more limited financial service options.

Ways to determine which banks are charging what fees, and if a financial institution is worth banking at include reading customer bank reviews such as the full reports at consumersearch, consulting the Federal Reserve Bank's website about Bank Accounts and Services, and mortgage loan shopping,  and by contacting financial institutions directly with questions. The Federal Deposit Insurance Corporation (FDIC) recommends keeping a close eye on banking correspondence and seeking alternative ways to receive the same services at lower cost such as withdrawing money with purchases rather than through an ATM. 

According to Qcitymetro, new and higher bank fees charged by Wachovia and Bank of America include paper statement fees with copies of canceled checks, printed account summaries, flat rate fees for some types of checking accounts, higher monthly account charges and fees for using ATMs from other banks. Still more fees to watch out for are paying credit cards off in full and line of credit fees. For example, HSBC bank charges its clients $10 for each day of overdraft protection used according to a September 25th report by Blake Ellis of CNN Money.

Sources: 

1. http://bit.ly/b3tOtN (FDIC)
2. http://bit.ly/aTYdIQ (U.S. Senate)
3. http://bit.ly/aV2TKG (NASDAQ)
4. http://bit.ly/bsmF7G (Baltimore Biz Journal)
5. http://bit.ly/cI6Uv2 (Qcitymetro)

How to Create a Living Trust

A living trust is a legal document that serves several purposes in the event of death of the primary trustee and concerns the assets of that person. Living trusts may be revocable or irrevocable, and each type has different legal protections, and functions. Depending on where the living trust is created, the effectiveness and creation of the document may have different requirements. This article will discuss the creation of living trusts in terms of its purpose, process and type. 

How to create a living trust

A living trust must be created in accordance with State law and therefore is ideally created by a lawyer licensed to practice law in that State. There are online legal services that allow state trusts to be customized online, one such example being lawyers.com. that offer 1 free legal document to first time users and/or within the free trial period of 30 days. There are several considerations and elements within a living trust that should be included in the document and defined before its creation. 

1. Define the purpose of a living trust 

There are many purposes for living trusts, therefore defining the purpose will aid in choosing the correct type of trust for that purpose. For example, in a generational skipping trust, assets are passed onto grandchildren rather than children in the event of death of the grantor or primary trustee. A more complete list if trusts can be found at livingtrustnetwork.com. 

2. Locate a reliable living trust creator 

Since living trusts can be complex especially in the case of large estates that will be divided in several ways, consulting a licensed trust attorney in one's state of permanent residence can be helpful. When choosing a source for the living trust be sure to ascertain the validity of the living trust by confirming the following details:

• State(s) of effectiveness

• Compliance with State laws and/or regulation
• Appropriateness of trust to individual and/or family goals
• Proper terminology and listing of beneficiary, trustees and assets 

3. Write the trust 

When the living trust is written it will include several items and will likely need to be notarized to become effective. Notarization may be performed by a licensed notary within an attorney's office or independently at an external licensed notary such as a bank notary. Some typical elements included in a trust are listed below.

• Type of trust i.e. revocable or irrevocable

• Sub-type of trust i.e. A/B trust
• Primary trustee/Grantor's name
• Secondary trustee(s) name(s)
• Asset list
• Distribution terms and allocation amounts 

4. Transfer chosen assets into the living trust 

After the living trust is completed, an additional step of signing over assets to the trust is necessary to avoid legal complication. This means ownership of all assets within the trust must become part of the trust. For example, a home's title deed can be signed over to the trust, bank accounts can be changed to list the trust as the owner etc. There may or may not be filing fees for some of the reclassification of assets. 

The purpose of living trusts 

Living trusts serve several purposes as made evident by the many types of living trusts available. Essentially, living trusts are created by living persons to pre-determine who will distribute assets after the death of the primary trustee and how it will be done. Living trusts provide legal protection to the passage of ownership after death of the grantor.

• Allows beneficiaries and/or trustees to avoid probate court

• Makes possible non-taxation of transferred funds if a trust company is owned by the trust
• Assigns a fund executor to carry out the provisions set forth in the living trust
• Defines how assets are distributed, to who they will be distributed and by whom
• Creates a legal entitlement to assets 

Types of living trusts 

There are two primary types of living trusts, revocable and irrevocable. These types of trusts are distinguished by their ability to reverse decisions set forth by the initial trust. For example, in a revocable living trust, trustees can be removed or added whereas in an irrevocable living trust, this is not the case.

In addition to these two primary trusts are several sub-types of living trusts that include the following according to livingtrustnetwork.com of the following trust sub-types determine how assets are used, allocated and treated when the terms and instructions of the living trust are implemented.

• A/B Trusts

• Asset protection trusts
• By-pass trusts
• Charitable trusts
• Generation skipping trusts
• Grantor trusts
• Life insurance trusts

Summary

Creating a living trust can be done relatively easily but takes a few important considerations regarding the distribution of one's assets after death. These types of trusts come in several types as outlined above and are ideally prepared by an attorney familiar with and skilled in the creation of such documents.

