What is less clear, however, is whether or not a rewards credit card with an annual fee is worth it. After all, why should you pay to use a credit card when there are plenty of free options available? Depending on your habits, though, a credit card with an annual fee just might be worth it.

3 Factors to Consider

What are the Perks?

Most free rewards credit cards are pretty basic. You earn between 1% and 3% cash back. If you’re lucky, you might earn 5% cash back on certain spending categories. Or, you earn one point for each dollar you spend, with occasional promotions that allow you to earn more. Most of these cards come with standard perks:

• rental car insurance,
• fraud liability protection,
• 24-customer service,
• extended warranty on purchases, and
• a few other items.

Rewards credit cards that charge fees, however, might come with more perks. You might get access to a concierge service, or to trip cancellation insurance. Additionally, many rewards cards that come with fees also allow you to earn points faster. You might get extra points on travel, or you might get 3% to 5% cash back on all your purchases. If you can earn more rewards, and get more perks that you are likely to use, paying an annual fee might be worth it.

Do You Use the Rewards Enough to Offset the Fee?

Of course, in order to make a credit card with an annual fee worth the cost, it’s important that you use the rewards regularly. Assess how often you will use the card, and whether the rewards program works for you. If you travel a great deal, a rewards card with a $90 fee might be worth it. If there are extra rewards for travel, and plenty of travel perks and insurance, you can enjoy peace of mind — while earning free travel — with a high-end card. If you are able to redeem rewards for two free airline tickets each year, the $90 fee is worth it. Especially if you are unable to earn the same rewards with a card that doesn’t have an annual fee.

Whether it’s cash back or travel rewards, the program needs to be compatible with your lifestyle. Look at whether or not you will use the rewards, as well as whether it will be possible for you to quickly earn rewards that are valuable enough to cover the cost of the fee. It might actually make sense for you to pay the annual fee if the rewards program is truly superior to what you can get with a fee-free credit card.

Earning More Rewards

Supercharge your ability to make sure the card pays for itself by planning your spending in a way that allows you to boost your ability to earn rewards. Create a budget that helps you live within your means. You don’t want to spend more than you normally would. Use your credit card to cover as many expenses as possible. Buy groceries, gas, and pay bills with the credit card. Make sure you stick to your budget, though.

Once you get the statement, you can use the money that’s been sitting in your bank account and earning interest all month to pay off the balance. That way, you will build up the rewards points or cash back without paying interest. Once you start paying interest, any benefit you get from the rewards program is likely to be nullified.

If you have a plan, and if you really will use the rewards, it might be worth it to get a credit card that charges an annual fee.

Do you have a credit card with an annual fee? What made you decide to use it?

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For the most part, though, we think of social media sites (especially Facebook) as a way to interact with friends and relatives, and as places to share our thoughts, and images of us living the good life. We might even think of it as a way to sell ourselves to others when we’re networking and looking for jobs. Very rarely, though, as we post an off-hand status update or a picture of the fun we’re having, do we think about how it’s impacting our job prospects.

Hiring Managers are Looking at Social Media

The truth, though, is that hiring managers are looking at social media — especially Facebook — in an effort to determine whether or not they will hire you. According to an article from AOL Jobs, 40% of hiring managers use social media to make determinations about jobs. Of those 40%, of hiring managers, 1/3 of them say that they have rejected applicants on what they found:

Nearly a third of hiring managers who currently research candidates via social media said they have found problems that resulted in them rejecting the candidate.

For the past couple of years, we’ve been told that it’s important to use social media in the job search. Job hunting with the help of Facebook is even starting to be quite popular. But, as you reach out to your network to find out what’s available to you, and to look for employment, don’t forget that employers are probably looking for you on Facebook and on other social media.

Indeed, it’s worth going through your social media profiles. Do you look professional? Are you disparaging a former employer in your status updates? Have you been showing off your participation in illegal activities? According to the AOL article, some of the items that can lose you job include the following postings on Facebook and other social media:

• Provocative photos and comments
• Drinking and drug use
• Evidence of poor communication skills
• Bad-mouthing a former employer
• Discriminatory comments expressed in a status update
• Evidence that qualifications have been exaggerated or lied about

Of course, the flip side is that your social media profile can exhibit your professionalism, enthusiasm, solid qualifications, and generally positive outlook. Your social media profile can be a way to let potential employers that you would be a good hire — and not an Internet risk. But you have to be careful about what you post, and what you make public, if you don’t want your social media profile to be used against you as you search for a job.

