The Pros & Cons of Offering Owner Financing (When You Sell Your Home)

Sometimes, home sellers find a buyer eager to purchase but unable to finance the property with traditional mortgage financing. Sellers then have a choice: lose the buyer, or lend the mortgage to the buyer themselves.

If you want to sell a property you own free and clear, with no mortgage, you can theoretically finance a buyer’s full first mortgage. Alternatively, you could offer just a second mortgage, to bridge the gap between what the buyer can borrow from a conventional lender and the cash they can put down.

Should you ever consider offering financing? What’s in it for you? And most importantly, how do you protect yourself against losses?

Before taking the plunge to offer seller financing, make sure you understand all the pros, cons, and options available to you as “the bank” when lending money to a buyer.

Advantages to Offering Seller Financing

Although most sellers never even consider offering financing, a few find themselves forced to contemplate it.

For some sellers, it could be that their home lies in a cool market with little demand. Others own unique properties that appeal only to a specific type of buyer or that conventional mortgage lenders are wary to touch. Or the house may need repairs in order to meet habitability requirements for conventional loans.

Sometimes the buyer may simply be unable to qualify for a conventional loan, but you might know they’re good for the money if you have an existing relationship with them.

There are plenty of perks in it for the seller to offer financing. Consider these pros as you weigh the decision to extend seller financing.

1. Attract & Convert More Buyers

The simplest advantage is the one already outlined: You can settle on your home even when conventional mortgage lenders decline the buyer.

Beyond salvaging a lost deal, sellers can also potentially attract more buyers. “Seller Financing Available” can make an effective marketing bullet in your property listing.

If you want to sell your home in 30 days, offering seller financing can draw in more showings and offers.

Bear in mind that seller financing doesn’t only appeal to buyers with shoddy credit. Many buyers simply prefer the flexibility of negotiating a custom loan with the seller rather than trying to fit into the square peg of a loan program.

2. Earn Ongoing Income

As a lender, you get the benefit of ongoing monthly interest payments, just like a bank.

It’s a source of passive income, rather than a one-time payout. In one fell swoop, you not only sell your home but also invest the proceeds for a return.

Best of all, it’s a return you get to determine yourself.

3. You Set the Interest Rate

It’s your loan, which means you get to call the shots on what you charge. You may decide seller financing is only worth your while at 6% interest, or 8%, or 10%.

Of course, the buyer will likely try to negotiate the interest rate. After all, nearly everything in life is negotiable, and the terms of seller financing are no exception.

4. You Can Charge Upfront Fees

Mortgage lenders earn more than just interest on their loans. They charge a slew of one-time, upfront fees as well.

Those fees start with the origination fee, better known as “points.” One point is equal to 1% of the mortgage loan, so they add up fast. Two points on a $250,000 mortgage comes to $5,000, for example.

But lenders don’t stop at points. They also slap a laundry list of fixed fees on top, often surpassing $1,000 in total. These include fees such as a “processing fee,” “underwriting fee,” “document preparation fee,” “wire transfer fee,” and whatever other fees they can plausibly charge.

When you’re acting as the bank, you can charge these fees too. Be fair and transparent about fees, but keep in mind that you can charge comparable fees to your “competition.”

5. Simple Interest Amortization Front-Loads the Interest

Most loans, from mortgage loans to auto loans and beyond, calculate interest based on something called “simple interest amortization.” There’s nothing simple about it, and it very much favors the lender.

In short, it front-loads the interest on the loan, so the borrower pays most of the interest in the beginning of the loan and most of the principal at the end of the loan.

For example, if you borrow $300,000 at 8% interest, your mortgage payment for a 30-year loan would be $2,201.29. But the breakdown of principal versus interest changes dramatically over those 30 years.

  • Your first monthly payment would divide as $2,000 going toward interest, with only $201.29 going toward paying down your principal balance.
  • At the end of the loan, the final monthly payment divides as $14.58 going toward interest and $2,186.72 going toward principal.

It’s why mortgage lenders are so keen to keep refinancing your loan. They earn most of their money at the beginning of the loan term.

The same benefit applies to you, as you earn a disproportionate amount of interest in the first few years of the loan. You can also structure these lucrative early years to be the only years of the loan.

6. You Can Set a Time Limit

Not many sellers want to hold a mortgage loan for the next 30 years. So they don’t.

Instead, they structure the loan as a balloon mortgage. While the monthly payment is calculated as if the loan is amortized over the full 15 or 30 years, the loan must be paid in full within a certain time limit.

That means the buyer must either sell the property within that time limit or refinance the mortgage to pay off your loan.

Say you sign a $300,000 mortgage, amortized over 30 years but with a three-year balloon. The monthly payment would still be $2,201.29, but the buyer must pay you back the full remaining balance within three years of buying the property from you.

You get to earn interest on your money, and you still get your full payment within three years.

7. No Appraisal

Lenders require a home appraisal to determine the property’s value and condition.

If the property fails to appraise for the contract sales price, the lender either declines the loan or bases the loan on the appraised value rather than the sales price — which usually drives the borrower to either reduce or withdraw their offer.

As the seller offering financing, you don’t need an appraisal. You know the condition of the home, and you want to sell the home for as much as possible, regardless of what an appraiser thinks.

Foregoing the appraisal saves the buyer money and saves everyone time.

8. No Habitability Requirement

When mortgage lenders order an appraisal, the appraiser must declare the house to be either habitable or not.

If the house isn’t habitable, conventional and FHA lenders require the seller to make repairs to put it in habitable condition. Otherwise, they decline the loan, and the buyer must take out a renovation loan (such as an FHA 203k loan) instead.

That makes it difficult to sell fixer-uppers, and it puts downward pressure on the price. But if you want to sell your house as-is, without making any repairs, you can do so by offering to finance it yourself.

For certain buyers, such as handy buyers who plan to gradually make repairs themselves, seller financing can be a perfect solution.

9. Tax Implications

When you sell your primary residence, the IRS offers an exemption for the first $250,000 of capital gains if you’re single, or $500,000 if you’re married.

However, if you earn more than that exemption, or if you sell an investment property, you still have to pay capital gains tax. One way to reduce your capital gains tax is to spread your gains over time through seller financing.

It’s typically considered an installment sale for tax purposes, helping you spread the gains across multiple tax years. Speak with an accountant or other financial advisor about exactly how to structure your loan for the greatest tax benefits.


Drawbacks to Seller Financing

Seller financing comes with plenty of risks. Most of the risks center around the buyer-borrower defaulting, they don’t end there.

Make sure you understand each of these downsides in detail before you agree to and negotiate seller financing. You could potentially be risking hundreds of thousands of dollars in a single transaction.

1. Labor & Headaches to Arrange

Selling a home takes plenty of work on its own. But when you agree to provide the financing as well, you accept a whole new level of labor.

After negotiating the terms of financing on top of the price and other terms of sale, you then need to collect a loan application with all of the buyer’s information and screen their application carefully.

That includes collecting documentation like several years’ tax returns, several months’ pay stubs, bank statements, and more. You need to pull a credit report and pick through the buyer’s credit history with a proverbial fine-toothed comb.

You must also collect the buyer’s new homeowner insurance information, which must include you as the mortgagee.

You need to coordinate with a title company to handle the title search and settlement. They prepare the deed and transfer documents, but they still need direction from you as the lender.

Be sure to familiarize yourself with the home closing process, and remember you need to play two roles as both the seller and the lender.

Then there’s all the legal loan paperwork. Conventional lenders sometimes require hundreds of pages of it, all of which must be prepared and signed. Although you probably won’t go to the same extremes, somebody still needs to prepare it all.

2. Potential Legal Fees

Unless you have experience in the mortgage industry, you probably need to hire an attorney to prepare the legal documents such as the note and promise to pay. This means paying the legal fees.

Granted, you can pass those fees on to the borrower. But that limits what you can charge for your upfront loan fees.

Even hiring the attorney involves some work on your part. Keep this in mind before moving forward.

3. Loan Servicing Labor

Your responsibilities don’t end when the borrower signs on the dotted line.

You need to make sure the borrower pays on time every month, from now until either the balloon deadline or they repay the loan in full. If they fail to pay on time, you need to send late notices, charge them late fees, and track their balance.

You also have to confirm that they pay the property taxes on time and keep the homeowners insurance current. If they fail to do so, you then have to send demand letters and have a system in place to pay these bills on their behalf and charge them for it.

Every year, you also need to send the borrower 1098 tax statements for their mortgage interest paid.

In short, servicing a mortgage is work. It isn’t as simple as cashing a check each month.

4. Foreclosure

If the borrower fails to pay their mortgage, you have only one way to forcibly collect your loan: foreclosure.

The process is longer and more expensive than eviction and requires hiring an attorney. That costs money, and while you can legally add that cost to the borrower’s loan balance, you need to cough up the cash yourself to cover it initially.

