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5 Reasons You'll Blow Your Holiday Budget Again

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Last year, Capital One reported that 74 percent of U.S. adults were making a budget for their holiday spending -- yet 49 percent weren't sure they'd stick to it.

Is blowing your budget the story of your life as a holiday spender? Do you have great intentions each year that you won't overspend for the holidays, only to find yourself again with a spending hangover on January 1?

Here are five reasons you may struggle to stick to your holiday budget -- and how you can make this year different.


Reason No. 1: You don't actually have a budget
The reality is that you may not have a true budget in the first place.

"Most people have a target spending number, but not a budget," says Isaiah Goodman, a financial representative with Northwestern Mutual in Edina, Minnesota.

Matthew Boersen, a certified financial planner with Straight Path Wealth Management in Grand Rapids, Michigan, agrees: "(Shoppers) may have a general idea of how much they want to spend, but they do not actively budget the intended destinations of the money, nor do they track to make sure they stay on pace."

In other words, if you want to have a budget, you can't simply plan on spending $500 for the season. Instead, you need to break it down into $30 for Aunt Kathy's gift, $50 for food for the family party, $100 for the tree and decorations and so on.

Not only does breaking down your budget into specific numbers help keep you on track, it also makes it easier to quickly identify money leaks.

Reason No. 2: You think money equals love (or at least the appearance of love)
It may feel great to spread holiday joy through gift giving, but that good feeling is yet another reason so many blow their budgets each year.

You may want your loved ones to know they are important enough for you to have spent a whole boatload of money on, but Boersen says it isn't purely love that causes us to overspend.

"Pride plays a big part in gift giving," he explains, "or needing to keep up appearances."

The best way to combat this tendency to overspend may be to simply be aware of it.

"Don't feel obligated to purchase a certain type of gift at a dollar level. If they spent X on you last year, it doesn't mean that you have to spend X on them this year," says Boersen. "Be thoughtful and thrifty versus writing a bigger check."

Reason No. 3: You forget to include people or events in your planning
Even if you are committed to writing down and sticking to a specific dollar amount for each person's gift or expected holiday event, it is almost inevitable you will forget someone or something. What's more, there may be impromptu parties and Secret Santa exchanges you didn't plan for.

"Unexpected expenses always seem to pop up during the holidays," Boersen says. "Extra gifts that need to be bought, an extra hostess gift for an additional party or a decision to host a party at the last second. All have the potential to make a budget almost worthless."

What can you do? The easiest strategy is to simply build in a buffer to pad your budget. Padding your budget with an extra 10 percent may be enough to get you through all those unexpected pop-up expenses or budget overruns.

Reason No. 4: You get sidetracked by deals and displays
At any given time of the year, retailers are all about using clever tactics to get consumers to spend more. They study where to place displays, how to price items and what colors get shoppers' attention.

During the holiday season, shoppers also have to contend with a myriad of sales that scream "one time only" and a festive atmosphere intended to help loosen purse strings. Even Christmas music has been shown in some studies to encourage spending.

As if that weren't bad enough, well-meaning friends can contribute to the tendency to overspend.

"You may have budgeted for a $50 gift, but been given a really good idea costing $90 that you know the person will love," Boersen says. But overreaching in this way is nearly sure to blow your budget.

Reason No. 5: You decide to treat yourself
Finally, you may blow your holiday budget year after year because you can't resist picking up a little something for yourself while shopping for others on your list.

"Don't buy for yourself at the same time," urges Goodman. "There are a lot of deals out there, and if we find something we like every time we buy something for someone else, we will spend more than we thought."

If you think you want to pick up some household items or other goodies for yourself, be sure to write a specific amount into your budget for that.

If you are tired of entering each new year feeling guilty about your holiday spending, then right now is the time to start planning for the months ahead. Before you get caught up in the spirit of the season, sit down and map out exactly what you need to buy and how much you plan to spend for each item. Then, add a little extra as a contingency fund.

Above all, when you've made a purchase and crossed someone off your list, stop shopping for them. Sure, that scarf or box of chocolates or mug with the witty saying might complement the gift you've already purchased, but is it worth jeopardizing your savings account balance? Remember, it's the thought -- not the price tag -- that truly counts.

This article originally appeared on money-rates.com.

Another crucial way to save money -- Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

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The article 5 Reasons You'll Blow Your Holiday Budget Again originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Market Wrap: Stocks Rise Sharply to Finish a Dramatic Week

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On the rocks edge
Viktor Troyanov/Getty Images
By KEN SWEET

NEW YORK -- The stock market had another turbulent session Friday, capping off one of the more eventful weeks on Wall Street in years. The Dow Jones industrial average soared more than 250 points following strong earnings from Morgan Stanley (MS), General Electric (GE) and Textron (TXT) as well as some encouraging U.S. economic reports.

It was the latest big move for a market which, with a few exceptions, has been on a mostly downward track. Stocks have had four weeks of declines, leaving the Standard & Poor's 500 index 6 percent below the record high it set Sept. 18.

Investors have been riding wild market swings for much of the week. The Dow Jones industrial average plunged as much as 460 points Wednesday, then had one of its best days of the year on Friday.

"We had indiscriminate selling all week, and then today we had indiscriminate buying," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

Market watchers have warned investors to expect more volatility than they have been used to in recent months, reflecting the heightened concerns about weaker growth in Europe and what it could mean for U.S. corporate profits, as well as plunging oil prices.

Most of the swings this week were related to fears about global growth and not about the fundamentals.

The turmoil has not been limited to the floor of the New York Stock Exchange. Bonds, overseas stock markets and commodities prices have all had big moves this week.

"Most of the swings this week were related to fears about global growth and not about the fundamentals of this market," said James Liu, global market strategist at JPMorgan Funds.

The VIX, a measure of how much volatility investors expect in stocks, has risen from 12 in mid-September to as high as 31 this week, above its historical average of around 20. That's still far below the readings of 80 it had at the height of the 2008 financial crisis.

"This volatility, in a way, is purely psychological. This is the market returning to a more normalized behavior," Liu said.

The Dow Jones industrial average (^DJI) advanced 263.17 points, or 1.6 percent, to 16,380.41 Friday. The Standard & Poor's 500 index (^GPSC) rose 24 points, or 1.3 percent, to 1,886.76 and the Nasdaq composite (^IXIC) rose 41.05 points, or 1 percent, to 4,258.44.

On Friday, investors rallied behind a group of corporate earnings results.

General Electric (GE) rose 2.4 percent after the company reported third-quarter earnings that beat analysts' forecasts, citing improved performance in its aviation and oil and gas divisions. GE has a broad range of businesses that cover so many parts of the economy, from banking to building nuclear reactors, that investors see its results as a bellwether for how U.S. industry is doing. GE rose 57 cents to $24.82.

Textron (TXT), another industrial conglomerate, had the second-biggest gain in the S&P 500 index after its own earnings came in far ahead of what analysts were expecting. Textron rose $2.99, or 9 percent, to $36.65.

Overall, the S&P 500's industrial sector rose nearly 2 percent, making it the best performing part of the market.

Next week will be one of the busiest periods for Wall Street this earnings season. A total of 130 companies in the S&P 500 index will report quarterly results next week, including big names like American Express (AXP), Cola-Cola (KO), AT&T (T) and IBM (IBM).

Investors also had two pieces of positive economic data to work through.

A survey by the University of Michigan showed consumer sentiment unexpectedly rose last month to 86.4, much higher than the 84.3 expected by economists. It was the highest reading for that survey since July 2007, right before the Great Recession.

The Commerce Department reported that construction firms broke ground on more apartment complexes in September, up 6.3 percent to a seasonally adjusted annual rate of 1.017 million homes.

Homebuilders rose on the news. Hovnanian Enterprises (HOV) gained 21 cents, or 6 percent, to $3.71 and Beazer Homes (BZH) rose 72 cents, or 4 percent, to $17.71.

On Friday, oil prices rose slightly, but were still down 4 percent for the week on prospects of lower demand from a slowing global economy and high supplies.

Benchmark U.S. crude rose 5 cents to close at $82.75 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils used by many U.S. refineries, rose 34 cents to close at $86.16 on the ICE Futures exchange in London.

In other energy futures trading on the NYMEX, wholesale gasoline rose 2.2 cents to close at $2.233 a gallon, heating oil rose 2.8 cents to close at $2.498 a gallon and natural gas fell 3 cents to close at $3.766 per 1,000 cubic feet

The price of gold fell $2.20 to $1,239 an ounce, silver fell 11 cents to $17.33 an ounce and copper rose two cents to $3 a pound.

AP Business Writer Matt Craft contributed to this report from New York. Alex Veiga contributed from Los Angeles.

What to Watch Monday:

The major companies are scheduled to release quarterly financial results:
  • Apple Inc. (AAPL)
  • Chipotle Mexican Grill (CMG)
  • Gannett (GCI)
  • Halliburton (HAL)
  • Hasbro (HAS)
  • IBM (IBM)
  • Rent-A-Center Inc. (RCII)
  • Steel Dynamics, Inc. (STLD)
  • Texas Instruments (TXN)
  • Valeant Pharmaceuticals (VRX)

 

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Why Clean Energy Fuels Corp Stock Fell 11% Today

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What: Shares of natural gas refueling expert Clean Energy Fuels Corp  fell more than 12% today (October 17) after a strong rally mid-week. The thing is, the share price has been all over the map lately. Just in October, shares have moved up or down more than 5% at least five days.

CLNE Price Chart

CLNE Price data by YCharts


In short, this volatility is unsettling for many, especially since it is being driven almost entirely by speculation, and not a lot of news directly related to Clean Energy Fuels. 

So what: With the exception of an October 15 press release reporting record CNG deliveries last quarter -- sparking a 20%-plus rally over a couple of days -- there hasn't been any direct news about the company lately. Westport Innovations' announcement that it was reducing revenue forecast for the year by 25% -- Westport is a key manufacturer of natural gas engine technology -- certainly has been a big part of the sell-off, but Westport management made it clear in their revision that their ISX12 G engine for heavy trucking -- built in partnership with Cummins -- wasn't affected, and was selling well. So while the news has been mixed, there's a lot of indication that Clean Energy's business continues to grow stronger. 