Social Media Background Checks

It’s also worth noting that there are companies that do the heavy lifting for employers looking to hire. The way has been cleared for social media background checks offered by companies like Social Intelligence. These companies scour the web for information about in the social realm. Of course, the information is stuff that’s only publicly available — but you might be surprised at what is publicly available.

Facebook information that you haven’t made private, tweets, and other information is available. But it doesn’t stop there: Comments you’ve made on others’ blog posts might also be gathered. These companies compile reports that are supposed to remove information about your race, religion, gender, sexual orientation, age, other characteristics that aren’t supposed to be used in hiring decisions. However, if a company doesn’t do a social media background check, and just Googles you, you don’t know what criteria is being used.

Of course, the existence of these types of social media background checks emphasizes that you do have to be careful about what you put out there. It would be nice to say that your personal life is private, and separate from what you do at work or in public. However, the Internet has blurred those lines. As long as your prospective employer isn’t asking for your Facebook login information, there isn’t much you can do to stop a hiring manager from Googling you, and checking what you’ve been up to.

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How Much Should You Save for Emergencies?

Rather than making a recommendation based on a flat amount, like $1,000, or so many months’ living expenses, I think it’s more practical to look at what it is an emergency fund should be expected to cover before determining how large it should be.

What is an “Emergency” as it Relates to an Emergency Fund?

There’s no way to estimate how much money should be in an emergency fund without first defining exactly what constitutes an emergency worthy of tapping the fund. But let’s begin by focusing in on what it isn’t.

The World English Dictionary defines an emergency as “an unforeseen or sudden occurrence, especially of a danger demanding immediate remedy or action.”

Note the use of the words “unforeseen or sudden”; an emergency isn’t a routine or fully expected situation, like a shortfall in a monthly budget, routine car maintenance, or even replacing the roof on your house. All of those are fully predictable and require proper budgeting, but none are an emergency and shouldn’t be covered out of an emergency fund. If the fund isn’t held as a separate account with a clearly defined special purpose, it can easily degenerate into just another checking or savings account.

With that in mind, what emergencies should we be preparing our emergency fund to cover? Here’s the short list (and it should be short!):

• Job loss or income disruption
• Medical emergencies
• Auto accidents or theft of vehicle
• Damage to your home
• An untimely, heavyweight car repair, like a valve job or replacing the transmission. Normally this would be something that should be budgeted for elsewhere, but since major car repairs have an uncanny knack for hitting at the same time as other emergencies — especially a job loss when you can’t afford to replace the car — it can easily rise to the level of an emergency.

Each of these are true emergency events that won’t fit neatly under an arbitrary allocation like three months living expenses, but would put you under a load of debt if you are unprepared.

Stocking Your Emergency Fund for True Emergencies

Now that we’ve defined what an emergency is and what it isn’t, let’s take a look at how to prepare for them with a fund. We’ll use an estimate for each category, then total them at the end to get an idea as to how large the fund should be.

Job loss or income disruption. This is where we can apply the “so many months living expenses” rule. How many months that will be will depend on personal circumstances such as how quickly a job in your field can be replaced, what other sources of income the household has, or even the size of investment assets that can be tapped in an extended emergency. At a minimum, this portion should represent at least one month’s living expenses to allow time for unemployment benefits to take effect. For our purposes, we’ll assume this to be $3,000 per month, and we’ll go for two months, or $6,000 as a bare minimum. (Your personal situation may dictate needing 12 months of expenses saved up. Each situation is unique.)

Medical emergencies. You should have an amount in your emergency fund sufficient to cover the deductible portion of your health insurance. We’ll assume a $2,000 individual deductible, and include it in the emergency fund.

Auto accidents or theft of vehicle. Just as with health insurance, you should have an amount in your emergency fund to cover the deductible on your auto insurance policy. We’ll use $1,000.

Serious damage to your home. Again, the deductible on your homeowners insurance policy should be added to the fund. We’ll use $1,000.

Heavyweight car repairs. Get prices on what it will cost to perform the most expensive repairs, like a transmission replacement. If it won’t be needed in a time of emergency, you’ll have the money available for other purposes. If it is needed, you’ll be ready. Let’s assume $2,500.