To create less expensive living trusts, online legal trusts may be obtained through state specific documents available through websites such as lawyers.com. When the purpose and use of the trust is defined, the document is then customized, signed by the relevant parties such as the grantor and trustees and then assets are legally reassigned to the trusts ownership.

Sources:
1. http://trusts-estates.lawyers.com/State-Living-Trust-Forms.html
2.http://livingtrustnetwork.com/revocable-living-trusts/types-of-trusts.html

How to Identify Needs vs Wants In Your Budget

Identifying needs vs wants in your budget helps determine if budget items are essential or non-essential. Doing this allows the possibility of improving a budget for lower costs and greater savings. When distinguishing between needs and wants, determining if you can survive without significant to change to your life can be helpful.

On the other hand, adjustments to budgets based on identification of needs and wants can also affect quality of life and standard of living which are within the realm of needs, hence identification of needs can be a little more involved than basic survival.

Becoming adept at convincing oneself that wants are actually needs can cause budgets to suffer. You may need transportation but what kind of transportation do you need? You may require food to live, but does that mean eating at a restaurant is a need? Are potato chips an essential vegetable? What kind of entertainment is essential to meet a need for joy and how important a need is joy?

Needs are generally more important than wants, however, needs can be classified in different ways. Maslow's hierarchy of needs include things like 'Self-Actualization' as the highest order of needs. Most people can live fairly comfortable lives without self-actualization, therefore, the type of needs and the method by which needs are identified can affect how a budget is defined in terms of needs and wants.

Classification and identification of needs vs wants

Identifying needs vs wants in your budget involves a standard or criteria by which needs are distinguished from wants. For example, a new vehicle may be a want if a vehicle is already owned, but the type of vehicle one already owns may also be a want in the sense that not all car types are required to fulfill a need assuming a vehicle is needed.

A system in which budget items are identified by needs priority can help identify which needs are more important than others and which needs are actually wants in disguise. The following dualities can be used to distinguish needs by type.

1. Needs identification by type

• Physical needs vs Psychological needs
• Essential needs vs Non-essential needs
• Empowering needs vs Non-empowering needs

To identify needs vs wants in your budget also involves determining which needs are also wants. For example, some wants may be misidentified as psychological needs; psychological needs such as sense of self-worth may be influenced by certain wants that affect standard of living or status.

If self-worth can be affected by something that is free, that item can be considered the need in relation to the want. To illustrate further, self-esteem may be a need that is not determined by objects of value at all; in such case a healthy attitude about the self may be all that is needed instead of a Rolex.

Needs and wants identification by affect

The affect items of value have on standard of living and quality of life can also be used to identify needs vs wants in a budget. For example, the type of food we eat may affect both standard of living and quality of life, however, only the most basic of foods are essential needs making everything else either a higher order need or a want. To determine if a budget includes unnecessary needs or wants, hypothetically eliminate those things from your budget to see if the affects meet the following criteria:

• Your acquisition of needs will not be impacted
• The items are redundant
• Quality of life will not be negatively influenced
• Reasonable goals and aspirations are unhampered

To further illustrate the above criteria consider point 1. Mr. Bacchus enjoys a special type of lettuce grown in Costa Rica but this lettuce costs $2.50 extra per head. This lettuce is merely a preference and not a need. Furthermore, the removal of this item from Mr. Bacchus' budget meets the above criteria because 1) the acquisition of needs are not adversely affected, 2) the item is not essential and is replaceable, 3) the affect the lettuce has on Mr. Bacchus' quality of life is negligible i.e. it is a want not a need. And 4) Mr. Bacchus' goal of eating only the best lettuce is unhampered because more cost effective lettuce of high quality is obtainable elsewhere.

Summary

How to identify needs vs wants in your budget is a partially subjective matter determined by one's existing life. That is to say, changes to a budget for person A may not have the same affect on life for person B due to the needs currently met in person B's life. The means by which needs are distinguished from wants can also affect identification of such.

In other words, two different models of needs vs wants identification may classify needs and wants differently and may even determine some wants to be needs when in fact items only meet needs and are not the needs themselves. In any case, needs and wants are separate things that can adversely affect a budget, hence the need to distinguish them.

Source: http://www.deptorg.knox.edu (Maslow's hierarchy of needs)