Now what: Early after-hours market action was mostly positive, with the share price jumping 6% from today's close at one point, before cooling off and settling back at the closing price. The point?

It's probably heavy speculation that's driving a lot of the trading and volatility, and not investors looking at any kind of long-term valuation of the business. While there's still a lot to like, remember that the company is still losing money, so it's a matter of all the growth generating profits -- or more accurately, when that happens. 

I own shares, and I'm planning to hold. If you buy, or own shares, just understand that there will be a lot more weeks like this over the next few months or longer. However, if the company continues reporting record quarters, eventually the market will notice. Full earnings are next week. Stay tuned to Fool.com for more analysis. 

Warren Buffett's worst auto-nightmare (Hint: It's not Tesla)
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The article Why Clean Energy Fuels Corp Stock Fell 11% Today originally appeared on Fool.com.

Jason Hall owns shares of and options for Clean Energy Fuels, and shares of Tesla Motors. The Motley Fool recommends Clean Energy Fuels, Ford, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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More Than Economics: How to Measure Inequality

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We can all understand the concept of inequality, but how do you measure it? 

All measurement starts with a definition. In the case of inequality, you're essentially asking how one group is doing relative to another. Of course, "how one is doing" can mean any number of things. For example, you can measure income, health, lifespan, or any number of political and social factors. 

Taken together, these different approaches can give you a broad picture of how things are going in a particular country. 


The Gini coefficient 
The Gini coefficient is, according to the World Bank, the most widely used of the inequality measures. It measures the distribution of income in a population on a scale of 0 to 1 -- 0 being perfectly equal distribution and 1 being perfectly unequal distribution. You can also use it to measure the distribution of wealth and consumption -- often with weirdly various results.

For example, if you had a population of 10 people and each person got $5 in income, your Gini coefficient would be 0. On the other hand, if you had a population of 10 people and one person got $50, the Gini coefficient would be 1. 

In practice, income is usually spread out a bit more, but the meaning of the number is always the same: The closer you get to 1, the more unequal the distribution of income. In the U.S., the Gini coefficient is 48, while Finland comes in at an impressive 26.9. 

But Haiti has a Gini coefficient of 26.6, virtually the same as Finland's. 

How can that be? Like most metrics, the Gini coefficient doesn't tell you the whole story: Finland is wealthy and has a very strong redistributive tax system, which makes it more equal, whereas Haiti is simply very poor.

Life expectancy
Because the Gini coefficient is limited, another way to look at how people are doing is to examine health outcomes. These can give you a bit more insight into how people are doing on a tangible level. 

One simple measurement is life expectancy. This tells you how long someone can expect to live based on his or her current age and trends in death rates for a population. Generally speaking, it's presented as the number of years a newborn can expect to live. For example, the life expectancy in the U.S. is 79.8 years, meaning a 2014 baby is expected to live that long, taking into account both male and female life expectancy. Women live longer on average.  

Life expectancy gives you a useful picture of general health. For populations at high risk of disease, life expectancy declines, while for those with access to regular medical care and nutrition, it goes up. 

Again, looking at Finland, life expectancy is 79.34, while in Haiti it's just 63. Thus, the measure provides a lot more insight than just income inequality measures alone -- people in Norway can obviously expect much better health.

Infant mortality 
One of the factors that influence overall life expectancy is infant mortality. In fact, this is one of the reasons life expectancy shot so high in the 20th century, in addition to improvements in medical care. 

Infant mortality tells you a lot about how effective a society is at caring for mothers and their infants, so it can give you an unfiltered insight into how a given country is doing. 

More deaths among infants means a lower average lifespan, and the U.S. has a much higher infant mortality rate than Europe. A study comparing the U.S. with Finland and Austria found that differences in record-keeping can explain about 40% of the American infant mortality gap, but there's still a large number of deaths unaccounted for. Most of the difference is driven by mortality between 1 and 12 months of life, and it persists even for babies with normal birth weights.

What's behind it? The researchers found that "infants born to white, college educated, married women in the U.S. have mortality rates that are essentially indistinguishable from a similar advantaged demographic in Austria and Finland." 

In other words, it's an advantage issue -- while infants from all socioeconomic classes in Finland and Austria have basically the same infant mortality rates, "lower education groups, unmarried, and African-American women [have] much higher infant mortality rates."  

Thus, infant mortality is a metric that can not only give you a picture of overall health, but it can also provide you with clues about underlying inequalities that might not always be so easy to quantify. 

Legal and political equality 
Finally, there are also the more vague but still important issues of equality, fairness, and liberty to take into account. These could include a just legal system, access to education, or the chance to participate in civic matters. You could consider everything from the right and ability to vote (or not vote, if that's your choice) in a fair election to the knowledge that you won't need to bribe someone to get a fishing permit. 

But how can you measure something so vague? There's the rub. You could look at something like voter turnout, but that won't tell you whether voters have the opportunity to voice their individual views -- or if they're being coerced into voting for someone in particular. You could look at the ability to protest, but it won't tell you whether protesters are being heard. 

That's why measures of political and civic participation are necessarily a little bit messy. However, they could present a good jumping-off point to understanding the more nuanced aspects of equality.

Understanding the limits of metrics
In the end, there are a lot of metrics out there, but it's important to remember that they're metrics for a reason: Within a given number, there's often a lot of nuance, and statistics are useful only to the extent that you recognize their limitations. The Gini coefficient might tell you that Finland is more equal than the U.S., but it's not going to tell you whether Haitians are as wealthy, healthy, or politically active as Finns. 

That's why it's useful to supplement the economic measures with the health and political ones -- very rarely can you get the full picture of a place in one or two pieces of data. It's how you put it all together that really provides the story. 

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The article More Than Economics: How to Measure Inequality originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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SanDisk Corporation Earnings Show Revenues are Up, Flash Memory Enjoys Cyclical Uptick

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SanDisk reported its Q3 earnings, which likely left some investors with mixed feelings. Revenue was up 7% year-over-year to $1.75 billion, and earnings per share came in at $1.09.

However, analysts were expecting $1.33 EPS on $1.76 billion, which is why some investors sold off shares in after-hours trading, sending the stock down about 7%. The fact that SanDisk's top brass lowered guidance for Q4 didn't help either. The company revised Q4 revenue estimates between $1.8 billion and $1.85 billion, below analyst estimates of $1.88 billion.

SanDisk posted $262.7 million in net income for the quarter, which was down about 5% year-over-year. Operating income was down about 5% year-over-year as well, hitting $388 million in the third quarter.


Despite SanDisk estimating lower Q4 revenue than it previously thought, if the company hits even the low end of its estimates ($1.8 billion) it'll still be incremental sequential growth from Q3's $1.75 billion. The company also announced a Q4 dividend of $0.30 per share for its common stock, payable in late November.

SanDisk's current state
The strength of SanDisk's revenue came from current market demands for NAND flash memory.

As Morningstar analyst Andy Ng noted, "Similar to recent quarters, SanDisk continues to benefit from a cyclical upturn in the NAND flash memory space and we expect the healthy supply demand tailwinds to continue for the time being."

Sanjay Mehrotra, the president and chief executive officer of SanDisk, said in the earnings report that, "Demand for NAND flash continues to be strong across mobile, client and enterprise, where SanDisk's innovations are creating significant opportunities."

That's good news for the company in the current quarter, but the cyclical flash memory business will work against the company in the near future.

Part of the upward cycle in NAND flash memory has allowed SanDisk investors to enjoy a solid run, with the company's stock price up about 23% since the beginning of this year.

But Ng went on to say that, "Although SanDisk's profits are currently being boosted by an upturn, flash memory chipmakers tend to see declining profitability during downturns."

That should give investors a bit of caution before jumping on SanDisk's stock, or at least make them wait to see if the company stock price comes down a bit from its upward trend.

Foolish thoughts
SanDisk has a strong position in the flash memory market, with customers like Apple using its chips, and it even has flash memory patents it collects royalties from.

Despite the cyclical nature of SanDisk's business, there are some solid future opportunities for the company. The enterprise market is still in a transition period between using hard-disk drives and faster flash storage. Because of the higher costs of flash, many companies are doing a combination of hard drive plus flash drives to accelerate memory speeds. But as the technology gets a bit cheaper -- and the demand for faster speeds increases -- SanDisk should be in a strong position to benefit from that demand.

In the short term, investors can likely expect continual fluctuations in the company's memory business, which in turn could affect its stock price. So SanDisk investors should be ready for some cyclical volatility, but be optimistic about the company's long term prospects for flash memory in the enterprise sector.

Apple Watch revealed: The real winner is inside
Apple recently revealed the product of its secret-development "dream team" -- Apple Watch. The secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see where the real money is to be made, just click here!

The article SanDisk Corporation Earnings Show Revenues are Up, Flash Memory Enjoys Cyclical Uptick originally appeared on Fool.com.

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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1 Simple Trick That Can Save You Thousands on Your Student Loan Debt

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For many recent college graduates, there's a deadline looming: the end of the six-month grace period for repayment of federal student loans. Unfortunately, many will find this new monthly bill cumbersome, unaware that they could have reduced their loan payments by taking action before this time limit expired. 

The clock begins ticking early on
Federal student loans come in two basic types - subsidized, and unsubsidized. The former is meant for those with demonstrated financial need, and the government pays the interest costs that would otherwise accrue while such borrowers are in school, and during their six-month grace period following graduation.

The unsubsidized variety, which is available to those regardless of need, does not have such generous terms. Many students are unaware that interest charges begin to accumulate on these loans even while the borrower is in school. What's worse, those charges, if left unpaid, become part of the loan itself - and will be added to the amount upon which interest will be calculated in the future. 


Capitalized interest adds up
How much will this add to a student's debt load? Quite a lot, it turns out. The Financial Awareness Counseling page on StudentLoans.gov shows how borrowing the maximum of $5,500 for a dependent student's freshman year can snowball into a repayment amount of nearly $8,200, once capitalized interest at 6.8% is added.