And there’s no guarantee you’ll ever be able to collect that money from the defaulting borrower.

Foreclosure is an ugly experience all around, and one that takes months or even years to complete.

5. The Buyer Can Declare Bankruptcy on You

Say the borrower stops paying, you file a foreclosure, and eight months later, you finally get an auction date. Then the morning of the auction, the borrower declares bankruptcy to stop the foreclosure.

The auction is canceled, and the borrower works out a payment plan with the bankruptcy court judge, which they may or may not actually pay.

Should they fail to pay on their bankruptcy payment plan, you have to go through the process all over again, and all the while the borrowers are living in your old home without paying you a cent.

6. Risk of Losses

If the property goes to foreclosure auction, there’s no guarantee anyone will bid enough to cover the borrower’s loan debt.

You may have lent $300,000 and shelled out another $20,000 in legal fees. But the bidding at the foreclosure auction might only reach $220,000, leaving you with a $100,000 shortfall.

Unfortunately, you have nothing but bad options at that point. You can take the $100,000 loss, or you can take ownership of the property yourself.

Choosing the latter means more months of legal proceedings and filing eviction to remove the nonpaying buyer from the property. And if you choose to evict them, you may not like what you find when you remove them.

7. Risk of Property Damage

After the defaulting borrower makes you jump through all the hoops of foreclosing, holding an auction, taking the property back, and filing for eviction, don’t delude yourself that they’ll scrub and clean the property and leave it in sparkling condition for you.

Expect to walk into a disaster. At the very least, they probably haven’t performed any maintenance or upkeep on the property. In my experience, most evicted tenants leave massive amounts of trash behind and leave the property filthy.

In truly terrible scenarios, they intentionally sabotage the property. I’ve seen disgruntled tenants pour concrete down drains, systematically punch holes in every cabinet, and destroy every part of the property they can.

8. Collection Headaches & Risks

In all of the scenarios above where you come out behind, you can pursue the defaulting borrower for a deficiency judgment. But that means filing suit in court, winning it, and then actually collecting the judgment.

Collecting is not easy to do. There’s a reason why collection accounts sell for pennies on the dollar — most never get collected.

You can hire a collection agency to try collecting for you by garnishing the defaulted borrower’s wages or putting a lien against their car. But expect the collection agency to charge you 40% to 50% of all collected funds.

You might get lucky and see some of the judgment or you might never see a penny of it.


Options to Protect Yourself When Offering Seller Financing

Fortunately, you have a handful of options at your disposal to minimize the risks of seller financing.

Consider these steps carefully as you navigate the unfamiliar waters of seller financing, and try to speak with other sellers who have offered it to gain the benefit of their experience.

1. Offer a Second Mortgage Only

Instead of lending the borrower the primary mortgage loan for hundreds of thousands of dollars, another option is simply lending them a portion of the down payment.

Imagine you sell your house for $330,000 to a buyer who has $30,000 to put toward a down payment. You could lend the buyer $300,000 as the primary mortgage, with them putting down 10%.

Or you could let them get a loan for $270,000 from a conventional mortgage lender, and you could lend them another $30,000 to help them bridge the gap between what they have in cash and what the primary lender offers.

This strategy still leaves you with most of the purchase price at settlement and lets you risk less of your own money on a loan. But as a second mortgage holder, you accept second lien position

That means in the event of foreclosure, the first mortgagee gets paid first, and you only receive money after the first mortgage is paid in full.

2. Take Additional Collateral

Another way to protect yourself is to require more collateral from the buyer. That collateral could come in many forms. For example, you could put a lien against their car or another piece of real estate if they own one.

The benefits of this are twofold. First, in the event of default, you can take more than just the house itself to cover your losses. Second, the borrower knows they’ve put more on the line, so it serves as a stronger deterrent for defaults.

3. Screen Borrowers Thoroughly

There’s a reason why mortgage lenders are such sticklers for detail when underwriting loans. In a literal sense, as a lender, you are handing someone hundreds of thousands of dollars and saying, “Pay me back, pretty please.”

Only lend to borrowers with a long history of outstanding credit. If they have shoddy credit — or any red flags in their credit history — let them borrow from someone else. Be just as careful of borrowers with little in the way of credit history.

The only exception you should consider is accepting a cosigner with strong, established credit to reinforce a borrower with bad or no credit. For example, you might find a recent college graduate with minimal credit who wants to buy, and you could accept their parents as cosigners.

You also could require additional collateral from the cosigner, such as a lien against their home.

Also review the borrower’s income carefully, and calculate their debt-to-income ratios. The front-end ratio is the percentage of their monthly income required to cover all housing costs: principal and interest, property taxes, homeowner’s insurance, and any condominium or homeowners association fees.

For reference, conventional mortgage lenders allow a maximum front-end ratio of 28%.

The back-end ratio includes not just housing costs, but also overall debt obligations. That includes student loans, auto loans, credit card payments, and all other mandatory monthly debt payments.

Conventional mortgage loans typically allow 36% at most. Any more than that and the buyer probably can’t afford your home.

4. Charge Fees for Your Trouble

Mortgage lenders charge points and fees. If you’re serving as the lender, you should do the same.

It’s more work for you to put together all the loan paperwork. And you will almost certainly have to pay an attorney to help you, so make sure you pass those costs along to the borrower.

Beyond your own labor and costs, you also need to make sure you’re being compensated for your risk. This loan is an investment for you, so the rewards must justify the risk.

5. Set a Balloon

You don’t want to be holding this mortgage note 30 years from now. Or, for that matter, to force your heirs to sort out this mortgage on your behalf after you shuffle off this mortal coil.

Set a balloon date for the mortgage between three and five years from now. You get to collect mostly interest in the meantime, and then get the rest of your money once the buyer refinances or sells.

Besides, the shorter the loan term, the less opportunity there is for the buyer to face some financial crisis of their own and stop paying you.

6. Be Listed as the Mortgagee on the Insurance

Insurance companies issue a declarations page (or “dec page”) listing the mortgagee. In the event of damage to the property and an insurance claim, the mortgagee gets notified and has some rights and protections against losses.

Review the insurance policy carefully before greenlighting the settlement. Make sure your loan documents include a requirement that the borrower send you updated insurance documents every year and consequences if they fail to do so.

7. Hire a Loan Servicing Company

You may multitalented and an expert in several areas. But servicing mortgage loans probably isn’t one of them.

Consider outsourcing the loan servicing to a company that specializes in it. They send monthly statements, late notices, 1098 forms, and escrow statements (if you escrow for insurance and taxes), and verify that taxes and insurance are current each year. If the borrower defaults, they can hire a foreclosure attorney to handle the legal proceedings.

Examples of loan servicing companies include LoanCare and Note Servicing Center, both of whom accept seller-financing notes.

8. Offer Lease-to-Own Instead

The foreclosure process is significantly longer and more expensive than the eviction process.

In the case of seller financing, you sell the property to the buyer and only hold the mortgage note. But if you sign a lease-to-own agreement, you maintain ownership of the property and the buyer is actually a tenant who simply has a legal right to buy in the future.

They can work on improving their credit over the next year or two, and you can collect rent. When they’re ready, they can buy from you — financed with a conventional mortgage and paying you in full.

If the worst happens and they default, you can evict them and either rent or sell the property to someone else.

9. Explore a Wrap Mortgage

If you have an existing mortgage on the property, you may be able to leave it in place and keep paying it, even after selling the property and offering seller financing.

Wrap mortgages, or wraparound mortgages, are a bit trickier and come with some legal complications. But when executed right, they can be a win-win for both you and the buyer.

Say you have a 30-year mortgage for $250,000 at 3.5% interest. You sell the property for $330,000, and you offer seller financing of $300,000 for 6% interest. The buyer pays you $30,000 as a down payment.

Ordinarily, you would pay off your existing mortgage for $250,000 upon selling it. Most mortgages include a “due-on-sale” clause, requiring the loan to be paid in full upon selling the property.

But in some circumstances and some states, you may be able to avoid triggering the due-on-sale clause and leave the loan in place.

You keep paying your mortgage payment of $1,122.61, even as the borrower pays you $1,798.65 per month. In a couple of years when they refinance, they pay off your previous mortgage in full, plus the additional balance they owe you.

Of course, you still run the risk that the borrower stops paying you. Then you’re saddled with making your monthly mortgage payment on the property, even as you slog through the foreclosure process to try and recover your losses.


Final Word

Offering seller financing comes with risks. But those risks may be worth taking, especially for hard-to-sell properties.

Only you can decide what risk-reward ratio you can live with, and negotiate loan terms to ensure you come out on the right side of the ratio. For unique or other difficult-to-finance properties, seller financing may be the only way to sell for what the property’s worth.

Before you write off the returns as low, remember that your APR will be far higher than the interest rate charged.