Now let’s total it all up:

• Job loss, two months living expenses: $6,000
• Medical emergencies: $2,000
• Auto accidents or theft of vehicle: $1,000
• Damage to your home: $1,000
• Untimely, heavyweight car repair: $2,500

Total for emergency fund: $12,500

As you can see, the emergency fund calculation we’ve used here doesn’t fit neatly under any rules of thumb — we’re matching funds with probable emergencies.

Avoiding Duplication

This is of course a more detailed method of calculating the size of your emergency fund, and part of the reason is so that the fund isn’t any larger than it needs to be. Once true emergencies have been identified and prepared for, any additional money should be in investments that provide greater returns or utilized to pay down debt.

It isn’t necessary, desirable — or even possible — to cover every emergency outcome. For example, health insurance policies typically include an annual individual deductible and a family deductible — usually equal to two or more individual deductibles. You may want to cover multiple deductibles, but what are the chances that two or more members of the same household will experience high medical costs at roughly the same time?

The same is true of auto insurance deductibles — if you have two or more cars, there’s probably no need to prepare for accidents or theft of more than one car, especially if all drivers in the household have good driving records.

Even if either event did happen, your fund has allocations for multiple emergencies, some of which won’t happen in conjunction with others, so funds will be available just in case. In addition, greater concentration of funds in income producing investments can provide a second level of funding in a worst case scenario. In the end, while there are multiple reasons to have an emergency fund, the main purpose is to give you time to deal with what ever comes your way.

How do you determine how much you should have in your emergency fund?

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Your Network

Mentor Connections

In some cases, your network offers you a variety of mentors to work with. The right mentor can show you how to make smarter money decisions, or encourage you in your career strategy. You can learn about qualifying for different jobs and raises, as well as learn about tips and techniques for better money management. You can even find an investing mentor to help you make better decisions about growing your portfolio.

A good mentor is someone who has been where you are, or has experience in getting where you want to eventually be. You don’t even need to confine yourself to a single mentor. Mentors for different areas of your life can be very helpful in allowing you to grow and learn — and improve your net worth.

Career Opportunities

Your network probably has knowledge of different career opportunities, as well as knowledge of who is hiring. This can be helpful knowledge as you look for ways to increase your income and grow your wealth. If you are looking for a new job, you can let your network know, and someone might be able to point you in the right direction — or even provide you with an “in.” Being able to advance in your career is an important to increasing your net worth. Your career network can help you accomplish these goals.

Business Partnerships

Sometimes, your network can provide you with business opportunities. Your network might include people who might want to start a business with you, or form a partnership with a business you already own. You can receive referrals for other opportunities from your business network. For instance, someone in your network might not need a consultant, but he or she might have contacts who do. As a result, your network provides you with opportunities to grow your business and expand your net worth.

You can also find buyers for your company, if you want to sell, through your network. Or you can look for opportunities to acquire more business assets through the contacts you have. Your network can be a valuable tool for using your business more effectively.

Giving Back to Your Network

It’s important to remember, though, that networking isn’t just about receiving from your contacts. You should also remember that being part of a network means that you give something back. You might be asked to mentor one of your contacts, or provide helpful advice. You might give an opportunity to do business with someone in your network, or recommend him or her for a job. Make sure you are as free with your help to others as others are free with their help to you.

It’s important to remember that your deeds have a way of coming back to you. Eventually, if you aren’t helping anyone, but you expect others to help you all the time, people will notice and decide to leave your network. When you expect help from your network, you need to be prepared to help others in return.

The Bottom Line

Your network can be an excellent source of information and opportunities to grow your net worth. Cultivate a strong network, and you will find help when you need it — and receive the satisfaction of knowing you are helping others as well.

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5 Tips to Get Out of Debt Fast

Never Pay Only the Minimum

You can get into serious trouble by making only the minimum payments. By doing so, you are guaranteeing yourself more debt. Balance on your credit cards cost you money every single day, whether you use them or not (from the interest adding up). The rate at which you incur interest depends on the type of card you signed up for. It usually ranges from 10%-20% annually.

It may be convenient to make this small payment, but this practice wasn’t designed with your best interest in mind. The minimum payment plays to the procrastinator inside all of us and it’s there to bait you into putting off your balance for another month — that one month, turns into two, and so on. These companies make billions of dollars every year this way.