For undergrads, current interest rates are only 4.66%, but rates rose in July from a previous 3.86%. With student loan rates tied to the performance of the economy, next summer could see another hike, making each year's borrowing costs higher than the last. Graduate students are in a worse bind - paying rates of 6.21% on graduate school loans, as well as loans they may have incurred at the undergraduate level. As of mid-2012, graduate students have no longer been eligible for subsidized loans, and are responsible for accruing interest on any loans taken out after July 1 of that year. 

Students who took out unsubsidized loans between July 1, 2012, and June 30, 2013, are paying 6.8%, after Congress doubled the prior interest rate. For a graduate student taking out $20,000 that year in loans, paying accruing interest charges during another four years of school could shave as much as $65 per month off his or her monthly loan payment. 

Using the student loan calculator at youcandealwithit.com, it is easy to see how the savings can pile up by paying interest as it accrues, even at the comparably low rate of 4.66% for four-and-a-half years.

For example, an undergraduate borrowing the maximum of $5,500 for the first year, $6,500 for the second, and $7,500 for the last two years of college would save a pretty penny on the aggregate amount of $27,000 - more than $59 per month after payments start. That's over $7,084 in interest payments saved over the life of the loan. 

What can students expect to pay each month during their college career to save this tidy sum? Using this formula, borrowers may easily estimate monthly interest costs: 

Rate x loan balance/12 months = monthly interest

4.66% x $5,500 =$21.36

For the first year of school in which the maximum loan amount was taken, $21.36 per month will cover interest accruals. If the $6,500 maximum was borrowed the following year, the new balance of $12,000 would require an increased payment of $25.24, for a total of $46.60 per month. If more money was borrowed in the third and fourth year of college, payments would need to be adjusted accordingly.

Besides saving students thousands off of their cumulative student debt burden, this payment strategy sets the stage for future personal finance skills - such as budgeting, and making small sacrifices in the present that will bring big rewards in the future. If you are planning to borrow to pay for college, adopting this method of managing your student debt might be one of the most valuable lessons you learn during your college career.

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The article 1 Simple Trick That Can Save You Thousands on Your Student Loan Debt originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Bank of America's Real Problem Isn't Costs or Legal Settlements... It's Revenue

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This week, Bank of America reported a less-than-expected loss of $0.01 per share. That loss includes a $5.6 billion charge related to the bank's August settlement with the Justice Department that will largely put the banks regulatory and legal troubles behind it.

Today, thanks to CEO Brian Moynihan's Project New BAC strategic plan, Bank of America is on the verge of righting the ship. It's time for the company to celebrate! Right?

Kind of. Well... maybe. You see, there's this one problem that's keeping Bank of America from truly matching its high-performing rivals. And so far, it's unclear if Moynihan and company can actually solve this problem.


Project New BAC -- a success story without a satisfying conclusion
In his first initiative after becoming CEO in 2010, Moynihan's Project New BAC was a broad effort to streamline Bank of America's operations and businesses. It included shrinking the bank, selling off businesses, and reducing the bank's massive branch network. That also meant laying off workers -- 30,000 was the goal. All told, management sought to reduce expenses by $2 billion quarterly.

The plan officially rolled out in the third quarter of 2011; this was the game plan to make Bank of America an elite bank. But have you noticed anything missing from the equation so far? Keep reading... we'll uncover the missing component soon enough.

We'll use the bank's Sept. 30, 2011, results as a benchmark of progress made. At the time, Bank of America employed 290,000 full-time employees, operated 5,700 branches, had total assets of $2.2 trillion, and reported an efficiency ratio of 61.3% for the quarter. (The efficiency ratio is a measure of the bank's non-interest expenses relative to its total net revenue. The lower the ratio, the better.) Moynihan's target was to reduce the total headcount by 10%, give or take -- that's the 30,000 number mentioned earlier -- sell off non-core businesses to focus the operation, and achieve an efficiency ratio of 55%.

How has the bank done since?
For Moynihan and company, the earnings report this week marks the first time the company has achieved the $2 billion in savings originally targeted with Project New BAC. Mission accomplished, right?

The bank reported total assets of $2.1 trillion for the third quarter, a marginal decline from the Q3 2011 figure. Total banking centers are down to just under 5,000 across the franchise, a 12% decline.

The bank currently employs 229,500 full-time employees, more than double the decline targeted by Moynihan in 2011. The pace of those staff reductions seems to be increasing, as well, with a 7.4% reduction year over year, and a 2%-plus reduction from the second quarter.

The efficiency ratio reported this past quarter is a bit askew due to the bank's significant settlement charge mentioned above. The actual reported ratio was 91%, but that may be hiding significant progress.

Using some back-of-the-envelope math to add back that $5.6 billion charge, we can take a better look:

BAC Adjusted Efficiency Ratio Q3 '14 
(Dollars in millions)  
Non-Interest Expense 19,742
Less Settlement Charge 5,600
Adjusted Non-Interest Expense 14,142
   
Net Interet Income 10,219
Non-Interest Income 10,990
Net Revenue 21,209
   
Adjusted Efficiency Ratio 66.7%

The bank has not yet met that 55% goal and, in fact, has moved in the wrong direction by about 5%, even after adjusting out the full $5.6 billion settlement charge. And that's after eliminating more than 60,000 jobs, and closing 700+ locations! 

What's the problem?
Digging into the bank's financials for both the 2014 and 2011 third quarters, one key change is Moynihan's struggle with the efficiency ratio. The efficiency ratio isn't just about cutting costs -- it's also about revenue, and revenue is down significantly.

Specifically, the bank's non-interest income is dramatically down during the three-year period since Project New BAC began. In Q3 of 2011, the bank generated more than $17 billion in non-interest income. In the 2014 third quarter, that number was just shy of $11 billion.

Income from lending is, for our purposes, basically equal from 2011 to today. The bank's expenses are higher by about $2 billion; but adjusting out the $5.6 billion settlement charge puts today's expenses right in line with Project New BAC's original goals. 

The culprit, then, is that big, 63% decline in non-interest income. We can drill down one step further, and see exactly where that change is occurring.

BAC's Non Interest Income Q3 2011 vs 2014Q3 '11Q3 '14Change
Card income  $1,911  $1,500  $(411)
Service charges  $2,068  $1,907  $(161)
Investment and brokerage services  $3,022  $3,327  $305
Investment banking income  $942  $1,351  $409
Equity investment income  $1,446  $9  $(1,437)
Trading account profits  $1,604  $1,899  $295
Mortgage banking income  $1,617  $272  $(1,345)
Gains on sales of debt securities  $737  $432  $(305)
Other income (loss)  $4,616  $293  $(4,323)
       
Total Non-Interest Income  $17,963  $10,990  

Where is it occurring? Basically everywhere.

Some of this is a result of reductions in proprietary trading and investment banking businesses divested through the streamlining process of Project New BAC. Regulations have forced other non-interest businesses to scale back, as well.

The reality, though, is that you can't cut your costs forever. At some point, you have to find new revenue. It really is just that simple.

The very best CEOs manage costs AND grow revenue
Moynihan has proven masterful at cutting costs; but to truly turn the bank around, he must now prove himself equally adept at finding growth. Rising interest rates will certainly help, but that won't fully solve the problem. Some banks find this revenue in investment banking and advisory, others in mortgage fees and wealth management. It's unclear where Bank of America will turn.

Project New BAC was a terrific success. It focused the company on unifying a decade's worth of acquisitions into a cohesive and singular business. The challenge now is to transition this progress into a culture of efficiency, profitability, and growth. The latter is, unfortunately, much more difficult than the former.

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The article Bank of America's Real Problem Isn't Costs or Legal Settlements... It's Revenue originally appeared on Fool.com.

Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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3 Key Things You Can Learn from Warren Buffett

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Warren Buffett has seen his fair share of market ups and downs over his career, so his market chops are tough to beat when it comes to giving advice during a rough patch. With the S&P struggling, we asked three of our analysts to chime in with what they believe are some of Buffett's best wisdom. Read on to learn what they picked

Matthew Frankel: Recently, there was a news story about how Warren Buffett may be losing his touch, since Berkshire Hathaway has underperformed the S&P in four out of the last five years. Nothing could be further from the truth.


Buffett freely admits that his investments will tend to underperform when the market is up. However, during negative years for the S&P, and most years when the S&P makes relatively small gains, Berkshire's results have absolutely crushed the market. And this matters so much more to long-term results.

For example, in 2008 the S&P 500 lost 37% of its value, and Berkshire's losses were limited to 9.6%. So, even though the S&P outgained Berkshire over the next two years (26.5% and 15.1% versus 19.8% and 13%), Berkshire shareholders still handily beat the market over that three year period, with a total 26.4% gain as opposed to a cumulative 8.3% loss for the S&P.

As a matter of fact, the S&P has had 11 negative years out of the last 50, and Berkshire outperformed the index in every single one of them. And, Berkshire has only had two losing years in the past half-century.

It is this "defensive" investment strategy that has allowed Berkshire to deliver its incredible long-term performance, and produce consistent market-beating performance over any long period of time.

Jordan Wathen: That's a good point. Warren Buffett understands that the best businesses are those that can grow and pay their owners at the same time. He has his cake, and eats it, too.

In many businesses, growth and shareholder paydays are mutually exclusive. Either the owners take a cut for themselves, or the business plows all of its earnings back into growing for the future.

If you look at some of the world's best-performing companies over the last few years, many of them have the ability to grow while rewarding their owners. Visa, for example, grew its earnings from $800 million in 2008 to $4.9 billion in 2013. Through those years, the amount of money returned to shareholders was several times larger than what it reinvested.

Over long timelines, the ability to grow and pay dividends to shareholders adds significantly to a company's return. Berkshire Hathaway's own See's Candies grew from $5 million in pre-tax profits in 1972 to $82 million in 2007. In between, Berkshire invested only $32 million into the company. For every $1 invested over the course of 25 years, Berkshire is taking out more than $2 in profits every single year! 

The best lesson is to buy like Buffett -- buy businesses that can grow without plowing all their earnings back into the company. These are the businesses that will provide for the best returns.