Beyond the upfront fees you can charge, you’ll also benefit from simple interest amortization, which front-loads the interest so that nearly all of the monthly payment goes toward interest in the first few years — the only years you need to finance if you structure the loan as a balloon mortgage.

Just be sure to screen all borrowers extremely carefully, and to take as many precautions as you can. If the borrower can’t qualify for a conventional mortgage, consider that a glaring red flag. Seller financing involves risking many thousands of dollars in a single transaction, so take your time and get it right.

Source: moneycrashers.com

Alternative Credit Data

Many people assume that you automatically receive a credit report when you’re born or turn 18, but this is far from the truth. The three major credit bureaus (Experian, TransUnion and Equifax) don’t open a credit file on you until you apply for and start using a form of credit. Some people may live several years into their adult lives without ever getting to this point. There is a financial term for people who have little or no credit—they’re known as credit invisibles.

As of 2019, there was an estimated 26 million adults in the United States with a thin or stale credit score. Unfortunately, these people can find themselves facing denials on credit applications or approvals with incredibly high interest rates. In fact, a low or nonexistent credit score can stop a person from getting credit cards or loans, being approved for a mortgage or even getting hired for a job.

In response to this gap that’s leaving millions of Americans in a tough predicament, alternative credit data is becoming more popular.

What is alternative credit data?

Alternative credit data is information that allows lenders to have more insight into a person with a limited credit profile. Traditional credit data looks at factors such as:

  • Credit card history
  • Loan and loan repayment history
  • Mortgage history
  • Credit inquiries
  • Public records, such as bankruptcy files

In comparison, alternative credit data looks at:

  • Rent payments
  • Utility payments
  • Cell phone payments
  • Payments for cable television
  • Payments for subscription services, such as Netflix
  • Money management markers (the amount of money in your savings, frequency of withdrawals and deposits and how long your accounts have been open)
  • The value of owned assets, such as cars or property
  • Payments on alternative lending methods such as payday loans, rent-to-own payments, installment loans, auto title loans and buy-here-pay-here auto loans
  • Demand deposit account (DDA) information (recurring payment deposits and payments, average account balance, etc.)

This alternative credit data is valuable information that can provide a clear picture of how risky a consumer is. For example, if a person has never missed a payment or made a late payment on their rent, has a decent amount of savings in their account and has steady recurring income, then you know they’re responsible with their money. Alternatively, a person who frequently makes late rent and cell phone payments will likely behave the same with credit payments.

How can alternative credit data be helpful?

Alternative credit data can give you a score if you don’t have one or boost your current score. Many people have ended up—either intentionally or unintentionally—as credit invisible. This means FICO doesn’t have enough information on them to determine a credit score.

After opening your first credit account, you’ll have to wait another six months before FICO issues a credit score on your profile. This is because the system needs at least six months’ worth of data to establish a pattern of behavior.

People can become credit invisible for various reasons. They could have spent years in a mostly cash job, such as serving or bartending, and never bothered to open credit. Or maybe they were scared of debt and avoided credit to avoid temptation.

Whatever the reason, credit invisible people can’t get very far without traditional credit data to back them up. Having no credit data is like a vicious cycle—it’s challenging to get approved for credit products without having credit information. So these people struggle to improve their thin profiles even when they want to.

However, in recent years, alternative data has grown in popularity because lenders have started to see this market segment’s value. It was previously assumed that those with thin credit were risky individuals. Now, it’s become more and more apparent that many of these people are potentially safe individuals who would be responsible with credit.

Does alternative credit data really work?

Yes, alternative credit data really works and is used by major credit bureaus and lenders. Additionally, alternative credit data is recognized by the Equal Credit Opportunity Act (ECOA). The ECOA requires that all credit scores:

  • Prove the scoring model can accurately predict risk
  • Don’t discriminate against any protected class based on marital status, gender, race, religion, sexual orientation, etc.

Alternative credit data can help both consumers and businesses. It gives more credit opportunities to the credit invisible who have a track record of being financially responsible. Of course, some people with thin credit profiles are high risk. But a report titled “Research Consensus Confirms Benefits of Alternative Data” found that a significant portion of credit invisible people are low to moderate risk.

Options for alternative credit data

There are a few options when it comes to alternative credit data.

UltraFICO

In 2018, FICO introduced its UltraFICO score to help those with a thin or nonexistent credit profile. Consumers simply need to link their bank accounts with their FICO score to provide additional indicators of sound financial behavior. If a consumer is financially responsible, they might see an increase in their FICO score. This is a free service and only requires a voluntary opt-in.

Experian Boost

In response to UltraFICO, Experian quickly followed and introduced its Experian Boost service. This free service allows consumers to link their bank accounts to their Experian profile to provide the credit bureau with more financial information. Experian says that, on average, consumers saw a 13-point increase in their credit score with Experian Boost.

Note that to benefit from this service, the lender you’re using will need to pull FICO Score 8 or higher and use Experian as the credit bureau of choice.

Level Credit

Level Credit is a company that promises to help “consumers build the credit they deserve.” Through Level Credit, consumers can link their bank accounts and have their rent payments reported in their credit profile. Level Credit verifies the payments and reports it to the credit bureaus on your behalf.

It’s important to note that to benefit from alternative credit data, you’ll have to use a lender that is willing to or already does use this type of information when evaluating potential borrowers. While many lenders are slowly starting to adopt these alternative scores, it’s not completely widespread across all credit lenders yet. Consider asking your lender up front if they consider alternative credit data before you apply with them.

How does your credit look?

Now that you know what alternative credit data is, it’s time to decide if you need it. First, know where your credit stands. Get a copy of your credit report and credit score. If you have a thin profile or a low credit score, you may need alternative credit data. Remember that alternative credit data will only benefit you if you’ve been responsible with payments.

Even if you’re relying on alternative credit data right now, it’s never too early to start building up your traditional credit data. You can improve your credit score by making payments on time, reducing your debt and keeping your credit utilization ratio low. Starting these behaviors early will also set you up for success so you’re always making financially sound decisions.


Reviewed by Vince R. Mayr, Supervising Attorney of Bankruptcies at Lexington Law Firm. Written by Lexington Law.

Vince has considerable expertise in the field of bankruptcy law. He has represented clients in more than 3,000 bankruptcy matters under chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code. Vince earned his Bachelor of Science Degree in Government from the University of Maryland. His Masters of Public Administration degree was earned from Golden Gate University School of Public Administration. His Juris Doctor was earned at Golden Gate University School of Law, San Francisco, California. Vince is licensed to practice law in Arizona, Nevada, and Colorado. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

How to Adjust Your Federal Income Tax Withholding Allowances

My husband and I were recently shocked by the amount of our income tax refund. At first, we were elated. It was enough to pay off our car, allowing us to live debt-free. At the same time, we were kicking ourselves for not having this money available for use during the past year.

Maybe you’ve had a similar experience — or the opposite (and decidedly less pleasant) one where you’ve had to pay more money in federal income taxes than you expected. Regardless, the issue is the same.

In both these situations, the amount withheld from your paycheck isn’t coinciding with the amount you really owe.

The best way to fix it is to adjust your federal income tax withholdings, which you can do in a few simple steps. But only make such an adjustment if you’re sure you need to.

When to Adjust Your Income Tax Withholding

You can adjust your withholding at any time. However, many life events can impact your taxes, so it’s a good idea to update your withholding whenever something significant changes.

These life events are a red flag you may need to revisit your withholding.

1. You Started a New Job

When you get a new job, your employer requires you to fill out a W-4 so they can determine how much federal income tax to withhold from your paycheck.

It may seem like just another routine part of your onboarding paperwork, but it’s crucial to complete the form accurately to ensure you won’t end up with an unexpected year-end tax bill.

2. You Got a Big Refund

If you received a large tax return from the IRS for last year’s taxes, that means your employer was taking too much money out of your paycheck. It’s exciting to get a big check, but think of it this way:

That’s money that belongs to you that you were essentially loaning the government interest-free. If you didn’t do that, not only could you have used that money throughout the tax year to pay for your expenses, but you could also have invested it and received interest on it.

It’s exciting when you can do something smart with your tax refund, but it is not the best financial situation.

For example, say you got a refund of $1,000. You gave the government $1,000, and the government gave you back $1,000.

Had your tax withholding amount been correct, you could have invested that $1,000 or had it available in an emergency fund instead. Instead, you gave the federal government an interest-free loan.

The IRS will only refund the amount you overpaid, with no interest. So your goal should be to have zero tax refund, or close to it.

3. You Owe Money to the IRS

It’s an awful feeling when you owe a large amount of money to the government, especially if you thought you might be getting a refund. But as with anything you must save up for, you need to put a little extra money aside with each paycheck to cover a considerable expense.

One way to do that is not to have the money in your possession at all. Out of sight, out of mind. Increase your withholding so the government gets the money before you receive it.

