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Economy Personal Finance Real Estate

To Rent vs Buy a Home? The Argument for Buying!

To Rent vs Buy a Home? Since the financial & housing markets crashed back in 2007/08 interest rates have never been so low! House prices have also fallen and those who are able to get a mortgage are wondering if they should make the leap and buy their first home.

In a previous article I discussed the pro’s of renting, now it’s time to point out the pro’s of buying!

Dead Money

Mortgages are a huge commitment! Due to the cost of moving, you’re pretty much saying that you love a town and property so much that you’re willing to live there for at least the next 5 years! For anyone who’s ever had a 5 year loan, you’ll know that’s a substantial period of time. One of the benefits that comes from committing to a mortgage though, is that it’s also an investment.

If you rent a property you may spend years paying rent to a landlord and you will never see any of that money ever again. This is what many people refer to as dead money! You’re basically paying for someone else’s investment! If you do make the commitment to buy, you will be paying into your own asset. You will not only see some of your money again at some point in the future, but if you view it as a long term investment it will likely grow substantially over a long term period.

Security

When you rent a property you are at your landlords mercy. I’m sure many of you who read this article have felt the fear, or even felt the effects of having to move because your landlord has decided to sell your home! You might have already developed emotional attachments to a home, your children may be in a local school or you might not want to uproot. If you rent, unless you have a long term contract you have no choice.

With a mortgage you have a certain amount of security. As long as you keep up with your mortgage payments and other bills you will never have to move if you don’t want to. This kind of security can give real peace of mind. Your memories are secure, your kids wont have to travel for miles to get to their school, you can be truly secure in your surroundings.

Home ownership also provides security when you enter old age. We all love to think we will be forever young! There will come a time though when you’re no longer able to work, meaning you’re no longer earning a wage. As long as you pay your mortgage off, home ownership gives you the security of knowing that when you reach this age you won’t have to worry about where you’re going to live, your home will be yours! It could also give you a nest egg if your pensions or other investments don’t perform as you’d hoped. The option may exist to downsize and have a cash lump sum to live off.

The benefit system is currently set up to provide financial relief for older people if they can’t afford to rent their own home. With the current state of government finances it would be wise not to bank on this being the case in future!

Adding value

Most of us view our home as an extension of our personality, we want to add our tastes and improve it. Sometimes the improvements that we make can add value. If you make these improvements to a rented property your landlord will reap the financial rewards, not you! This might stop or make you hesitant to make your home truly your own, somewhere you can present your personality to the world for all to see.

Something To Pass On

We all want to do our best to ensure our children’s financial future. In making the decision to buy a home you’re investing in your children’s financial future. Providing this inheritance may in future give your children the opportunity to buy their own home or live mortgage free in yours.

Taking out a mortgage may be a huge commitment, one which I would encourage you not to take lightly! It does however give a certain security now and for the future that renting never could.

Source article and pictures: http://moneybulldog.co.uk/
To Rent vs Buy a Home? The Argument for Buying!

Categories
Economy Personal Finance

The Best Retirement Plan for Entrepreneurs

Retirement Plan used to be, you had to give up either savings or flexibility to create a tax-deferred nest egg. Not any more.

By Charles Farrell | Jan 27, 2012

Building your retirement plan while you’re also trying to build your business can be tough. Many retirement plans don’t allow entrepreneurs to put much money away, or if the plans do provide for large contributions, they don’t offer the flexibility a business owner needs to manage uncertain cash flow needs. But there is, finally, one retirement plan that does both. It’s called a solo 401(k).

You qualify for a solo 401(k) if you’re the only employee in your business (the solo part), or if you and your spouse are the only two employees. A solo 401(k) allows you to defer up to $17,000 a year in wages if you’re under age 50 and $22,500 if older. Plus, because it’s a 401(k), it also has a profit-sharing feature, which means that in addition to your 401(k) “salary deferral,” you can also make an employer contribution out of “profits” that could take your total contribution upwards of $50,000 for a year. You can even set up your solo 401(k) to allow for Roth 401(k) contributions, which means you can build a nice tax-free (as opposed to tax-deferred) balance.

Here are a few examples of how a solo 401(k) can help build retirement assets but also respond to business cash flow needs.

Let’s say you’re 40 years old and starting your own consulting firm, but your spouse has a regular job and a healthy income. In your first year, you generate $50,000 of net income and you’d like to shelter as much as you can. You could contribute $17,000 of that income into your solo 401(k) plan. You can then make a profit sharing contribution of roughly 20% of your net self-employment income, which roughly amounts to another $9,000, for a total of about $26,000, or a little over a 50 percent contribution. Compare that with an IRA, where you’d be limited to $5,000, or an SEP IRA, where you’d be stuck at 20 percent of $50,000, or about $10,000.

Now, let’s assume next year you net $100,000. You can now make the $17,000 401(k) deferral and about another $18,000 in profit sharing, for a total of about $35,000. Or, if you decide that next year you want cash for expansion, you can contribute $0 to the 401(k), or $5,000 or whatever you want.

Remember, if your spouse also works in the business, you can essentially split the contributions. That means with limits of about $50,000 per person, you could be looking at a $100,000 contribution and a $100,000 tax deduction.

You also have the ability to borrow from your solo 401(k) plan. Generally, you can borrow up to 50 percent of the account balance, up to a maximum of $50,000. This may come in pretty handy if your bank tightens up your credit line.

Most large brokerage firms and many mutual fund companies support solo 401(k)s and can provide you the basic documents. But remember: These plans are more technical than an IRA or SEP IRA, and I’ve only provided you with a summary of some basic options. That means you’re going to want to work with a tax professional. For instance, contribution limits are calculated differently for sole proprietors or pass-through entities like S corporations and LLCs, than they are for C corps. As you can imagine with the tax code, every situation is unique, so make sure you get the guidance you need before starting a solo 401(k). It may cost a few bucks to get your solo 401(k) established, but the tax savings and flexibility are generally more than worth it.

Read more:
Decent 401(k)s for Businesses
Essential Money Tips for Women Owners
Ta-da! Timing the Perfect Product Release

The Best Retirement Plan for Entrepreneurs
Charles Farrell is a principal with Denver-based Northstar Investment Advisors, LLC, and the author of the book Your Money Ratios: 8 Simple Tools for Financial Security, called “one of the best financial books to cross our desks this year” by the Wall Street Journal (WSJ, 12/19/09).