Todd CampbellI'll pick right up where you leave off and add that Buffett's ability to maintain an almost Zen-like devotion to his tried and true discipline of buying when markets are falling is impressive and rare.

Buffett's strategy of buying great companies for the long haul means that he's unfazed by Mr. Market's inevitable short term drops. Instead, Buffett views these hide-under-your-desk moments as an opportunity to buy.

For example, when the great recession was wiping out bank balance sheets, Buffett was inking a deal for preferred stock in best-in-breed investment bank Goldman Sachs. Buffett's $5 billion investment in Goldman in 2008 netted Berkshire a 10% annual dividend, a 10% premium when Goldman redeemed them in 2011, and -- thanks to warrants he had also acquired -- 13 million Goldman Sachs shares. Buffett made a similar deal in 2011 when Bank of America was feeling the pinch, investing $5 billion in exchange for 6% interest and the right to buy 700 million shares of Bank of America for just $7.14 per share. That deal gave Berkshire a paper profit of $5.7 billion as of earlier this year.

While the average Joe doesn't have Buffett's liquidity, investors can still profit from mimicking Buffett's blue-light-special mentality by keeping a clear head when markets turn south -- like they have been recently -- and buying great companies on sale for the long-haul.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. Buffett's fear can be your gain. Only a few investors are embracing this new market, which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a free investor alert on the company we're calling the brains behind the technology.

The article 3 Key Things You Can Learn from Warren Buffett originally appeared on Fool.com.

Jordan Wathen has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway, Tesco, and Visa. The Motley Fool owns shares of Berkshire Hathaway, Tesco, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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How Utilities Can Embrace Solar Energy

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There's never been a greater threat to the utility industry than solar energy. It allows for the transfer of power-generating assets from the utility to consumers, stretches the grid by making homes both demand sources and power suppliers, and may even allow consumers to cut ties to the grid altogether.

One key component challenging utilities is energy storage, because solar energy is an intermittent power source. It can be a threat to their business model if homeowners and businesses install storage to reduce their reliance on the grid. But it could also be a boon to utilities if they can make energy storage their new revenue-generating asset. That's exactly what Peter Rive, SolarCity's  chief technology officer, thinks will happen long-term, and it could be good for everyone involved.  

The solar conundrum
To understand why energy storage is a big deal for utilities, you have to understand how utilities see an individual solar home. In the image below, I've shown an example supply-and-demand chart for a solar home. In the example, the home uses 2 kWh of energy 24 hours per day and has a 5 kW solar power system that provides varying levels of energy throughout the day.


Source: Author.

In this example, the home requires no net power from the utility. Sometimes it's coming from a consumer, sometimes it's coming from a supplier, but at the end of the day the solar power system provided exactly enough energy to power the home's need. If this home were in a location where net metering is allowed (which is most of the U.S.), the electricity bill for this day would be $0.

You can see why utilities might not like this setup. They're providing a service to this household by providing energy at night and taking energy during the day, but getting nothing for it. So, utilities have started pushing back against net metering and begun proposing charges for solar households.

SolarCity's energy storage inverter with batteries from Tesla Motors. Source: SolarCity

But these charges may eventually force households to make a choice. They could send the extra electricity they create during the day back to the grid and pay a fee or install energy storage and use the energy at a later time to avoid the fee.

Home energy storage is already a threat to utilities
SolarCity and SunPower have already started experimenting with energy storage that would reduce solar charges or even make going off the grid possible. Pushing consumers off-grid isn't the plan for either of them with early systems, but you can see how it could be attractive for some homeowners, especially in Hawaii, where electricity costs are extremely high.

However, building an energy storage system big enough to store days' worth of energy would also be expensive. For example, Tesla Motors, which supplies SolarCity's energy storage systems, is reportedly targeting $100/kWh costs for batteries from the Gigafactory when it reaches full production. The home I outlined above uses 48 kWh of electricity per day, so to build three days' worth of energy storage it would cost $14,400.

That's expensive, and it's not likely every home would want to spend the money for energy storage on top of a solar power system. But there may be a way for utilities to get into storage and make everyone happy.

How utilities could get into storage
What Rive and others are suggesting is that it makes sense for utilities to get into the storage business. In the future, they could still serve consumers an energy service; it may just look different than what we see today.

Growing distributed solar installations like this one are a big challenge for utilities. Image source: SolarCity.

To explain how this might work, let's use a residential neighborhood with homes similar to the home above as an example. Each home in the neighborhood is both a consumer and a supplier of energy to the grid at any moment in time, but where energy is flowing at any given moment is variable.

Instead of discouraging consumers to install solar energy production or inadvertently encouraging them to install energy storage in the home, the utility could install a large neighborhood energy system and provide energy storage as a service. Think of it as the center of a microgrid. At any moment, any home in the neighborhood may be feeding the storage system or drawing from it, but the utility-owned node would quickly be able to absorb or supply energy efficiently to the neighborhood.

This microgrid service could be offered to the neighborhood at a fixed fee or based on energy flow from each home, but it would allow the utility to own assets and charge a fee for the service provided while allowing innovations like solar energy to thrive.

The advantage for homeowners is that they could avoid the cost of building an energy storage system they would have to own and maintain themselves.

Upending the utility business model
This may change the way utilities look at themselves, but it's a model that could work and keep them in business long-term. The days of building huge power plants and generating guaranteed rates of return are long gone, and utilities are going to have to adapt to survive. This is one way to do that, and even SolarCity, which is threatening the utilities of today, thinks storage belongs in the hands of the utility.

Time will tell how this plays out, but energy storage could be key to utilities' survival.

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The article How Utilities Can Embrace Solar Energy originally appeared on Fool.com.

Travis Hoium manages an account that owns shares of SunPower and is personally long shares and options of SunPower. The Motley Fool recommends and owns shares of SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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4 Tips to Identify the Next Hot Neighborhood

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Savvy homebuyers know that to get the maximum return on their real estate investment, they need to find not only a neighborhood that's hot, but one that's getting hotter.

How do you find those soon-to-be hot spots? Local price increases are the most obvious indicator that a neighborhood's popularity is on the rise. But by the time prices skyrocket, it's usually too late to beat the buyer wave and get the most bang for your buck.

Instead, if you're looking for the next up-and-coming community, check out these helpful hints. For instance, keeping tabs on commercial development, home renovations and local crime are great ways to start scouting the next "it" neighborhood.


1) Look for Popular Commercial Projects
When you see neighborhoods with ample commercial projects under construction — think Chipotle, Whole Foods and Starbucks — you're likely looking at an area on the rise. Think Pilates studios, funky bars and coffee shops. All of these venues are trendy staples these days and they hint at an upcoming wave of buyers.

After all, developers of popular brand-name businesses don't take their money lightly. If a trendy retailer or eatery has chosen to set up shop in an area, it's only after their experienced staff have thoroughly vetted the future economic return there.

So, the more "coming soon" signs in shop windows, the better potential there is for that neighborhood to be the next hot spot.

2) Mass Transit Expansion Draws Development
Especially in large cities or dense metro areas, another sure-fire clue to the next hot neighborhood is a mass transit expansion.

If a major city builds a brand-new metro or subway stop in a more run-down area, chances are that area won't be run-down for long. Savvy real estate buyers snap up properties near new or upcoming mass transit areas while the prices still reflect the conditions of the current neighborhood.

In fact, nearly any property near a mass transit stop in large cities - new or not — is sure to eventually be in a hot neighborhood. That's because cities have limited space, but growing demand as the population continues to expand.

3) Sporadic Renovations Signal Resurgence
Then there are renovations. A few newly remodeled homes amid blocks of older, shabbier homes are great indicators that the community is poised to enjoy an energetic turn-around.

Look for manicured and landscaped lawns, fresh exteriors like siding replacements and an overall polished look to a property. Fixtures such as new mailboxes, new fences or new doors are other great hints that a homebuyer has invested in a property and that many others will soon follow suit.

4) Declining Crime as A Clue to More Improvements
Finally, declining crime stats can also indicate an emerging neighborhood that's in the process of shedding its gritty roots.

If a neighborhood is experiencing a crime reduction, homebuyers can assume city officials and residents are making a concerted effort to improve the quality of life there. And with improved quality of life comes more homebuyers and higher property values.

Especially in dense cities where properties are in increasing demand, if a crime-ridden area that has long deterred buyers is making improvements, tab it as an upcoming hot neighborhood.

This article originally appeared on Trulia.com.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. Buffett's fear can be your gain. Only a few investors are embracing this new market, which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a free investor alert on the company we're calling the brains behind the technology.

The article 4 Tips to Identify the Next Hot Neighborhood originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Will Grupo Aeroportuario del Sureste (ADR) Fly Higher This Quarter?

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Grupo Aeroportuario del Sureste (ADR) , or ASUR, is expected to report third quarter results on Oct. 20. Wall Street analysts estimate that the operator of the Cancun airport will report earnings of $1.41 per share. That would be a nice boost from last year's third quarter when the company earned $1.29 per share. Here are a few things to watch that could lead to the company's profits to fly even higher this quarter.

Traffic is flying higher
Each month this quarter ASUR announced that traffic at its airports had increased over last year's traffic. In July traffic was up 6.5%, August traffic was up 10.6% and September traffic was up 10.5%. Not only that but the company saw very strong traffic growth at its crown jewel Cancun airport, especially from international passengers. International passenger traffic at Cancun was up 11.5% in July, 9.8% in August, and 7.7% in September.

Higher traffic typically contributes to higher revenue and profits, so this is a good sign for the upcoming quarter. Last quarter the company noted that total passenger traffic was up 10.65%, which yielded a 4.46% increase in total revenue and a 8.51% increase in operating profit. While net income and earnings per share did fall over the prior year, that quarter benefited from the Mexican tax amnesty program.