For example, if you owe $1,000 and get paid weekly, you can spread that $1,000 out over 52 weeks. So instead of owing the government $1,000 in one lump sum, give them an extra $20 each week to avoid owing when you file your taxes at the end of the year.

4. You’re Expecting Life Changes

When your life changes, so do your taxes.

Did you get married? Have a baby? Buy a home? Start giving charitable contributions? Are you expecting any of these changes in the next year?

All these things affect your taxable income and tax breaks like itemizing versus claiming the standard deduction or claiming the child tax credit. So take the opportunity to review your tax withholding and adjust accordingly.


How to Adjust Your Federal Tax Withholding

To adjust the amount of taxes withheld from your paycheck, the first step is on you, and the rest is on your employer. There are a few different methods to determine the withholding that makes the most sense for your tax situation.

Before you get started, have your previous year’s tax documents handy as well as your last pay stub.

1. Form W-4 Employee’s Withholding Certificate

If it’s been a few years since you filled out a Form W-4 for your job, you might think you need to calculate the number of allowances you need to claim to get the right withholding. But allowances aren’t part of Form W-4 anymore.

The Tax Cuts and Jobs Act of 2018 eliminated personal exemptions — a set amount taxpayers could deduct for themselves, their spouse, and each of their dependents

The old allowance method of calculating withholding was tied to those exemptions, so it didn’t make sense to use them anymore, and Form W-4 was redesigned in 2020 to reflect a new way of estimating your tax liability. Now, it includes just a handful of steps to help you complete the worksheet and adjust your withholding.

If you and your spouse are a two-earner household, pay special attention to Step 2, whether you’re going to be married filing jointly or separately, as it has instructions for joint filers that both hold jobs.

If you need more help, the IRS has a more user-friendly tool: a withholding calculator.

2. IRS Withholding Calculator

The easy-to-use IRS Tax Withholding Estimator is on the IRS website. To use it, you answer a series of questions about your filing status, dependents, income, and tax credits. That’s where having your previous tax documents and last pay stub comes in handy.

3. Fill Out a New Form W-4

Once you’ve used the Tax Withholding Estimator tool, you can use the results of the calculator to fill out a new Form W-4. Give it to your employer’s human resources or payroll department, and they’ll make the necessary adjustments.

Some employers have an automated system for submitting withholding adjustments, so check with your employer to see if they have this option available.

It’s a good idea to take action as soon as you know you need to adjust your withholding since it will impact every paycheck you earn for the rest of the year.


Final Word

The lower your withholding, the less tax your employer will withhold from your paycheck. That may seem like a good thing, but you don’t want to have too much withheld or you could be liable for an underpayment penalty when you file.

Managing taxes can be confusing, and withholding is just the first of many things you need to know to handle your taxes well. For more guidance, check out our complete tax filing guide.

Source: moneycrashers.com

Someone Took Out a Loan in Your Name. Now What?

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Identity theft wears many different faces. From credit cards to student loans, thieves can open different forms of credit in your name and just like that, destroy your credit history and financial standing.

If this happens to you, getting the situation fixed can be difficult and time-consuming. But you can set things right.

If someone took out a loan in your name, it’s important to take action right away to prevent further damage to your credit. Follow these steps to protect yourself and get rid of the fraudulent accounts.

1. File a police report

The first thing you should do is file a police report with your local police department. You might be able to do this online. In many cases, you will be required to submit a police report documenting the theft in order for lenders to remove the fraudulent loans from your account. (See also: 9 Signs Your Identity Was Stolen)

2. Contact the lender

If someone took out a loan or opened a credit card in your name, contact the lender or credit card company directly to notify them of the fraudulent account and to have it removed from your credit report. For credit cards and even personal loans, the problem can usually be resolved quickly.

When it comes to student loans, identity theft can have huge consequences for the victim. Failure to pay a student loan can result in wage garnishment, a suspended license, or the government seizing your tax refund — so it’s critical that you cut any fraudulent activity off at the pass and get the loans discharged quickly.

In general, you’ll need to contact the lender who issued the student loan and provide them with a police report. The lender will also ask you to complete an identity theft report. While your application for discharge is under review, you aren’t held responsible for payments.

If you have private student loans, the process is similar. Each lender has their own process for handling student loan identity theft. However, you typically will be asked to submit a police report as proof, and the lender will do an investigation.

3. Notify the school, if necessary

If someone took out student loans in your name, contact the school the thief used to take out the loans. Call their financial aid or registrar’s office and explain that a student there took out loans under your name. They can flag the account in their system and prevent someone from taking out any more loans with your information. (See also: How to Protect Your Child From Identity Theft)

4. Dispute the errors with the credit bureaus

When you find evidence of fraudulent activity, you need to dispute the errors with each of the three credit reporting agencies: Experian, Equifax, and TransUnion. You should contact each one and submit evidence, such as your police report or a letter from the lender acknowledging the occurrence of identity theft. Once the credit reporting bureau has that information, they can remove the accounts from your credit history.

If your credit score took a hit due to thieves defaulting on your loans, getting them removed can help improve your score. It can take weeks or even months for your score to fully recover, but it will eventually be restored to its previous level. (See also: Don’t Panic: Do This If Your Identity Gets Stolen)

5. Place a fraud alert or freeze on your credit report

As soon as you find out you’re the victim of a fraudulent loan, place a fraud alert on your credit report with one of the three credit reporting agencies. You can do so online:

When you place a fraud alert on your account, potential creditors or lenders will receive a notification when they run your credit. The alert prompts them to take additional steps to verify your identity before issuing a loan or form of credit in your name. (See also: How to Get a Free Fraud Alert on Your Credit Report)

In some cases, it might be a good idea to freeze your credit. With a credit freeze, creditors cannot view your credit report or issue you new credit unless you remove the freeze.

6. Check your credit report regularly

Finally, check your credit report regularly to ensure no new accounts are opened in your name. You can request a free report from each of the three credit reporting agencies once a year at AnnualCreditReport.com. You can stagger the reports so you take out one every four months, helping you keep a close eye on account activity throughout the year. (See also: How to Read a Credit Report)

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Someone Took Out a Loan in Your Name. Now What?

Source: wisebread.com

What are derogatory marks and how can you fix them?

Derogatory Marks Header Image

Having a few items on your credit report dragging down your score can be incredibly frustrating, especially if you have a good financial record.

A derogatory mark is a negative item on your credit report that can be fixed by removing it or building positive credit activity. Because derogatory marks can stay on your credit report typically for seven to ten years, it’s important to know how to fix them.

Derogatory marks can affect your credit score, your ability to be approved for credit and the interest rates a lender offers you. Some derogatory marks are due to poor credit activity, such as a late payment. Or it could be an error that shouldn’t be on your report at all.

Types of negative items include late payments (30, 60, and 90 days), charge-offs, collections, foreclosures, repossessions, judgments, liens, and bankruptcies. We’ll cover what each one of these means, and how they can impact your credit reports.

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How do derogatory marks impact my credit score?

The amount that derogatory marks lower your credit score depends on the mark’s severity and how high your credit score was before the mark. For instance, bankruptcy has a greater impact on your credit score than a missed payment or debt settlement. And, unfortunately, having a derogatory mark impacts a high credit score more than it does a low credit score.

According to CreditCards.com and CNNMoney, even a single negative on your credit could cost you over 100 points. Negative items on your credit could cost you thousands of dollars in higher interest rates, or you could be denied altogether.

negative item score decrease stats

How long a derogatory mark stays on your credit report depends on the type of mark.

How long do derogatory marks stay on my credit report?

Derogatory marks usually stay on your credit report for around seven to ten years, depending on the type. After that period passes, the mark will roll off your report and you should start seeing a change in your credit score.

Here’s how long each derogatory mark stays on your credit report:

Type of derogatory mark What is it? How long does this stay on a credit report?
Late payment Late payments are payments made 30 days or more after the payment due date. Typically, this can remain on your report for seven years from the date you made a late payment.
An account in collections or a charge-off Creditors send your account to collections or charge them off if there’s been no payment for 180 days. Typically, this can remain on your report for seven years from the date you made a late payment.
Tax lien A tax lien is when the government claims you’ve neglected or failed to pay taxes on your property or financial assets. Unpaid tax lien: Can remain on your report indefinitely.

Paid tax lien: Can remain on your report seven years from the date the lien was filed.

Civil judgment Civil judgments are a debt you owe through the court, such as if your landlord sued you over missed rent payments. Unpaid civil judgment: Can remain on your report for seven years from when the judgment was filed, but can be renewed if left unpaid.

Paid civil judgment: Can remain on your report for seven years from when the judgment was filed.