Keeping consumers in debt to make a profit is ethically questionable, but this is why credit cards are so lucrative. So, the first step to reducing your debt, is resolve to never again make only the minimum credit card payment.

Find Out Your True Cost of Living

People enjoy living beyond their means. Having money and spending it frivolously can be a lot of fun. But squandering cash that you don’t have, when you need to make a rent payment is not a good way to live. When you supplement your income with credit cards, it can be hard to know exactly what you can or can’t afford. If you are living a rappers lifestyle on a secretary’s budget, it’s time to sit down and do some math.

Put your accounting hat on and write all of your expenses down on paper with a number 2 pencil. Make one column with your after-tax income and another column with all of your expenses. List everything including: housing, utilities, food, entertainment, travel, cell phone, etc. — don’t skip anything! See if you are generating a negative cash flow for the month. If you are, you need to decide which expenses are essential, and which ones can be cut. Be realistic with what you can afford, and be aggressive with the things you decide to cut out.

Pay Your Highest Interest Debt First

Find your most expensive debt (most likely credit card debt) and axe it. Make a list of all your debts ranked from highest to lowest interest, and tackle them one by one. Search the couch cushions, bust open your piggy bank, do whatever you have to do to find extra cash, and pay down that #1 highest interest debt first. Take a percentage of your monthly disposable income (like 10%) and drop it all down on this one particular debt. Do this every month until it dwindles, and eventually goes away.

It may seem daunting when you are facing a large balance, but if you commit to it, things will get better… It might take some time, but once you have conquered the #1 debt, you can switch to the next worst offender. Leave the mortgage and student loan debt alone for now (still make your payments, of course), because these are likely nunder 10% and you want to focus on the highest interest debt first. Plus, certain debts like mortgage debt and student loans are ok, because they can even help you create wealth in the long run if used properly. Real estate “usually” appreciates in value over time, and education can help you earn more.

Cut Back and Sell Things to Generate Money

Most people aren’t really conscious about every little dime they spend month after month. But recurring expenses can really drain your bank account dry — e.g., things like premium cable channels, gym memberships, and expensive cell plans, .

When times are tough, it’s time to trim the fat. Come up with a list of expenses that you can switch to a cheaper plan, or cut out completely. If you don’t watch HBO often, cancel it. If you don’t play golf, sell your clubs. If there are things around the house that you don’t need, you can have an estate sale to generate extra funds. Use the profits of the estate sale ONLY to pay down your highest interest debt. Items just sitting around collecting dust can all be turned into cash. Something that is trash to you might fetch a few dollars that can drop your balance down another notch.

Another thing you might want to consider is a part time job. Many people might grimace at this thought, but a night job like pizza delivery is a very low stress job that pays pretty decently. I recently talked to a debt blogger who was delivering pizzas at night to help pay down his debt, and I’ve also done this when I was younger. It’s just a few extra hours, a few times a week, but it can make a world of difference if you are struggling.

Ask for a Lower Interest Rate on Your Card

Your credit card company earns a lot from a high interest debtor like you, and they will not want to lose you as a customer. Dial up customer service and say you are considering doing a balance transfer to a rival’s lower interest card. You don’t really want to go through the hassle of doing this, so say you would rather just work with them. Quote them a specific interest rate off another company’s card (maybe a few % less than your current rate) and ask them if they will give you a lower rate. You can do a balance transfer to another card, and they know it, so hopefully they will play ball.

I recently read that over 50% of customers who called to ask for a lower rate, got one instantly. It may be an uncomfortable call, but getting a lower rate will be a huge help to your deflating wallet. It is possible that they might say NO, but for 3 minutes of your time, it’s very much worth it. The lower interest rate can keep you from losing the momentum you’ve got going. Your balance won’t snowball so quickly and it will become much more manageable.

The alternative to paying down your debt is not so pleasant. You can even find yourself in financial mess involving lawsuits, income garnishment, or even a lien on your home. That is a road you want to avoid going down at all costs. It may seem tough at times, but there is a way out. You need to embrace this new debt free lifestyle. It is much more stress free, and totally liberating if you accept it. You might not have as many material possessions, but living without debt will make you feel like a giant weight is off your shoulders.

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Keeping & Growing Income

The first thing to focus on is keeping and growing your income. Obviously, this is a concern for many people today considering the high unemployment in America. If you’re wanting to improve your financial situation, you must re-establish your income even if it means taking a less-than-ideal job. If you have a job still, do what you can to keep it — and if you’re in the minority with an opportunity for a raise or other opportunities, take advantage them!