Why Some People Fail to Achieve Financial Freedom

To claim a single reason why some people fail to achieve financial freedom would be questionable, as semantically, we don't really know 'who' of the 'some' we are referring to. However, taken less literally, and more approximately, there are several reasons why some people fail to achieve financial freedom. These reasons include far more than closely correlated financial concepts such as arbitrage investing, effectively rolling over retirement plans, and taking advantage of available tax deductions.
• Priorities
Some people fail to achieve financial freedom because priorities can compete among each other. For example, if one has a top priority of restoring a car, the cost of that restoration must be lower that than the top priority unless the top priority is amended to include restoring a car within a budget.
The example of automotive restoration accents the importance of integrating priorities so they do not conflict. Thus budgeting, and financial planning ideally go hand in hand with life goals so together they all improve and in the case of money, lead to financial freedom.
• Skill
Growing money is a skill that more often than not requires adeptness at applying a certain amount of know how. Basic principles of money management are essential to achieving financial freedom, but more may be needed to achieve financial freedom. The inability to execute financial skill via an effective financial plan is another reason why some people fail to achieve financial freedom.
In other words, people who fail to achieve financial freedom may benefit from a flexible, productive, intuitive and demonstrable financial plan. If the results of that financial plan cannot be measured as consistently moving toward financial freedom within an applicable time frame, then evidence of a strong financial plan is questionable.
• Adaptability
Adversity can have a dramatic affect on financial goals, even those with financial know how. For example, a successful financial manager who loses a job, a sudden unpredictable tragedy in life, or an error in what may otherwise be a good financial plan can all have a negative affect or result in set backs of the goal of financial freedom.
To deal with adversity it is good to be able to have risk tolerance, accept loss, and have financial resilience. Being resourceful, adapting to change and seeing opportunities in situations where there seems to be none are ways to work toward financial freedom during times of adversity.
• Capacity
Different people have varying capacity to obtain financial freedom. Capacity includes skill, but is not limited to skill. Capacity to achieve anything requires focus, understanding, willingness, and circumstance. It represents the overall probability of achieving financial freedom.
Not having the capacity to achieve financial freedom is a major obstacle to that goal. Some people might not achieve financial freedom due to this. Capacity also includes things like leverage, low costs, career, birthright, and other measures of financial strength. Capacity is not unattainable in most circumstances but is ideally built before implementing a financial plan leading to financial success.
All the above reasons are rather around the point of direct cause and effect relationships that build wealth. That is to say, they are often one or more step removed from actual financial relationships such as consistently investing in an IRA or maintaining a budget and growth investing via a well-optimized financial portfolio. The above are reasons why people don't get to the point of being able to optimize their portfolios that are in some cases among the last steps to financial freedom.

Good debt vs bad debt: How to know the difference

Debt's multifaceted nature allows it to empower, disable and enable depending on the circumstances surrounding its use. Individuals, corporations, institutions and governments all make use of debt for varying means and goals. These means and goals of debt usage are evident in monetary history and contemporary practices and reflect the double-edged nature of the practice of lending. This article will illustrate the concepts of 'good' and 'bad' debt in terms of its usage, requirements and practices over time.

The two natures of debt

Historically, before debt laws allowed financial amnesty to overburdened debt holders, debtors unable to pay their debts were enslaved. (www.ihatedebt.com) Fortunately, these practices became outlawed allowing judicial assessment of debt obligations and restructuring. Naturally, if one finds oneself in this type of situation, the debt has become a heavy financial burden and is more likely to be 'bad' debt.

Contrarily, if debt is used in such a manner as to allow one to become wealthier, more able and achieve more with one's life, such debt may be dubbed 'good debt'. Moreover, 'good debt' may take the form of a loan that allows a person or business to accomplish more in terms of better meeting service, production, and skill objectives. Generally, good debt facilitates rather than debilitates development. Good and Bad debt may be distinguished as follows:

'Good Debt' :

• Low interest rate
• Helps achieve a goal
• Contributes to productive personal choices
• Is not spent on lavish amenities
• Improves rather the worsens credit rating
• Is affordable

'Bad Debt':

• High interest rate
• Many fees
• Serves no useful purpose
• Is unaffordable
• Supports a bad habit i.e. shopping, addictions etc.
• Leads to financial distress

Types of good and bad debt

Debt has many forms and comes from different sources. The many types of debt can also serve to differentiate between good and bad debt. For example, 'bad debt' may arise out of unscrupulous lending practices that do not adequately take into account the use of the debt, and how it will be repaid whereas good debt may have either more flexible lending terms and/or take into account the ability of the borrower to pay back such debt. Some types of debt are illustrated below and are then defined in terms of 'good' and 'bad' debt.

• Household services ex. Utilities
• Business, student and automobile loans
• Property mortgages
• Individual and Business Credit cards
• Personal loans
• Government loans

The above types of debt may be either good or bad depending on the circumstances surrounding the debt. For example, the same property mortgage may be unaffordable for person X, but affordable for person Y. In the latter case the debt may be good in the sense that it is practical, and leads to potential equity savings whereas in the former instance, the mortgage might produce financial hardship, and be out of reach financially. In other words, debt that is good may also be bad depending on who is receiving the debt.

Summary

Debt is a historical financial instrument that has been in use since ancient times. Over the course of history, debt laws, debt structure and the evolution of financial markets has led to increasingly sophisticated types of debt in addition to a range of debt risks. Debt risks can be stemmed and limited through debt lending practices such as the loan application procedure and through laws governing the use of debt.

Understanding the difference between good and bad debt may vary on a case-by-case instance as each borrowers intention, fiscal discipline, business plan etc is different. Debtors attempt to limit and prevent good debt from becoming bad debt through the loan application procedure, and credit screening. This process however, is not immutable and requires lenders and borrowers alike to discern whether debt will be good or bad for them based on past financial patterns, financial forecasts, debt terms and agreements.

Sources:

1. http://www.ihatedebt.com/ALookatDebt/TheHistoryofDebt.php
2. http://www.uswitch.com/DebtAdviceCentre/Different-Types-Of-Debt.aspx