Debt settlement Debt settlement is when you and your creditor agree that you will pay less than the full amount owed. A typical time period is seven years, starting from when the debt was settled or the date of the first delinquent payment if there were missed payments.
Foreclosure Foreclosure is when you fail to pay your mortgage and you forfeit the right to the property. Typically, seven years from the foreclosure filing date.
Bankruptcy Bankruptcy is a court proceeding to discharge your debt and sell your assets. Can remain on your report for seven years for Chapter 13 bankruptcy. Chapter 7 bankruptcy can remain on your report for 10 years.
Repossession A repossession is when your assets are seized, such as a vehicle that was used as collateral. Can remain on your report for seven years from the first date of the missed payment.

Types of derogatory marks

Late payments

Late payments occur when you’ve been 30, 60, or 90 days late paying an account. Although you don’t want late payments on your credit reports, an occasional 30 or 60-day late payment isn’t too severe. But you don’t want frequent late payments and you don’t want late payments on every single account. One recent late payment on a single account can lower a score by 15 to 40 points, and missing one payment cycle for all accounts in the same month can cause a score to tank by 150 points or more.

Payments 90 days late or more start to factor more heavily into your credit score, and consecutive late payments are even more harmful to your score, as each subsequent late payment is weighted more heavily. Sometimes, creditors will report payments as late as 120 days, which can be almost as severe as charge-offs and collections. Late payments can be reported to the credit bureaus once you have been more than 30 days late on an account and these late payments can stay on your credit reports for up to seven years.

Charge offs

A charge off is when a creditor writes off your unpaid debt. Typically, this occurs when you have been 180 days late on an account. Charge offs have a severely negative impact on your credit, and like most other negative items can stay on your credit reports for seven years. When an account is charged off, your creditor can sell it to collection agencies, which is even worse news for your credit.

Creditors see a charge off as a glaring indication that you have not been responsible with your finances in the past and cannot be counted on to fulfill your financial obligations in the future. When creditors see a charge off on your credit reports, they are more likely to deny any new applications for loans or lines of credit because they see you as a financial risk. If you do qualify, this can mean higher interest rates. Current creditors can respond by raising your interest rates on your existing balances.

Tax liens

In most cases, liens are the result of unpaid taxes – whether it’s at the state or the federal level. For a federal tax lien, the IRS can place a lien against your property to cover the cost of unpaid taxes. Tax liens can make it difficult to get approved for new lines of credit or loans because the government has claimed to your property. What this means is that if you default on any other accounts, your creditors have to stand in line behind the IRS to collect.

Unpaid liens can stay indefinitely on your credit reports. Once they have been paid, however, they can stay on your reports for up to seven years. Like judgments though, the credit bureaus are strictly regulated on how they can report liens because they are also public records.

Civil judgments

Judgments are public records that are also referred to as civil claims. A judgment can be taken out against a debtor for an unpaid balance. A creditor or collection agency can file a suit in court. If the court rules in favor of the creditor, a judgment is taken out against the debtor and put on their credit reports. This, like many other negative items, has a severely negative impact, and like most other negative items can be reported for seven years.

Judgments are also another indication that a person won’t pay their debts. Lawsuits are time-consuming and costly, so they are something that creditors potentially want to avoid. When a judgment is filed though, it can impact more than credit. The judge may allow the creditor to garnish a debtor’s wages, which can heavily impact finances.

Collections

Collections are the most common types of accounts on credit reports. About one-third of Americans with credit reports have at least one collection account. Over half of these accounts are due to medical bills, but other accounts like unpaid credit cards and loans, utilities, and parking tickets can be sold to collections.

Collections arise from debts that are sold to third parties by the original creditor if a bill goes unpaid for too long. They have a severe negative impact on your credit and can stay on your reports for up to seven years. When potential creditors see collections on your credit reports, it can raise flags and cause them to think that you won’t pay your debts.

Foreclosures

A foreclosure is a legal proceeding that is initiated by a mortgage lender when a homeowner has been unable to make payments. Usually, a lender will file a foreclosure when a homeowner has been three months late or more on mortgage payments.

When a lender decides to foreclose, they begin by filing a Notice of Default with the County Recorder’s Office, which begins the legal proceedings. If a foreclosure goes through and a homeowner can’t catch up on payments, then they are evicted from their home, and the foreclosure is reported to the credit bureaus.

Bankruptcies

Bankruptcy is extremely damaging to credit. Individuals who file for bankruptcy are those who have too much debt, and not enough money to pay it. They likely have had overdue accounts for a long period of time and in some cases loss of income that prevents them from being able to pay any of their bills. Bankruptcies can also arise from huge medical debt.

Whether or not file for bankruptcy is a difficult decision, and doing so can impact your credit from seven to ten years, depending on the type of bankruptcy you file. When a bankruptcy is filed, debts are discharged and the individuals filing are released from most of their previously incurred debts (there are some exceptions). This option can give people a “clean slate” from debt, but creditors don’t like to see it on credit reports because it can imply that an individual won’t pay their debts.

Repossessions

A repossession is a loss of property on a secured loan. Secured loans are where you have collateral, like a car or a house, and the loss occurs when the lender takes back the property because of the inability to pay. Usually, when this occurs, the lender will auction off the collateral to make up for the remaining balance, although it doesn’t usually cover the remaining balance.

When there is a remaining balance, the creditor may choose to sell it off to collections. A repossession has a severe negative impact on credit because it shows a debtor’s inability to pay back a loan. Usually, a repossession follows a long line of late payments and can knock a lot of points off a credit score.

How can I improve my credit score with derogatory marks on my credit report?

If you have derogatory marks, you can improve your credit score by working to rebuild your credit. By boosting your credit score, you’re more likely to get approved for loans and credit cards.

Here’s how to improve your credit score based on the type of derogatory mark:

Derogatory mark What to do to improve your credit score
Late payments Pay off the full debt as soon as possible. If there are late fees, ask the creditor to drop the fee (they often do if it’s your first time being late).
Stay on top of your payments with other lenders to show that you’re responsible, reducing the impact of a late payment.
An account in collections or a charge-off Pay off the debt or negotiate a settlement where you pay less than the full amount owed. Making a payment doesn’t remove the negative mark from your report, but prevents you from being sued over the debt.
Tax lien Pay the taxes you owe in full as soon as possible. Continue to make timely payments with any creditors and lenders.
Civil judgment Pay off the judgment amount, ideally before it gets to court. Make other payments on time to limit the impact of the civil judgment on your credit score.
Debt settlement Pay the full settled amount to prevent your account from going to collections or being charged off.
Foreclosure Keep other credit and loans open and make timely payments to build up positive credit activity.
Bankruptcy Rebuild your credit after bankruptcy with credit cards that cater to lower credit and credit builder loans. Make timely payments to reestablish that you’re a responsible borrower.
Repossessions Continue to pay other bills on time and pay off any further debt to the creditor.

You can also remove derogatory marks if they’re inaccurate or unfairly reported. By requesting your free credit report, you can look for mistakes and inaccuracies.

For example, check to see if a missed payment was inaccurately reported or if someone else’s account got mixed up with yours. You can remove these mistakes, giving your credit score a boost. 

How do I remove derogatory marks from my credit report?

You can remove derogatory marks from your credit report by disputing inaccuracies with the credit bureaus. Here’s how:

1. Request and review your credit report

TransUnion, Equifax and Experian provide one free credit report each year. Request your credit report and review it closely for errors.

Look through both “closed” and “open” derogatory marks. Check to see if your personal information is correct and if the creditor reported payments and dates appropriately. Take note of any discrepancies.

2. Dispute derogatory marks

If you notice incorrect items, payments or dates you need to file a dispute with that credit bureau (and any bureau that lists the item on your report).

You can file a dispute through the credit bureau or have a professional assist you. It’s best to make disputes as soon as you notice them, ideally within 30 days of the incident. The credit bureaus must respond to you within 30-45 days. 

3. Follow up on the dispute

You may have to provide more information or proof to refute something on your credit report. Be sure to respond to any inquiries by the specified time. Check your credit report afterward to make sure that the error is removed.

Removing a derogatory mark from your credit report helps to repair your credit. You’ll also want to improve your credit by doing things like lowering your credit utilization rate, upping the average age of your credit and making timely payments.

If you’re unable to remove a derogatory mark from your credit report, you’ll need to wait until it rolls off of your report, usually within seven to 10 years. In the meantime, work to rebuild your credit and improve your creditworthiness.

steps to remove derogatory marks from credit report

How can I get help with derogatory marks?

You can remove derogatory marks from your credit report by yourself. However, getting help from a credit repair company can make the process easier and improve your chances of getting the negative mark removed.

Many consumers appreciate professional help as it saves time, energy and resources. Contact us for a free credit report consultation. We’ll talk about your unique situation and the ways that we can help you.