Higher traffic drives commercial revenue
One area to watch closely is commercial revenue. Commercial revenue at ASUR is derived from duty-free stores, car rentals, retail operations, banking and currency exchange services, advertising, teleservices, nonpermanent ground transportation, food and beverage and parking lot fees. Last quarter, commercial revenue was 9.07% higher than the previous year's second quarter as the 10.65% increase in traffic drove this revenue increase. Nearly all of its revenue sources enjoyed strong increases with banking and currency exchange services as well as ground transportation revenue delivering the strongest growth as both were up more than 20%. The only weak spot was duty-free revenue, which declined by 1.24% year over year.

Given the strong traffic growth this quarter, particularly at Cancun, we're likely to see another strong year-over-year gain in commercial revenue. However, one area to keep an eye on is the total commercial revenue per passenger, which actually dipped last quarter to Ps.73.03 or by 1.42% over the second quarter of 2012. What we're looking for this time is a gain from the Ps.71.25 per passenger ASUR pulled in during the third quarter of 2013. That was up 5.06% over the prior year and ideally investors would like to see the company not only increase its overall commercial revenue, but also increase its commercial revenue per person so that it's leveraging its traffic gains into even more revenue.

Investor takeaway
ASUR appears to be on pace to deliver another solid quarter when it reports earnings on Oct. 20. We already know that the company's traffic is a lot higher than last year's third quarter. What investors hope is that the company can turn this higher traffic into higher commercial revenue, especially on a per passenger basis. If it can do that, then the company's earnings have the potential to soar past analysts' estimates.

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The article Will Grupo Aeroportuario del Sureste (ADR) Fly Higher This Quarter? originally appeared on Fool.com.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Grupo Aeroportuario del Sureste (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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5 Money Lessons Your Parents Taught You That Are Wrong

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Because teaching kids about money isn't required in most schools, parents play a crucial role in cultivating sound money management skills in their children.

In fact, personal finance is one of the most important lessons moms and dads are faced with passing down, right up there with the "birds and bees" talk and multiplication table.

But let's be honest: Not everyone is a great teacher. For the same reason I thought babies came from the sky (that is, until I watched a very eye-opening educational video), not every child grows up learning the skills needed to develop into a money-wise adult. Even the most loving and wise of parents can mess up sometimes and it's often because there was no one willing or able to teach them, either.


And then sometimes the economy implodes, making all previously known rules about personal finance suddenly obsolete.

Whatever the case, it's likely your parents taught you a lesson or two about money that just isn't true today.

1. Credit cards are for emergencies only.
I followed this golden rule of finance throughout my early adult years, avoiding credit cards like the plague. Then I started thinking about moving into my own apartment and realized that I wouldn't be able to pass this mysterious thing called a "credit check," which most landlords required, without any actual credit.

Credit cards can be a strategic tool used to build up credit and earn rewards. Avoiding them completely will stunt your ability to borrow money, secure a place to live or open utility accounts -- affordably. Many people successfully avoid credit completely, but I'd rather not go through the hassle.

And as for a financial emergency, it's much smarter to have an emergency fund saved up to handle it on the spot, rather than go into debt (and possibly remain there) for an unplanned expense.

2. Getting a good education will guarantee you a good job.
Another lesson I unfortunately took to heart was that the better your education, the higher-paying the job you'd land after graduating. Like many students, I equated "better" with "expensive."

The rising price of college combined with a dismal job market means this lesson no longer holds true. In fact, though might sound like blasphemy to the ears of older generations, many young adults are probably better off (financially) skipping college completely and focusing on becoming a part of the workforce.

3. Investing is risky -- keep your money in the bank.
Saving money in a liquid savings account or similar deposit product is crucial for meeting day-to-day financial needs. However, when it comes to long-term savings -- think retirement -- there's no way you will reach your goals if you keep your money out of the market.

"Saving money in a bank or money market account is a sure way to lose its buying power to inflation," said Leon Shirman of Emerald Hills Capital. He explained that investing your money in riskier assets like stocks or real estate is, in most cases, the only way to ensure a comfortable retirement.

Assuming risk is the only way to enjoy reward, and shying away from risky investments only holds back your wealth potential. According to Shirman, from a long-term perspective, "saving is a lot more risky than investing."

4. Work hard for your money and it will pay off.
Rachel Hernandez, author of "Adventures in Mobile Homes: How I Got Started in Mobile Home Investing and How You Can Too!" told me that as a child, her father would advise that in order to make money, she had to work hard for it. "In working hard for money, I could buy anything I wanted," she explained, "Though, I was never taught how to save or preserve money and make money work for me."

Consequently, Hernandez did, in fact, work hard for her money, but it never accumulated. "It wasn't until I actually took the time to learn about personal finance and investing that my life changed for the better. Looking back, I wish I had been taught the fundamentals and basics of personal finance at a young age."

A lot of people work hard, but without some education and skills in personal finance, they don't know how to channel that effort into lasting wealth.

5. Money can't buy happiness.
Maybe you can't physically exchange money for positive emotions, but it turns out a higher level of wealth really does equate to an overall higher satisfaction with life. Economists Betsey Stevenson and Justin Wolfers of the University of Michigan examined Gallup poll world data to discover that the more money people around the world have, the more satisfied they are.

Ron Nawrocki, fund manager of B. I. Solutions Corp. and host of the Wealth DNA radio show advised, "Money can't buy health or happiness, but neither does poverty... I've had a chance to try both -- and I prefer wealth."

I think I will have to agree with Nawrocki -- I'm a lot happier when there's money in the bank and I'm not stressing about how to pay the bills.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

This article originally appeared on Go Banking Rates.

The article 5 Money Lessons Your Parents Taught You That Are Wrong originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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6 Things Preventing Your Home Sale

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Nothing's more frustrating for a seller than having your home sit on the market. And sit... and sit... and sit some more.

Maybe buyers are touring your house, but not making offers. Or maybe buyers aren't visiting your home at all. Either way, you're starting to feel rejected, like the last kid to be picked in dodge ball.

Have no fear. Often, the reason a home sits on the market for longer than expected boils down to a few easy-to-fix issues. Here are six of the big ones.


1. You've priced it too high.
No matter what you feel your home should be worth, the truth is it's only worth what people are willing to pay for it. Get a feel for what the comps — or comparable homes in your area — are going for and listen to buyer feedback. If people are consistently telling you the price is an issue, it's time to pay attention.

Trust your real estate agent to inform you about a fair price for the current market, and if you're truly dead-set on getting your ideal asking price, take an honest look at whether you need to make upgrades to your home or wait for a market uptick.

2. No one knows it's for sale.
Simply sticking a "for sale" sign in the lawn won't cut it. Today's buyers do the majority of their home searching online, which means you need to get your home listed on major real estate sites (like Trulia) and on the MLS, or the multiple listing service, used by realtors and brokers. You'll also want to make sure your online listing includes plenty of high-quality, well-staged photos.

3. It's got glaring issues.
It could be a big issue (like a failing roof or wonky foundation), or it could be a small but obnoxious issue that buyers just can't get past (like your beloved wall-to-wall pink carpeting). Either way, the fact that your home isn't selling means buyers are consistently finding something wrong with it. Ask potential buyers for feedback after you conduct showings; their answers may help clue you in to the problem.

Some buyers are willing to accept a a lower price or a closing credit for a home with a sticking-point issue, but others are turned off from the start and figure it's not worth the hassle of fixing it themselves or trying to negotiate a concession.

4. It doesn't show well.
Make sure that when prospective buyers tour your home, there's nothing stopping them from falling in love with it.

Open those blinds and curtains to let the natural light in and put lamps in areas that are especially dim. Remove any bulky furniture that makes the rooms hard to navigate. Take care of those small items you've been putting off, like fixing sticky drawer pulls or that leaky faucet. Small updates like these could be turning off buyers.

5. Buyers can't picture themselves living there.
The more you enable buyers to picture their own life in your house, the more likely they'll be to make an offer.

Clean and remove clutter and get rid of overly personal items like those family photos along the stairway and your kids' artwork on the fridge. If your home is currently empty, near-empty, or your furnishings aren't to most buyers' tastes, you may want to consider hiring someone to professionally stage your rooms.

6. You've neglected the curb appeal.
More than one buyer has pulled up to a house whose listing they liked, taken one look at the exterior, and driven away. It doesn't matter how gorgeous your home is on the inside; if buyers aren't willing to step in the door, then you've lost them.

A few simple fixes can make your curb appeal irresistible. Weed and mulch the flowerbeds, trim the hedges, clear the walkways, and repaint any flaking siding. Consider adding some "homey" touches like a wreath on the door or a bench on the porch. You don't need to spend a ton on landscaping; just making the outside look presentable and welcoming can make all the difference.

This article originally appeared on Trulia.com.

And while you're at it -- take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

The article 6 Things Preventing Your Home Sale originally appeared on Fool.com.

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Could This Game-Changing Drug Deliver $10 Billion in Sales Within Its First Year?

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Source: Flickr user Sean MacEntee.

The biopharmaceutical realm is a world filled with numerous hits and misses. But if you imagine the sphere of hits versus the sphere of misses, you're probably comparing something the size of a basketball (the hits) to an object the size of the Earth (the misses).

The drug development process for biopharmaceutical companies is long, arduous, costly, and it rarely ends with success. According to MedScape, just one out of every 5,000-10,000 drugs being tested in preclinical trials will ever make it to pharmacy shelves. That's a pretty poor success rate, but the drug development guidelines put in place by the Food and Drug Administration are there for a reason: to ensure patients get life-changing products that are both safe and effective.


A handful of big hits
Of course, if a drug winds up being approved by the FDA the rewards can be enormous. Pfizer's cholesterol-fighting drug Lipitor is the world's best-selling drug of all time, raking in $131 billion in cumulative sales according to FierceBiotech's data on the drug from a few years ago. Despite being off patent in the U.S., Lipitor continues to find success overseas and in other combinations within the U.S., further adding to its all-time sales lead.

Source: Flickr user Damian Gadal.

AbbVie's anti-inflammatory Humira is another great example. Humira is currently approved in eight separate indications by the FDA, spanning back to its first approval all the way in 1999. This year, Humira is on pace for as much as $12 billion in global sales after crossing $10 billion in sales last year.