Next, I believe it’s worthwhile to pursue additional income opportunities to create income outside your “main job.” This has been a main focus of my blogging for a couple years now — finding ways to make extra money to improve one’s financial situation. So, do put in the time and effot to build extra income opportunities for yourself.

Letting Your Income Work

Now, letting your income work for you is what almost all Americans struggle to do. What do I mean by this? I mean letting your income actually building your wealth. Instead, most Americans inhibit their income and put obstacles in front of it and prevent it from building wealth.

For example, the biggest obstacle is debt. By tacking on insane levels of debt, we fail to let our income build wealth. How? Well, big chunks of our income immediately go towards paying interest on our debt rather than building wealth via savings and investments. Basically, we latch on to ourselves burdens that force larger and larger portions of our income to be diverted to others instead to ourselves.

Even for those of us without debt, we still put things in the way of our incomes such as lifestyle and consumer spending. Even if we’re paying cash for our lifestyle, we’re still preventing our income from building wealth. Let me give you a real example — how about what we spend on food, specifically, eating out? By having the habit of eating out frequently, we automatically funnel a portion of our income into restaurants all in the name of a short term craving. While eating out is great, keeping the frequency to a reasonable level is a smart way to allow your income to work for you more and more.

Conclusion

Learning to invest and learning about credit and so forth is great stuff to learn, but don’t lose sight of the fact that your income is your greatest asset. Maintain it, maximize it, and let it work for you. Divert as much of your income as possible into assets and wealth building instruments — namely, investments and savings. Make incremental improvements in this area and you’ll see your financial situation improve drastically.

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Relying on a big refund check isn’t the worst financial decision you could make, but it is the laziest decision. You could be using that money each month to improve your financial situation rather than waiting until your refund arrives.

Why a Big Tax Refund is a Bad Idea

There are a few key reasons why we don’t like giving the government our money as an interest-free loan.

Slightly Smaller Impact

Yes, you do eventually get the refund back, but your financial situation would be better off if you received it throughout the year. Let’s say you get a $3,600 refund. That’s $300 per month. You could take that extra money each month and do a number of things, e.g.,

• pay off your credit card debt faster,
• build up your emergency fund, or
• pay down your mortgage balance.

You might do those things once the refund comes in, but in the mean time you’ve paid interest on those debts and received no interest in return from the government.

Risk of Overspending

A major problem many people have with a big tax refund is they don’t know how to handle it. It’s nice to get a $3,600 check, but it only really does you good if you put it toward those debts and financial goals you’ve set up. Many people that receive a lump sum of cash (either through an estate, through the lottery, or as a tax refund) don’t control that amount of money well. Maybe some of it goes towards those goals, but suddenly a new TV shows up in the living room. It is easy to overspend a big refund check.

Lack of Control

There are some people that willingly decide to just get a tax refund and not adjust their withholdings. They know they could be doing better with their finances, but take the lazy route. This shows a lack of control in the area of finances and leads to paying unnecessary amounts of interest.

Is It Ever Okay to Get a Big Tax Refund?

However, there are two instances when it is okay to rely on a big tax refund.

No Cash to Pay Tax Owed

If you adjust your withholdings so you get more cash in each of your paychecks throughout the year you do run the slight risk of not paying enough tax to the government. In that case when you file your taxes you suddenly find yourself owing money to the government rather than them owing you. If you are in a poor financial situation you might not have the extra cash to pay the tax back. In this case leaving everything at status quo might be the better decision until your situation improves.

No Control

Getting extra money each paycheck throughout the year is better than a lump sum in the spring of the following year. That is unless you know yourself well and know you will end up wasting all of that extra money and have nothing to show for it. In this case waiting for a tax refund — and then wisely using that refund — is the best choice for you.

How to Stop Lending the Government Money for Free

There are two critical steps you must take if you want to stop giving the government a interest-free loan while still not wasting the money yourself.

Change Withholdings

The first step is easy: simply change your withholdings with the federal government through Form W-4. If you typically get a refund from your state you will want to adjust your state’s withholding as well. You can try making small changes are first: if you currently have 5 allowances calculated into your withholding, don’t drop to 0. You can switch to 3 or 4 and see what kind of a difference it makes in your check. Use small steps rather than giant leaps to find the “just right” amount of withholding that leaves you with no tax owed and no huge tax refund.