Source: lexingtonlaw.com

This is What Every Millennial Should do Before Buying a House

Can you see a white picket fence in your near future? Then take 90 seconds to sign up for a free Credit Sesame account. The sooner you get started, the closer you’ll be to your goal of a good credit score — and homeownership.
Owning a home is no small feat — especially after the financial apocalypse and dismal job market millennials have persevered through. Twice.
In two minutes, you can sign up for a free Credit Sesame account and get personalized tips on how to improve your score. You’ll also be able to see any of your debt-carrying accounts, plus any marks or errors holding you back (it’s more common than you’d think).
Ready to stop worrying about money?
Without a good credit score, getting approved for a mortgage is going to be tough. And getting a decent interest rate is going to be even harder — meaning a homeowner could be paying tens of thousands of dollars more for their home than someone with excellent credit. Yikes.
So for millennials ready to take the next big step in their life and stake a claim on a piece of property, make sure your credit is on track. Credit Sesame can help you bump it up — making homeownership more attainable.
How did they do it? Well, everyone follows a different path to homeownership — but there is one thing most home-owning millennials have in common: a good credit score.
Source: thepennyhoarder.com
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And yet, despite all odds, millennials are now the biggest group of homeowners in the United States, according to 2020 research by the National Association of Realtors.

How to Get a TV for Cheap – 7 Ways to Get Deals on a New Television

TVs and many other electronics are interesting because as quality has steadily improved over the years, prices have dropped. According to the Bureau of Labor Statistics, the price index for TVs decreased by 94% between 1997 and 2015.

In other words, TVs become more affordable every year despite continuous upgrades and new features.

However, if you’re buying a new TV, you still need to be somewhat price-conscious. The latest plasma or LCD TV models still set you back several hundred dollars or more. Like other major purchases, it’s important to ensure you buy the right TV that has the right balance between price and features.

Thankfully, there are several ways to get the best deal on a new TV to help keep costs down. As long as you give yourself enough time to shop and keep these strategies in mind, your next TV upgrade shouldn’t drain your wallet.

The Best Ways to Save Money on a New TV

Buying a new TV isn’t going to be cheap. Ultimately, screen size, features, and brand influence prices the most. If you’re set on a specific size and type of TV, your savings will only go so far.

However, there’s no reason to pay full price for a new TV, regardless of the size and type you buy. Implement one or more of the following money-saving tips the next time you decide to upgrade your TV to keep more money in your wallet.

1. Shop Online

It might seem daunting to buy a new TV online. After all, you probably want to see it in person to help visualize what it would look like in your home.

However, one of the easiest ways to save on a new TV is to buy online. Shopping online saves time, and if you use shopping browser extensions, it’s easy to comparison shop to ensure you’re getting the lowest possible price.

For example, extensions like PriceBlink tracks product prices across thousands of retailers. If you’re shopping for a new TV, PriceBlink notifies you if there’s a better deal on a different website for instant savings.

To take your savings further, use extensions like Capital One Shopping and Honey. Both extensions automatically apply coupon codes at checkout to help you save money.

Plus, you can earn free gift cards with both extensions for shopping at specific retail partners. If you’re buying a high-ticket item like a TV, a single coupon code can go a long way in your efforts to save money.

Finally, online tech deal sites are also worth checking to find low prices on TVs and other electronics. For example, websites like Newegg and SlickDeals often have TV discounts that can shave off a significant portion of your price tag.

Buying a new TV online is also less stressful if you do your research. Room size matters for screen size, so measure the area you plan to set up your TV to gauge if you’re buying the right size. TV buying guides can also help you decide on your screen size based on how far away your seating is from the TV and how crowded the room is.

Finally, read reviews for any TV you’re considering. If you’re concerned, you can also check out the TV you’re considering in-store before placing your order online.


2. Use a Cash-Back Credit Card

Buying a new TV is a considerable expense. Additionally, if your new TV purchase is part of a home improvement project or move, you probably have other major expenses alongside your new tech.

Using a cash-back credit card for everyday purchases is a savvy move. However, for large expenses, credit cards are even more lucrative.

Plus, credit cards often have introductory bonuses if you spend a certain amount of money within the first few months of becoming a cardholder. If you take advantage of a bonus while TV shopping, you’re making the most of your money.

Several popular cash-back credit cards worth considering include:

  • Chase Freedom Unlimited: No annual fee; earn $200 when you spend $500 within the first three months; 5% cash back at grocery stores; unlimited 1.5% on most other purchases; up to $500 in purchase protection for 120 days. Read our Chase Freedom Unlimited review for more information.
  • U.S. Bank Cash+ Visa Signature Card: No annual fee; earn $150 when you spend $500 within the first three months; 5% cash back up to $2,000 on two categories of your choice, which can include electronics; 1% to 2% cash back on everything else. Read our U.S. Bank Cash+ Visa Signature Card review for more information.
  • Costco Anywhere Visa Card by Citi: Requires a Costco membership; 4% cash back on first $7,000 in eligible gas purchases; unlimited 3% cash back on travel and restaurant spending, unlimited 2% cash back on Costco purchases; unlimited 1% cash back on everything else; purchase protection against loss or damage for up to 90 to 120 days. Read our Costco Anywhere Visa Card review for more information.

The Chase Freedom Unlimited card is ideal if you want to take advantage of an easy $200 sign-up bonus. However, depending on how expensive your new TV is, 5% cash back from the U.S. Bank Cash+ card and sign-up bonus might earn more.

Finally, shopping at Costco to save money is already a smart move; if you do electronics shopping at Costco, sweeten the deal by signing up for their Anywhere Visa card to earn 2% cash back.


3. Tread Carefully with Extended Warranties

Extended warranties are protection plans you can purchase to cover damage and defects. You commonly find extended warranty plans for consumer electronics, vehicles, mobile phones, and even home warranty plans.

On paper, extended warranties might seem like they’re worth it. After all, if you buy a new TV or other expensive product, your first instinct is to insure yourself against damage and disappointment down the line.

However, according to Consumer Reports, extended warranties for electronics are almost never worth the cost. We tend to overestimate the likelihood our tech products will fail, and there are several other considerations to keep in mind:

  • Manufacturer Warranties. Tech products usually have some form of manufacturer warranty to protect against defects. Most warranties last for 90 days, which might suffice for protecting your purchase against defects and damage.
  • Store Policies. Big box retailers generally have lenient return policies that cover product malfunctions or defects. Some stores even let you return products without any real reason, provided they aren’t damaged. For example, Walmart lets you return TVs within 30 days and provides a refund for damaged or defective products. Therefore, extended warranties aren’t needed to protect yourself against out-of-the-box defects.
  • Term Length. Companies sell extended warranties to profit, which isn’t in customers’ best interests. Many extended warranty plans last one to two years, but the bulk of technical issues you encounter will probably occur long after this time frame. In other words, extended warranties on electronics is buying protection for the least risky period of ownership.

If you want to maximize your savings when buying a new TV, you should almost always skip the warranty.


4. Consider Older Models

Like most tech products, TVs improve every year with the release of new models. Resolutions of 4K become 8K, screen sizes get larger, and picture quality sharpens. For true technophiles and cinema lovers, the latest models are undeniably a cause for excitement.

However, part of TV shopping involves considering the diminishing returns on your spending. Do you really need the latest TV model, largest screen, and sharpest resolution that’s on the market? Depending on your room, viewing habits, and budget, buying an older TV model is often how you get the most value.

Even buying a year-old model can make a significant difference on price. Plus, modern TVs have come a long way compared to their heavy, clunky predecessors. Smart TVs that are a few years old still work with streaming services and devices.

Until a truly revolutionary line of TVs release, slightly older models will suffice for most viewers — and can save you hundreds of dollars.


5. Shop at The Right Time

For major purchases, timing sometimes means a significant difference in savings. Retailers price products differently based on demand and season, and TVs are no different. Therefore, if you’re planning to spend a few hundred dollars or more on a new TV, it might be best to hold off.

Historically, TV deals are most popular during two events: Black Friday and the Super Bowl. Black Friday is especially popular for TV shopping because almost every major retailer will offer a discount on electronics. Super Bowl deals are less common, but they’re worth keeping an eye on.

The best way to take advantage of a sale is to research presale prices at least a few weeks before the sale begins. Retailers are crafty, and sometimes your sale price is actually the same or more expensive than regular pricing because retailers first raise the base price to make a “sale” seem more appealing.

If you shop on Black Friday for the holidays, this is especially important because these faux sales are rampant. Following the price of the TV you want in the month leading up to Black Friday can help you spot a real bargain.

If you’re buying from Amazon, you can use the CamelCamelCamel extension to track Amazon prices and view price history for millions of products. Similarly, Honey and Capital One Shopping let you set up price tracking alerts on products to receive notifications when a product you’re interested in drops in price.

New TV models usually release in spring, so this is another ideal time to buy older TV models. Ultimately, if you give yourself enough runway, you can buy a new TV at a low price point for easy savings.


6. Use Reward Websites and Apps

Comparison-shopping websites or daily deal websites are useful for finding discounts. However, sometimes cash-back reward websites offer the greatest chance to save.

Rakuten is one popular option that pays you cash back for shopping at their partners. Creating a Rakuten account is free, and you simply visit Rakuten before shopping online to find opportunities to earn cash back.