But, what if I said there was a drug out there which also had $10 billion-plus annual sales potential and that it wouldn't take a decade or longer to reach that $10 billion. In fact, it may not even take a year to reach $10 billion in sales. I'm talking about a drug that could very easily become the quickest ever to ramp up to blockbuster status. Sound intriguing? If so, then feast your eyes upon Gilead Sciences latest FDA approved drug to treat hepatitis C, Harvoni.

Could this drug deliver $10 billion in sales in its first year?
Late last week Gilead Sciences announced that the FDA had approved its hepatitis C "cocktail" drug Harvoni, a combination of FDA-approved Sovaldi with ledipasvir into a once-daily tablet.

Source: Gilead Sciences.

Right now you might be wondering why this approval is such a big deal in the first place if Gilead already has Sovaldi approved to treat hepatitis C. The answer to that question is that Sovaldi was approved to be used without interferon, which comes with nasty flu-like side effects for most patients, in genotype 2 and 3 patients, but still had to be taken with interferon in genotype 1 patients. The ability to ditch interferon in the administration of the drug was Sovaldi's great selling point, but genotype 1 is by far the most common form of hepatitis C.

Enter Harvoni, which as a combination tablet can treat genotype 1 patients without the need for either interferon or a ribavirin. In other words, many of the adverse effects of treating hepatitis C have been thrown out the window.

But, Harvoni is more than just a fancy new tablet that will lessen treatment side effects. In the three clinical studies that led to its approval, it was noted that the sustained virologic response after 12 weeks of treatment, or SVR12, was an astounding 94% to 99% in the ribavirin-free arms. To put it another way, Harvoni is curing in the neighborhood of 19 out of every 20 genotype 1 patients, and genotype 1 is the most difficult to treat.

Furthermore, Harvoni can be administered in some instances to treatment-naïve patients with or without cirrhosis of the liver over the course of just eight weeks as opposed to 12 weeks. This means potentially quicker treatment times, faster results, and of course less cost to the patient.

Source: Flickr user Ano Lobb.

Though, it should be noted that Harvoni will run $1,125 per pill, up 12.5% from the $1,000 per-pill price for Sovaldi that's had patients, insurers, and Congress up in arms. For those patients that are treatment-experienced and have cirrhosis of the liver, they'll still be facing a standard 24-week treatment course, or a whopping $189,000 total cost for treatment.

So how exactly is Harvoni going to reach $10 billion in sales in four quarters or less?  Just take a closer look at Sovaldi's track record for inspiration. Following its approval in Dec. 2013, Sovaldi managed to rack up $2.27 billion in Sovaldi sales in the first quarter, and an additional $3.48 billion in sales in the second quarter. Through six months Sovaldi was on pace to give Humira a run for its money with $5.75 billion in cumulative sales.

The kicker is that Harvoni is a better drug than Sovaldi will ever be, making it the clear choice to garner the bulk of hepatitis C sales. This means, at least until new competition emerges from the likes of AbbVie with its direct-acting antiviral (DAA) combo drug, that Johnson & Johnson's Olysio, which has brought in around $2 billion in sales this year, and Gilead's own Sovaldi are likely to see their sales slump in rapid fashion as Harvoni ramps up.

Keep this in mind
Of course, investors would be wise to keep two factors in mind. First, hepatitis C competition is only going to increase, with AbbVie expected to gain approval for its DAA soon and Merck pushing forward with its combo drugs, MK-5172 and MK-8472, in clinical studies. Further, Merck's $3.85 billion purchase of Idenix could yield a number of unique or combination therapies involving Idenix's nucleotide-based drugs.

Secondly, I could be wrong. I've been wrong before and I'll be wrong at some point again. Only you are in the driver seat of your investment portfolio, which means you have to make the decision as to whether Gilead Sciences can trek higher from here based on sales of Harvoni. A mix of competition, Congressional pricing pressures, or even too many hepatitis C patients taking the drug for eight weeks instead of 12 could adversely impact its sales potential.

If you were to ask me, however, I believe you're about to witness something truly special with Harvoni.

If you think Harvoni is impressive, then you'll be floored by the growth potential of this revolutionary new product!
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The article Could This Game-Changing Drug Deliver $10 Billion in Sales Within Its First Year? originally appeared on Fool.com.

Sean Williams  has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name  TMFUltraLong , track every pick he makes under the screen name  TrackUltraLong , and check him out on Twitter, where he goes by the handle  @TMFUltraLong . The Motley Fool owns shares of, and recommends Gilead Sciences and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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The Pumpkin Plan: A 7-Step Process for Fast Business Growth

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I recently read what I believe is one of the best business books on the market. It is called The Pumpkin Plan, by Michael Michalowicz. This book lays out a simple strategy to grow a remarkable business in any field.

No matter what business they are in, entrepreneurs more often than not reach a point where they are worn down, facing burn out and are likely to be overwhelmed most of the time. This is particularly true in those first years when you are trying to get your business off the ground.


This is where Michael found himself a few years ago. He was working long hours; he was completely worn out and in spite of bringing steady money in the door, he rarely had any left at the end of the month. He learned that in trying to please everyone, you often end up pleasing no one, and he knew he had to make a change.

Then something happened...
One day Michael read an article about a local farmer who had spent his entire life growing giant pumpkins. You know -- the ones that win the prizes because they are huge. In that moment, after reading about the pumpkin farmer's process for growing that , he realized that anyone could use this same process to grow a remarkable business.

He went to work creating a "Pumpkin Plan" for his own business. Since then, he has grown multiple successful businesses using these effective strategies.

The process
Here is the seven-step process to grow a giant pumpkin.

  1. You have to plant the right seeds.
  2. Water, water, water.
  3. Remove all the diseased or damaged pumpkins from the vine.
  4. Weed like crazy!
  5. Remove all of the less promising pumpkins that are still on the vine. Put all your attention on the best one.
  6. Nurture your one special pumpkin. Put all your attention on this pumpkin; stand guard over your "baby."
  7. Watch it grow. Eventually, this will happen so fast you can actually watch it unfolding.

So what does this have to do with real estate?
The pumpkin plan is perfect for real estate.

Here is a seven-step process for pumpkin planning your own business.

1. Focus like a farmer.
If you want to grow a really big pumpkin — aka a really successful business — you have to focus like a farmer. Identify and leverage your biggest strengths.

Stop doing things that don't come naturally. Let someone else do those things.

2. Sell, sell, sell.
Figure out where you want to be positioned in your market.

  • Are you the cheap guy?  (It's never a good idea to compete on price.) You will never get ahead of the "JetBlues" and the "Southwests" by competing on price alone.
  • Are you the luxury brand? Trying to be a "Mercedes" or "Virgin Atlantic" is tough. You will always have to invest a lot of money in your business to stay on top of the luxury brand, and there will always be someone on your heels trying to knock you out of that #1 position.
  • Are you the best overall solution to your target market's problem? I think this is the place most folks can build an outstanding business. After all, with some exceptional customer skills, anyone can be better than just about everyone else. Most companies are just getting by when it comes to customer service.

3. Fire all your rotten clients.
Yes, this can be painful when you really need a paycheck this week. In real estate that might mean passing on deals that don't strictly fit your criteria.

You can pass on them and still pass them on to another investor who is looking for those types of properties (aka wholesaling).  If you want to be known as the guy who turns out great rehabs in nice middle class neighborhoods, don't confuse folks by buying property in the "hood."

4. Don't be blinded by "shiny object syndrome."
Don't let things disguised as new opportunities grab your attention; stay focused on your giant pumpkin. Identify the one thing you want to be known for and do it exceptionally well.

5. Identify your top clients and focus all your attention on them.
Remove the rest of your less promising "pumpkins." In real estate, find your niche and focus all your attention on those people or that niche in your business.

If you are a rehabber, resist the urge to jump into another sideline until you have mastered your "thing."

6. Focus all your attention on your "one thing."
That might be rehabbing your properties to a level that makes them sell like hotcakes. Are you known as THAT rehabber?

If you are a wholesaler, that might mean focusing all your attention on finding only the properties that your best buyers on your buyer's list want. Sure, you might make a couple of bucks on a house in one of those less desirable neighborhoods, but then you can't sell it to your top buyers, and you have to waste a lot of time finding a buyer the hard way.

If you are a landlord, focus on finding properties in the best areas that will attract the best tenants, then wow them with your superior service.

7. Watch your pumpkin grow to a giant size.

The secret sauce
Here is the "secret sauce": find out who your ideal client or customer is, exactly what it is that they want or need, and then do your best to give it to them. Once you know what this is, you can replicate the same process over and over.

Remember what I said earlier? You can't be the perfect solution for everyone. You can, however, be the perfect solution for your perfect clients.

Final thoughts
This is a great book with actionable steps that can be used in any business, but it is really perfect for real estate investors, and I highly recommend you pick up a copy and start to "pumpkin plan" your business.

This article originally appeared on Bigger Pockets and is Copyright 2014 BiggerPockets,

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The article The Pumpkin Plan: A 7-Step Process for Fast Business Growth originally appeared on Fool.com.

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3 Hidden Costs of Owning Rental Houses

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With mortgage rates close to historic lows and rental prices on the rise, it may seem like an excellent time to become a landlord. After all, if a $100,000 rental house will only come with a $375 monthly mortgage payment and can bring in $1,000 or more in rent, buying a rental property (or a few) is a no-brainer, right?

Source: Wikimedia Commons.


Well, not so fast. While it definitely is a pretty good time to be a landlord, there are expenses you'll have to worry about other than the mortgage. Before you go diving in, here are three costs you need to take into account.

Property management
First of all, owning a rental property can be done without a property manager, but that doesn't mean it's a good idea.

A property manager will market your property and find qualified tenants, collect rent, arrange for maintenance and repairs, and deal with tenant issues such as complaints or evictions.

Now, hiring a property manager is an absolute must if you own more than a few properties or live far from the homes themselves, but most people can greatly benefit from their services. Do you really want to meet with tenants and deal with background checks? Are you really prepared to deal with an eviction? And if something breaks, do you really want to have to spend the time dealing with it?