Automate the Extra

If you change your withholding allowances and waste the extra money each month, you’ve actually taken a step backwards. To avoid making this big mistake, you need to set up a system to automatically use that extra cash you get in each check.

Here’s a simple formula of how to do this:

1. Look at your last 4 paychecks and average out what your net income (after taxes and pre-tax deductions) is.
2. Make your W-4 withholding allowance adjustment.
3. Check your next paycheck to see what the net income is.
4. Subtract your old paycheck amount from the new paycheck amount. This is, essentially, the amount of extra tax you aren’t paying to the government.
5. Create a system that will automatically save, invest, or pay down debt with the extra money.

Here’s an example based on the system above:

1. Your last 4 checks averaged out to be $1,200 in net income. This is the amount that was deposited in your bank account. (You are paid every other week.)
2. You adjust your withholding from 5 to 4.
3. Your next paycheck is $1,230.
4. The difference between your new check and last check is $30. Since you get paid every other week — practically twice per month — you have an extra $60 to spend, save, and invest each month.
5. Automatically save, invest, or pay down debt with the extra money:

• You could set up a separate savings account to automatically withdraw $60 at the end of every month.
• You could tell your bank to send an extra $30 every month to your credit card bill using a bill pay system. The remaining $30 could go automatically into savings.

As you can see, setting up a system to automatically handle the extra income is key to avoid it being spent through the regular ups and downs of life. If you let that happen you won’t get a big tax refund, and you won’t improve your situation throughout the year. Be diligent, use a system, and maximize that extra tax you pay every month.

Photo from Wikimedia Commons.

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It is easy to understand why passive income is so attractive. Having extra income that you don’t have to go to work for daily is appealing. It could change your life: you could go on a great vacation or use your passive income to pay off debt.

However, responsible passive income sites are clear that just because income is passive it is not easy to earn. However, I still sometimes find myself wondering if people get in over their heads with trying to generate passive income streams.

3 Tough Passive Income Facts

So here is a brief skeptic’s guide to passive income — the good, the bad, and the ugly of trying to supplement your income stream without adding to your workload:

1. Passive income can require a major initial investment — either of time or money.

Passive income is generally defined as cash flow that doesn’t require regular work because the time or money investment was put into the project at the beginning. However, the costs associated with doing all the work up front can be a serious drain. For example, rental real estate is a common passive income stream, but you need to have the down payment and renovation money set aside in order to start that “passive” income. In addition, as a landlord, you will need to keep up on maintenance, which could determine how actively you need to be working to earn the income. Most hands-on landlords would argue that being a landlord is not passive income.

Another common passive income stream is writing, either the traditional route of creating a book or by blogging online. If you are lucky enough to sell a book manuscript to a publisher, you will earn royalty checks through the years as people continue to buy the book. It’s nice work if you can get it. As for blogging, it’s an easier route to get into but less lucrative. Ads on your website can slowly add up to money you don’t have to “work” to earn.

Other passive income ideas include creating crafts for sites like Etsy, designing apps for smart phones, or even creating videos or other content for profit sites. All of these require you to spend time or money initially for a future pay off.

Bottom line: You can’t just snap your fingers and have passive income coming to you. It takes a significant amount of work to get started.

2. Passive income doesn’t generate a great deal of money — unless you have a lot of streams going at once.

Technically, I am already earning passive income, as I have several ING Direct savings accounts (now Capital One 360 Savings) that earn interest and I have ads on my personal website. However, neither of these income streams are enough for me to retire on, or even enough treat myself to a weekly lunch.

Though individuals who earn a great deal of interest on their investments or who have published several successful books are fully able to live off their passive income, most mortals will find that passive income is only a supplement to regular income — and probably a small one at that.

Bottom line: It takes a lot of work to get one passive income stream going. Now try developing 10 more so you can afford to quit your job. Not so easy!

3. Most people who live off of passive income have a passion for the work that earned it.

The good news about passive income is that it really follows the old saying about doing what you love and letting the money follow. If you are dedicated to real estate, writing, crafting, inventing, blogging or investing, you’ll have a great time doing the “work” necessary to start your income streams, and you’ll reap the benefits in the future. Turning your hobby into income can be fun and profitable. Stephen King could easily live off his passive income and never write another word — but you don’t see him doing that because he loves his work. So if there is something that you love to do, go ahead and do it, while setting up a way for it to earn you money. That is the fun way to create passive income streams without feeling like you’re working.