In terms of TVs and electronics, notable Rakuten partners include:

  • Best Buy: Up to 1% cash back
  • TV Store Online: 7.5% cash back
  • Staples: 2% cash back
  • Office Depot: 2% cash back
  • Overstock: 4% cash back

Cash-back rewards are subject to change. Luckily, Rakuten partners with thousands of retailers, and there’s always an opportunity to earn cash back on your next electronics purchase. Rakuten also has online coupon codes, although cash back is where the platform shines.

If you can’t find deals on Rakuten, various reward apps are also worth trying. Apps like Drop pay you in free gift cards for shopping through the app at specific partners. Drop partners with plenty of big box retailers, making it easy to find TV deals.

Similarly, Dosh is another rewards app that automatically pays you cash back for shopping through its partners. Once you link your credit and debit cards to Dosh, you never have to worry about preselecting offers before shopping, and Dosh also partners with plenty of major U.S. retailers.

If you combine these rewards with shopping at the right time of year and other savvy tricks, you can get a new TV for much less than full price.


7. Consider Cheaper Brands

With electronics, you largely get what you pay for. Whether you’re shopping for noise-canceling headphones, a laptop, or a new TV, going for the cheapest option sometimes has consequences for performance and longevity.

If you’re buying a new TV for your home theater or family room, spending more on a premium brand and model might be worth it. However, if you just need a TV for watching the hockey game in your garage or for sending with your kid back to college, you don’t need to splurge on a leading brand.

Cheaper TV brands like Vizio and Insignia can get the job done without draining your wallet. You can also shop for refurbished electronics if you find a reputable seller and understand the warranty that comes with the TV.


Final Word

Like most electronics, TVs feel like something we need to update every few years. New models come out, screen sizes get larger, and it seems like upgrades are an inevitability.

There’s nothing wrong with buying a new TV or even splurging on a recent model with the latest specs. However, you should never pay full price for a new TV, especially if you’re on a tight budget and are trying to maximize your savings rate.

Additionally, consider the diminishing returns on your spending before making your next upgrade. New TVs are a luxury, but there comes a point at which spending more doesn’t necessarily increase enjoyment.

Source: moneycrashers.com

Wondering How to Become an Audiobook Narrator? Here’s How

Whether or not a royalty deal pays off is largely based on an author’s platform, The Creative Penn points out. Research an author before signing an agreement.
Source: thepennyhoarder.com
You’ll be paid a flat rate upon completion and approval of the project or monthly royalty payments based on book sales.
Some of it, Keppeler says, is just learning how to narrate correctly. “I had some coaching that finally brought me to the point of doing a fairly good job.”
If you charge a flat rate, you’ll be paid upon completion of the book. Royalties are paid monthly based on sales from the previous month.
Or reach into your network, and get creative to find freelancing gigs on your own.
“I don’t want to tie up my time, because you [typically] make very little on royalty books… I have four royalty books [on ACX], and about trickles in every quarter.”
Even if you don’t enjoy the subject matter, you can still enjoy the process of producing the book for readers.

How to Become an Audiobook Narrator

Search for books authors/publishers have posted, and record a few minutes of the manuscript to audition for the gig.
Before landing her first gig through ACX, Keppeler submitted auditions to the platform for well over a year.
How is narrating an audiobook different from just reading a book aloud?

What You Need to Know Before Auditioning

If you’re just getting started in voice-over work, try browsing Upwork for smaller projects you can use to find your voice, build your technical skills and grow your portfolio.
As audiobooks increase in popularity, Keppeler is seeing more audiobook work appear on Upwork. Freelancers, she says, tend to be better for general voice-over gigs, but not audiobook narration.
That’s because actors learn how to represent multiple characters, necessary for fiction narration in particular. Even for nonfiction, acting training can help you animate narration and make a book interesting.
If you’re just getting started, the platform gives you an opportunity to hone your chops.
Because an audiobook listener relies entirely on your narration, painting the picture just right (and meeting the author’s vision) is vital. It’s a distinct difference from other voice-over work, like commercials, where images or video complement the narration.
Author Joanna Penn recorded the audio versions of some of her own books. If you can’t afford coaching, she offers some tips for beginners at The Creative Penn to help you get started.
However, Keppeler says most freelance audiobook work will be paid in royalties. As you might guess, this reduces an author’s upfront cost — as well as their risk in hiring you.
But it does point out many narrators are members of the SAG-AFTRA union, which lists minimum rate restrictions.
Once she’d mastered the audiobook reading techniques, Keppeler said, she had to find her niche.
“In voice-over in general, there are so many different genres,” she said. “Most people find you have certain specialities and certain ones don’t fit.”
Keppeler’s top tip for anyone getting into voice-over work is to invest in a good microphone and headphones.
So you might consider starting small.

Learn Proper Technique

As with any freelance work, booking a gig directly with the client in your network allows you the most autonomy in setting your rate.
She says it doesn’t necessarily matter whether a book is interesting to her.
You’re expected to record, produce and deliver a finished product. Any additional help you bring in will cut into your pay. Keppeler says you’re better off just learning to do it yourself.
“I’m becoming a bit of a nonfiction specialist,” Keppeler said. “[When it comes to fiction], it’s hard to learn to do the different voices… Fiction books are heavily character-based, so you’re going to have to handle [those] unless you’re hired to work with a group, but that’s not that common.”
Bidding through an exchange site like ACX offers the lowest of both.

  • If you’re new at recording, schedule sessions a few days apart to ensure you have enough energy.
  • Try to avoid dairy before recording. Same goes for foods like peanut butter or anything that clogs up your mouth or throat (yeck!).
  • Try to modulate your breathing so you don’t end up holding your breath. This has a real effect on stamina.

Find Your Niche

But if you want to develop a long-term relationship with an author and you’ve found someone with a sizable audience, you may be better off with the royalty deal.
Long term, you could make much more money in sales royalties. Your working relationship with the author also will be strengthened, because you’ll be invested in the book’s success.
When you record an audiobook with ACX, you’ll choose between setting your own per-finished-hour rate or splitting royalties 50/50 with the rights holder (usually the book’s author or publisher).
Here’s an overview of how it works:
What ACX is good for, she said, is building your portfolio.
ACX also makes it difficult to achieve one of the staples of successful freelance work: repeat clients.

The Challenges of Audiobook Narration

Directly connecting through a freelance broker does offer that opportunity. Keppeler said it’s how she found the author of this series of books on Wicca, which offered her ongoing work.
Like other publishing services you’ll find at Amazon — CreateSpace for print-on-demand books, CDs and DVDs; and Kindle Direct Publishing for ebooks — ACX simplifies the process of producing an audiobook from start to finish.
Early on, she says,  “I lost out on work because I didn’t have a really great pair of headphones, and there was background noise that I wasn’t hearing. If you send something out that’s not good enough, they will never hire you again.”
But, “nonfiction has its own challenge,” Keppeler said. “Sometimes what you’re reading is kind of dry, but you still have to make it interesting.”
While readers and writers have skeptically watched the fluctuating publishing industry in recent years, one literary market has caught us all a bit by surprise: audiobooks.
Record and edit a 15-minute sample for feedback before recording and editing the full project. They’ll also have the right to approve or request changes once you’ve submitted the full project.
“At this point, whether it is or not, I am narrating it and finding the interesting bits for me and putting it into my voice,” Keppeler said.
Finally, “You have to have a desire to learn the technical part of it,” she said. “You can ruin an audiobook with bad editing.”
Some of the work involved goes beyond just recording the voice-over. “Especially if you work through ACX, you have to do the producing yourself,” Keppeler said. “[That’s] editing and mastering yourself. There’s a technical learning curve.”

  • Avoid page turning noises — read from a tablet, Kindle or other electronic device.
  • Turn off any devices’ Wi-Fi connections and set them to Airplane mode to avoid static noises. (They may be there, even if you can’t hear them.)
  • Each ACX file needs to be a single chapter of the book. It’s easier to record these as separate files rather than cut it up later.
  • The ACX technical requirements mean you have to add a few seconds of Room Tone at the beginning and end of the file.

How Much Money Can You Make Reading Audiobooks?