A property manager will generally cost you about 10% of the rent you bring in, so if your home rents for $1,000, your proceeds will be reduced to $900. However, unless you want your rental property to become like a part-time job, it's money well spent.

Taxes and insurance
This is the most obvious extra cost, as it's usually tacked right on to the mortgage payment. However, there are a few key differences to note between the taxes and insurance you pay for your primary residence and what you'll need to pay for a rental house.

As far as insurance goes, the cost will probably be a bit more than what you'll pay for a primary home, but make sure you're covered in case tenants sue you. Most insurers have landlord policies that can protect you from pretty much anything that can happen, and many experts recommend between $500,000 and $1 million in liability coverage.

Some companies allow you to add on coverages for specific events, such as vandalism and burglary. And most landlord-specific policies will replace your rental income if the property becomes unrentable because of a covered loss.

As far as taxes go, each local area is different, but taxes can be dramatically higher for rental properties. For example, in South Carolina, the taxes on a $100,000 owner-occupied home are around $600 depending on the location in the state, but that figure could easily swell to $2,000 for a rental home.

Things will break
This is the toughest expense to predict, so it's better to over-prepare. Maintenance expenses can vary dramatically and tend to be more expensive on older homes.

According to Zillow, landlords should set aside 1% of the property's value each year for repairs and maintenance. So if you own a $100,000 home, plan on putting about $85 per month into a maintenance reserve fund. If the home is older, consider bumping this figure up by a little bit. After all, things like a roof or new air central air can get rather expensive.

It can still be profitable, but it's not a gold mine
All of a sudden, your rental property doesn't look quite so lucrative. Let's say you collect $1,000 in rent per month. Subtract the mortgage payment of $375, and $100 for property management. Let's also say $250 for taxes and insurance, and $100 for maintenance. Suddenly, your profit has dropped to $175 per month.

So while there is definitely money to be made in rental properties, it isn't quite the gold mine that it seems. Much of the value of investing in real estate comes in the form of equity that you'll build up over time, not in the current income stream the property produces.

Maybe these dividend stocks are a better investment than real estate
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.

The article 3 Hidden Costs of Owning Rental Houses originally appeared on Fool.com.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Real Estate Regrets: 80% of Homeowners Want a Do-Over

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Photo source: QuinStreet.

Every house-hunter has a wish list and every homeowner probably has a "wish I researched" list.

In fact, 80 percent of homebuyers have at least one major regret about their new home, according to a recent HSH.com survey of 2,000 U.S. adults at least 25 years old and in possession of a driver's license. Only 20 percent of respondents said they had no regrets about their home.

Among the most common regrets: Nearly 16 percent said their home was too small. More than 9 percent said their home didn't have enough storage or closet space.


Smaller percentages weren't happy with their neighbors or school system, or felt their home had too few bathrooms, a too-small yard, not enough natural light or too-high maintenance costs. Fewer than 3% said their home was too big.

Most people know they'll have to give up something they want, says Bunni Longwell, a Realtor at Keller Williams Realty St Pete in St. Petersburg, Florida.

"Everybody's wish list is 'I want a pool, I want 2,500 square feet, I want to be on the waterfront and I want to pay $100,000.' If we can't find all those things, what would you sacrifice?" Longwell says.

The few buyers who seemed to get everything they wanted apparently were willing and able to pay more to achieve that status. Rather than sacrifice any major item on their list, they're willing "to come up on their price if 98 percent of their wish list is covered," Longwell says.

Future needs
Buyers' regrets don't always surface right away, adds Jake Russell, a Realtor with Keller Williams Realty in Waco, Texas.

Only later do buyers figure out their once-adequate home is too large or too small for their family, which might include an aging parent moving in or an adult child moving out.

"People don't think about what they'll need three or five years down the road," Russell says.

Other issues come up, too.

"People don't buy a master bath with enough amenities or a kitchen with enough storage. Those are the type of thing that, until you live in a home, you don't realize," Russell says.

Daily regrets
For some buyers, regrets are a minor annoyance. For others, they're a significant irritation.

Nearly 36 percent of survey respondents who expressed regrets said they thought about their disappointment only occasionally. But more than 37 percent thought about their regret frequently, and almost 22 percent thought about it every day.

Buyers can avoid some regrets by spending more time inside for-sale homes, says Ken Pozek, a Realtor with Keller Williams Realty in Northville, Michigan.

"You can only see so much online. You have to touch it and feel it," he says.

Research matters
Buyers' regrets typically weren't directly due to inadequate research. Yet in some cases, more research might have helped.

More than 60 percent of survey respondents said they researched local schools, property taxes, commuting distances, home insurance costs or characteristics of neighborhoods or neighbors.

But large proportions admitted they'd overlooked factors they later wished they'd reviewed more carefully, though 10-14 percent said one or more issues wasn't relevant to their situation.

The HSH.com survey found:

  • 25 percent of homebuyers wished they had researched their new neighborhood or neighbors.
  • 22 percent wished they'd researched homeowner insurance costs.
  • More than 20 percent wished they'd researched property taxes
  • 14 percent wished they'd researched local schools.

Resale regrets
Almost 47 percent of survey respondents said they'd researched sex offender registries. But another 30 percent said they didn't research that information and later wished they had.

While that information might not seem immediately relevant -- 23 percent of the buyers said it didn't apply to them -- it can become be important later on.

"It's a terrible thing for a child predator to be in your neighborhood," Russell says. "If you have kids, it's beyond terrible. Some people are at a time in their life when it's bad, but (they decide to purchase the home anyway). When they want to sell, everyone who wants to buy has kids, so it's no deal."

Local factors
Homeowners also manage to overlook research related to specific local concerns.

Longwell cites flood insurance as an example.

"In Florida, we have homeowner insurance and flood insurance," she explains. "That's completely off the radar when buyers look at areas. They've done research. They know where they want to live. Then the Realtor tells them they have to add $150 a month for flood insurance, and they say they never thought of that."

This article originally appeared on hsh.com.

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8 Common Refinance Mistakes

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Even as mortgage rates creep higher, there's still time to dump your current mortgage rate for a lower one. But you don't want to ruin your chance at a refinance by making a simple mistake.

Image: Nigel Carse/iStock

Here are eight common refinance mistakes to avoid.

No. 1: Failing to do your basic homework


                                                    Before you call mortgage lenders, do your own basic research, says Jill Buchanan, senior vice president at MIDFLORIDA Credit Union in Lakeland, Fla.

For starters, know your credit score, which is key to determining the rate you will receive. You can check your credit score for free at WisePiggy.com.

Also, get a general idea of your home's worth by checking home-valuation sites such as Zillow.com or by talking to a Realtor.

Armed with that information, visit HSH.com to view advertised mortgage rates from various lenders. Then, use a refinance calculator to estimate your new monthly mortgage payment.

"You can get an educated idea of the rate, closing costs and new payment without having anybody pull your credit," Buchanan says.

No. 2: Opening new credit accounts and running up debt
Lenders check your credit when you apply for a refinance, and they check it again just before settlement, says Frank Donnelly, chairman of the Mortgage Bankers Association of Metropolitan Washington, D.C.

Making major purchases on credit or applying for new credit could lead to delays in the approval process, Donnelly says. "In the worst case, you could get rejected."

Every time you open a new credit account, your credit score drops. Lower credit scores translate into higher mortgage rates.

"They will save $100 on a new TV if they open a store credit card, but wind up paying thousands more on their refinance," says Todd Huettner president of Huettner Capital.

No. 3: Having a low credit score
How good does your credit score need to be to get a refinance? It depends, says Joe Metzler, a mortgage consultant at Mortgages Unlimited in St. Paul, Minn.

"A standard conventional-type loan requires a (credit score of) 660 or higher to be in the game," Metzler explains. "With an FHA loan, 100 percent of lenders will work with you if you have a (score of) 640 of higher. As soon as you drop to 639, you drop to 25 percent of lenders."

Less than 10 percent of lenders work with borrowers whose credit score is below 620, Metzler says. That number drops to 2 percent of lenders for borrowers with scores below 600.

No. 4: Refinancing with your current lender without rate shopping
It can be convenient to simply refinance with your current lender. But failing to compare rates can be costly over the long run. 

Do not assume that your lender will give you a special deal. Instead, compare your lender's quote with others.

Check with various lenders on the same day because refinance rates can vary from day to day, Donnelly says.

In addition to the interest rate, you also need to compare the fees lenders charge for making the loan.

"Make sure you're comparing apples to apples," Donnelly says.

Get all quotes in writing. If you can do better elsewhere, inform your current lender and you may be offered a better deal. If not, refinance elsewhere for a lower rate.

No. 5: Forgetting to consider all costs
Lowering your monthly payment is a key goal of any refinance. But it should not be the only factor you weigh.

Before you even begin the refinance process, check your current mortgage documents to make sure your loan doesn't contain a penalty if you pay off your mortgage early, says Dana DeSarno, lending spokesman for Navy Federal Credit Union.

Weigh the amount of time you have left on your current mortgage, and factor in the refinance's closing costs, Buchanan says. If you don't plan to stay in your house very long or are close to paying it off, a refinance may not make sense.

Look at all fees when comparing refinance offers. Run the numbers on different scenarios by changing the loan amount, and looking at the cost with and without upfront points.

Some mortgage lenders may offer no closing costs on refinancing to existing customers. But be on guard: Find out if the closing costs are being incorporated into the monthly mortgage payments.       

No. 6: Ignoring the key ratios
A pair of key ratios can have a big impact on the success of your refinance numbers:

Loan-to-value ratio (LTV)
This is your loan amount expressed as a percentage of your home's current value. For example, if you want to borrow $80,000 and your home is worth $100,000, your LTV is $80,000 divided by $100,000 or 80 percent.

A higher LTV won't preclude refinancing, but you'll probably have to purchase mortgage insurance, which protects the lender's interest if you default on your loan.

If your LTV is on the high side, one option to consider might be the Home Affordable Refinance Program, or HARP

Two other high-LTV options might be the FHA Streamline Refinance program (if your loan is insured by the Federal Housing Administration) or a loan guaranteed by the U.S. Department of Veterans Affairs.