Bottom line: Passive income is a possible way to supplement your regular income. But don’t let yourself believe that it will be easy, fast, or painless. Nothing worth having ever comes free.

Looking to get started earning extra income? Be prepared to put some time and effort in!

Photo from Wikimedia Commons.

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On the other side are people who used credit cards and got hurt. They swear that these little plastic devils are one-way tickets to financial hell, and now refuse to use them. I do respect their decision to stay away from credit cards. Unfortunately, this is like avoiding power tools because they are more dangerous.

A Powerful Financial Tool

Credit cards will not help you achieve financial freedom, nor will they send you to financial hell. A credit card is simply a financial tool that must be used with care. There are pluses and minuses to consider, and when used responsibly credit cards can make your life easier.

Benefits of Using Credit Cards

• You can use credit cards at more places — e.g., online purchases, etc.
• Certain things just work better with credit cards — e.g., automatic bill payments, etc.
• You get to enjoy cash back bonuses and reward points that certain credit cards offer.
• It’s easier for you to keep track of your purchases.
• It’s safer than carrying around cash.
• You are better protected against fraudulent purchases and you can often get your money back.

Additionally, there are other benefits depending on the specific card that you use.

A Few Reasons Why You Should NOT Use Credit Cards

• You could end up with credit card debt.
• If you do not pay your balances in full, you could end up paying a lot of finance charges.
• You could be hit with expensive fees — e.g., late fees, annual fees, etc.
• You could spend more by using a credit card instead of cash.
• Irresponsible use of credit cards could wreck your credit scores.

Whether you choose to use credit cards or not, it’s up to you. The important thing is to never equate credit cards with financial freedom.

Photo from Wikimedia Commons.

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How to Calculate the Loan to Value Ratio

Your loan to value ratio is determined by dividing the amount you are borrowing by the appraised value of your home. It’s fairly simple: If you are borrowing $180,000 to purchase a home that is appraised at $190,000, you end up with

$180,000 ÷ $190,000 = 0.9474 x 100 = 94.74%.

Some lenders will round to the nearest whole percentage — in this case 95%.

Your loan to value ratio can also be figured for refinancing purposes. If you plan to refinance your home, you will probably need an appraisal. In this case, your lender will want to figure your loan to value ratio using what you owe on your home, and the new appraisal. If you have been in your home for awhile, and paid down your mortgage to where you owe $150,000 and your home appraises for $190,000, your new loan to value ratio is 78.95%.

How Loan to Value Ratio Affects You

Mortgage lenders use loan to value ratio as a risk assessment tool.

The higher your loan to value ratio, the bigger the default risk you appear to be.

As a result, lenders will take steps to protect themselves.

• If you are getting your first mortgage, and your loan to value ratio is greater than 80%, you will probably have to pay a higher interest rate.
• On top of that, you will be required to pay for private mortgage insurance (PMI), which add significant a expense to your loan. If you default, the insurance — you pay the premiums — will protect the lender from loss.

When it comes to refinancing, loan to value ratio can have a similar impact. Many lenders are reluctant to refinance a home that has a high loan to value ratio. You might be denied an application to refinance without a low enough loan to value ratio. If you aren’t denied, you will have to pay a higher interest rate. Most lenders want to see LTV at 80% or less to consider refinancing your mortgage.

Another issue with refinancing is what happens if you have negative equity. The recent real estate market crash means that the appraised value of your home might be lower now than when you bought it. If you borrowed $180,000 in 2007 to purchase a home appraised at $190,000, you might have paid down your mortgage to the point where you now owe $172,000. But your home might have plummeted in value, and is perhaps appraised at $170,000. Now, your loan to value ratio is 101.18%. Unless you can refinance under a government program, you are out of luck in this case.

Bottom Line

Your loan to value ratio can affect how much you ultimately pay in interest. When buying a home, you can reduce your loan to value ratio by making use of a larger down payment. If you know that you will refinance, you can make extra mortgage payments so that you have more equity — or ownership — in your home.

Photo by hans s.

Read the rest of What is Loan to Value Ratio and Its Importance at WorkSaveLive.com