You could also lower your LTV by paying off a chunk of your mortgage. This approach is known as a cash-in refinance.

Debt-to-income ratio (DTI)
This measures your capacity to pay your debts. For example, if your monthly income is $4,000 and your monthly minimum payments on your credit cards and other non-housing loans total $800, your DTI is $800 divided by $4,000, or 20 percent.

Lenders' DTI guidelines can be somewhat flexible, but if you are carrying a high debt load relative to your earnings, your DTI might be a barrier to refinancing.

No. 7: Not locking in rates
Since mortgage refinance rates can change often, make sure you lock it in a rate with your lender, Donnelly says. Typically a lock is for 30 or 60 days.

While you may be optimistic that mortgage rates will dip again, "it's kind of gambling with rates," Buchanan says. "It can backfire on you."

It can take time to get a refinance approved, so be sure to submit the required documentation as soon as possible, Donnelly says. If you drag your feet, you might have to pay a fee to extend the rate lock. But if your lender needs more time, the company usually will extend the lock without charging extra.

No. 8: Overlooking the possibility that things could go wrong
The refinance process can be relatively straightforward for homeowners with great credit, strong equity positions, full income and asset documentation, and long-standing employment.

But not every American homeowner fits this perfect mold. As a result, the refinance process can be bumpy.

"Many things can go wrong," says Malcolm Hollensteiner, director of retail lending sales with TD Bank in Vienna, Va.

Examples of things that can slow down or derail a refinance include:

  • Documentation not submitted in a timely manner
  • A borrower's income scenario that is not illustrated in a clear and concise manner
  • A property appraisal that comes in below the expected value, requiring the financing to be changed to reflect the appraised value

When all is said and done, the refinance process could stretch out to 90 days, says Gregg Busch, vice president of First Savings Mortgage Corporation in McLean, Va.

Because things can go wrong, be prepared to exercise your right of rescission. When you refinance a home loan with a different mortgage lender, you have three business days after closing to cancel the deal.

If you get cold feet and want to exercise this right, send a letter stating that you are canceling the refinance via registered mail with a return receipt.

This article originally appeared on HSH.com.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

You may also enjoy these financial articles:

Current Mortgage Rates -- Oct. 17, 2014

Mortgage Refinancing Starter Kit

How to Maximize Your Refinance Savings

The article 8 Common Refinance Mistakes originally appeared on Fool.com.

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1 Myth About Competition -- Busted!

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We like simple rules of thumb that apply to every situation. "The early bird gets the worm," or "If you don't have something nice to say..."

Rules like these just make life easier. 

Unfortunately, they don't always work. And that can make a huge difference in how you invest your money.


Competition is often accepted as a good thing. But recent research shows how competition can sometimes actually make things worse -- for example, with banks and the financial crisis.

What you need to know
A European Central Bank analysis issued earlier this year looks at the market pressures facing the banking industry over time, and how they gave rise to an unsustainable competitive environment.

For much of the 20th century, banking was heavily regulated. There were very strict limits on what banks could and couldn't do, and the U.S. even instituted heavy restrictions on bank expansions between states. This limited the number of ways in which banks could one-up their competitors, and it kept the sheer number of banks fairly large.

Deregulation changed these dynamics. Once banks could partake in investment activities, cross state lines to expand, and compete against each other with new products and services, competition heated up.

According to the ECB study authors, access to securitized products took things over the edge. Being big and widespread is one thing; taking on increasingly larger risks in order to get bigger, faster, and stronger is quite another.

Why did competition heat up so much? 
Consider the incentives. Pretend you're a bank, which traditionally are pretty boring. You take deposits, you make loans, you hold those loans, and you make money from interest payments. Are you falling asleep? Of course you are. It's not supposed to be exciting.  

This might have been a boring business model, but it was a stable business model. One you could stick with (and invest in) for the long haul. But then deregulation happened.

Let's try an easy example. Imagine a friend asks to borrow a sizable amount of money from you. As much as you like your friend, you're probably going to think about whether he or she will pay you back -- after all, it's a lot of money. If you aren't 100% convinced, you might decline to loan the money.  

Now pretend you know a guy who is willing to buy the debt from you. The terms are pretty good, because he really wants to own this loan for some reason, so maybe you lend the money even if it's a big risk. After all, you're getting paid either way, right?  

Now put this in a context in which everyone else is doing essentially the same thing. Your friends are all making lots of money by lending money to their buddies and selling the loans to someone else. It seems like everyone wants loans, so the money is just pouring in. 

You want to look good in front of your friends, right? So maybe you start lending more money, too. 

Oh, and banks have investors who want to see success -- so the pressure comes from outside as well.

What does it mean?
In the end, the banks that weathered the crisis the best were those that underperformed beforehand -- those that didn't seem to know how to keep up with the times and remain competitive in a changing world.

That's because they remained, well, boring.

What does that mean for you? Competition is an ambiguous thing, and it's useful to think about how competitive pressures impact a particular industry or business. Are businesses getting involved in unsustainable practices? Are they taking on too much risk? Are they making their product worse in order to boost margins? 

When answering these questions, remember that competitiveness can also be misleading -- what looks like an ability to compete today could be masking a great deal of weakness tomorrow. Slow and steady can win the race -- if you let it.

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The article 1 Myth About Competition -- Busted! originally appeared on Fool.com.

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Which 5 States Are Charging an Arm and a Leg For Cigarettes?

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While fewer Americans smoke than at any time in history, those who still do are paying a heavy cost for their addiction.

Since 2011, The Awl has been surveying all 50 states about the price of tobacco, and if you're a smoker, the news is not good. For the first time no store in any of the 50 states offered a pack of cigarettes for less than $5. In general, the survey found prices are pushing higher, but a number of states, including low-cost leader Virginia and most-expensive-per pack king New York, saw price cuts. 

The rise in the price of a pack of cigarettes comes at a time when fewer American adults are smoking. Cigarette smoking has decreased among adults in the United States from about 42% of the population in 1965 to about 18% in 2012 (the latest year for which numbers are available), according to the American Cancer Society. Though numbers are falling, cigarettes are still big business in the United States and about about 42 million (a little less than one in every five) adults currently smoke cigarettes, ACS wrote. "About 21% of men and 16% of women were cigarette smokers in 2012," according to the group. "Education is linked to smoking rates, with lower smoking rates in groups with higher levels of education. More people smoke cigarettes in the Midwest (21%) and South (20%), and fewer smoke in the West (14%)."


Because tobacco has fallen in popularity and anti-smoking efforts have made the habit less cool, taxing cigarettes has been an easy way for state governments to essentially raise taxes without the negative publicity that directly raising taxes brings. 

Which states charge the most?
The disparity between the price of a pack of cigarettes in the cheapest state and the most expensive is enormous. Smokers buying a pack in Virginia or Missouri pay just $5.25 while those feeding their habit in New York most pony up $12.95. Here are the five priciest states according to The Awl:

5. Vermont: $9.62 

4. Alaska $9.79 

3. Massachusetts $9.95

2. Illinois $11.50

1. New York $12.85 

The difference in pricing comes in the form of state taxes. Not surprisingly, New York, as of 2013, had the highest state cigarette excise tax rate, coming in at $4.35 per pack, according to The Campaign for Tobacco Free Kids. There are also local taxes on cigarettes in some cases -- in both New York City ($5.85 in taxes per pack) and Chicago ($6.16 in taxes per pack) smokers can expect to pay even more than people living elsewhere in their already expensive states. 

The federal government takes in a relatively paltry $1.01 per pack. 

Has this hurt big tobacco?
The two biggest cigarette companies in the United States Altria  and Reynolds American  saw slight declines in overall revenue in 2013 versus the previous year. Altria breaks out smokeable products from its other business areas (which includes wine) and that segment fell from $22.21 billion in 2012 to $21.86 billion in 2013. The company acknowledged in its annual report that it faces a number of continuing challenges in the U.S. including "actual and proposed excise tax increases, as well as changes in tax structures and tax stamping requirements."

Reynolds saw a similar slight decline in overall revenue dropping from $8.30 billion in 2012 to $8.23 billion in 2013. The company, which operates primarily in the U.S. also acknowledged its potential tax problems in its annual report.

The U.S. cigarette market is a mature market in which overall adult tobacco consumer demand has declined since 1981 and is expected to continue to decline. Profitability of the U.S. cigarette industry and RJR Tobacco continues to be adversely affected by decreases in consumption, increases in state excise taxes and governmental regulations and restrictions, such as marketing limitations, product standards and ingredients legislation.

Taxes and a dying/falling customer base has hurt these two tobacco companies, but those who still smoke have shown a willingness to do so no matter the cost, which has allowed both Altria and Reynolds to raise prices to make up most of the losses attributed to declining demand.

Kimberly Lange, who shot this picture, told the Fool that she switched to Reynolds Pall Mall brand because they are cheaper than her former choice of Marlboro Reds, an Altria brand. Credit: Kimberly Lange 

The cost of smoking
While cigarette smokers contribute heavily to the state and federal tax coffers, the costs are also high according to TobaccoFreeKids.org. The group shared the following numbers, all of which are heavily sourced.

  • Total annual public and private health care expenditures caused by smoking: at least $132.5 Billion
  • Annual health care expenditures solely from secondhand smoke exposure: $6.03 billion
  • Productivity losses caused by smoking each year: $156.6 billion
Raising taxes on cigarettes has led to a decline in smoking which may have stopped the growth of the big tobacco companies, but it has not devastated them the way you would have expected it to. Gallup did a poll in 2013 to determine smoking rates by state and found that 17.7% of New Yorkers still smoked, placing the state below the national average of 19.7%, but not on the list of states with the top ten lowest rates. The same is true of Illinois which came in at 18.1%.
 
This suggests taxes can only influence consumer behavior so much, but don't be surprised if states keep raising the rates on tobacco products.
 

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

The article Which 5 States Are Charging an Arm and a Leg For Cigarettes? originally appeared on Fool.com.

Daniel Kline has no position in any stocks mentioned. He does not smoke. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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