“You definitely have to have some training,” Keppeler said. “If you regularly listen to audiobooks and like them, that’s a good starting point. But you have to have a real desire to do this kind of work, because it’s a lot of work.”
“What I learned editing smaller jobs contributed a lot to being able to jump into audiobooks,” Keppeler said.
Because of this need to draw the reader into a made-up world, narrating fiction requires acting skills. Not everyone is cut out for it.
Only audition for gigs that fit your voice, and the success rate is much higher. You can even search for books by genre.
“When you read a book, you’re seeing and hearing things in your mind,” she said. “When you’re narrating that book, what you’re seeing and hearing in your mind you have to then vocalize. That’s not easy!”
This exploding market makes it imperative for authors and publishers to get books into audio form and on the most popular platforms — Audible (Amazon) and iTunes.
ACX offers comprehensive guides and FAQs for authors, narrators and publishers, so review those before you get started.
Mostly, Keppeler focuses on short books she can quickly complete. And she gets paid a flat rate of about 0 per finished hour, rather than royalties.
Enter Amazon’s Audiobook Creative Exchange (ACX), which connects audiobook narrators with books to narrate.
Based on her experience, Keppeler shares some advice — and warnings — for anyone interested in doing audiobook work.
If you’re an actor or voice-over artist, you could make money working in this market.
“I got started through freelancing and bidding on work,” Keppeler said. “I bid on a short audiobook and got that, and it went well. When ACX came along, I started auditioning there… It’s taken a little bit to discover where my voice fits.”
Even online course videos requiring a few hours of voice-over are much shorter than most audiobooks, which run closer to 10 to 15 hours. Hone your skills on smaller jobs and work your way up to the lengthier projects.
“I only go out to ACX when I don’t have other paid work,” Keppeler said.

Where to Find Audiobook Work

Search online for voice-over jobs — you’ll find promotional videos under five minutes or corporate training videos of five to 15 minutes.
Connecting with a client through a freelance broker like Upwork and Freelancer offers less autonomy and usually lower rates than working with someone directly.
Somewhere along the path of lengthy commutes and ubiquitous smartphones, a market for audiobooks erupted: people who don’t otherwise read much.
Practice your narrating and editing skills through auditions, and improve from author feedback. Once you land a few gigs, use those as samples to land clients elsewhere.
Upload samples to your profile to showcase your various skills — accents, genre, style, etc.
Before you spend months auditioning to land your first gig, we have some tips to help you get started.
Keppeler said the platform isn’t really set up to connect authors with narrators long-term. Instead you audition for each job. It eliminates a huge opportunity for narrators to work with an author on a series or future books.
“I have done royalty deals but only on ACX with short books,” she said.
If you’re just looking for a quick job and aren’t concerned with long-term sales, you can work with an author regardless of their audience. Set a flat rate, and get your money when the job’s done.
Not sure where to start? Here’s our guide.
Determine whether you’ll always want to be paid per finished hour or by royalty agreements, or if you’re open to either.

Audiobook Narrator Must-Haves

Editor’s note: This story was originally published in 2019. 
The Creative Penn also offers a few editing tips:
Eventually, she hired a professional to help improve her set-up. She says she wishes she had done it up front, instead of DIYing.
“My voice just fits with audiobook work,” Keppeler said. “Actors are especially tuned in for audiobook work, by the nature of our training.”
These guaranteed rates vary by publisher/producer. Author Roz Morris tells authors to expect to pay around 0 per finished hour for audiobook narration.

How to Get Started

She used trial and error. She took whatever narration work came her way, and listened to client feedback. When an author liked her voice, she knew it was a good fit.
While ACX may be a good place to find the work, the pay is usually lower, especially compared with freelance broker sites that aren’t dedicated solely to audiobook narration.

  1. Audiobooks require hours and hours of editing, making them much more labor intensive than a lot of other voice-over work.
  2. Why does it take so long to land a gig?
  3. Actor Kris Keppeler has been doing voice-over work for over a decade.
  4. Some tricks to consider:
  5. When you’re chosen by the author/publisher, they’ll send you an offer. To take the job, accept the offer. All of this should happen through ACX (not over the phone or via email) to ensure the contract terms are on record.
  6. Once you know your voice and which genres are the best fit, she says, jobs come much more quickly.
  7. A good pre-amp or audiobox can also help clean up your sound and eliminate background noise. But Keppeler warns against buying a cheap one — it’s a tool worth spending money on.

Create a profile to detail your experience.
What about contracting the technical stuff out to an audio editor? Keppeler says that for what you’re paid, it’s not usually worth it for an audiobook.
Dana Sitar (@danasitar) is a former branded content editor at The Penny Hoarder.
ACX doesn’t set or recommend rates for producers to charge.

Social Impact Investing – What It Is and How to Get Started

Social and environmental concerns are major topics in the United States today. Two of the biggest issues currently facing the country have to do with racial and social injustice as well as the environmental impact of burning fossil fuels to provide the power that maintains a developed society.

Consumers across the country are making big changes. Many homeowners are choosing to install solar panels on their roofs, and clean-power producing windmills increasingly pepper the rolling hills in the Midwest.

At the same time, protests surrounding racial injustice are leading to a major conversation in Washington, D.C., where the country’s first Black female vice president, Kamala Harris, works with President Joe Biden in an effort to hammer out solutions.

Naturally, people want to get involved and have a positive social impact. But figuring out how to go about supporting social and environmental changes is challenging for many. The good news is, if you invest, you have the ability to support change through a strategy known as social impact investing.

What Is Social Impact Investing?

In general, your goal when you invest is to generate a financial return. The idea is to buy stocks and other assets at a low price and sell them in the future at a higher price, generating a profit on the price appreciation and, in many cases, through dividend income.

Impact investors have much of the same goal in mind. Ultimately, anyone who invests is looking to generate a profit. However, when you invest, you’re not just giving your money the opportunity to grow in the market — you’re supporting the company or companies you’re investing in.

When you make an impact investment, it’s made in hopes of achieving financial goals while supporting companies taking an active role in causes you believe in.

Investors looking to make a positive impact with their dollars don’t just look at the financial performance of the stocks they invest in. These investors also base their investment decisions on what the companies they invest in are doing with their money and how their actions affect the communities around them.

With social and environmental issues being a hot topic of conversation, the impact investing market is becoming a massive one. Many individual companies are purposely investing in the improvement of their communities, and several exchange-traded funds (ETFs) have emerged that are focused on investing in companies making a difference in at least one area of social impact.

Racial Impact Investing

Racial inequality in the U.S. has taken center stage as of late as recent fatal interactions between unarmed Black men and police sparked outrage. This is no new issue either; it dates back to the days of slavery, according to USA Today.

Unfortunately, the trend continues today. According to NPR, at least 135 unarmed Black men and women have been fatally shot by police officers since 2015.

While police brutality is a major issue, the conversation around racial justice has grown much larger. The facts point to minorities having fewer economic opportunities than white Americans.

Statistics suggest that white Americans have a much better chance of earning a bachelor’s degree or higher, owning a business, and becoming a high income earner than minority Americans, including blacks, Hispanics, and other ethnic groups.

Through socially responsible investing, you have the ability to help fund a change.

To do so, simply look for opportunities to support the minority community while making your investments. For example, invest in companies like Nike and Walmart that have spent massive amounts of money supporting charities that serve minority communities.

You can also invest in companies that are owned by minority leaders. There are tons of Black- and Hispanic-owned publicly traded companies on the stock market today, and investing in them helps to support businesses that are known for giving minorities the opportunity to lead organizations and generate meaningful incomes.

Environmental Impact Investing

Another major topic of conversation in the U.S. is the environmental harm of burning fossil fuels. As time passes, wildfires are burning longer and becoming more difficult to manage, hurricanes are becoming more frequent and more intense, and the world is slowly heating up.

Major changes need to be made to ensure the health of planet Earth and its inhabitants.

Renewable energy is being generated and used more and more. Even major power companies like NextEra Energy are shifting focus away from traditional coal and nuclear power and spending massive amounts of money to develop solar energy and wind energy farms designed to reduce the carbon footprint of energy production and benefit the global ecosystem.

By investing in green energy and environmentally conscious companies, you’ll be supporting businesses that are working to ensure your grandchildren — and their grandchildren — can enjoy a clean, prosperous planet.

Investing around making an environmental impact has become a popular notion. There is a wide array of ETFs that focus on investing in companies that are working to improve environmental conditions or harness clean sources of power.

Educational Impact Investing

Most people would agree that all children should be afforded a quality education regardless of race, religion, or identity. Unfortunately, what should happen and what does happen are often very different things.

In the U.S., the color of your skin has an undue influence on your chances of receiving a quality education. Minority families disproportionately live in low-income communities, and the schools that support these communities are often underfunded.

This lack of quality education starting in grade school makes being accepted to the top colleges in the U.S. more difficult, ultimately hurting minorities’ ability to achieve higher education.

The good news is there are several companies working to combat this problem. Various learning centers are popping up in urban areas with the goal of providing the tools students need to achieve excellence.

There are also plenty of companies that make donations to charities supporting improved education in urban areas. For example, Amazon.com donates to multiple charities supporting improved education through its AmazonSmile program.

Investing in companies that work toward improving educational opportunities in urban communities or in companies that support education through donations is a great way to have an impact on the movement to improve education for all.

Health Care Impact Investing

Health care is another major area in the U.S. that represents a system in desperate need of reform. Health care costs are rising to epic proportions.

Unfortunately, there is a racial component to health care disparities as well. The fact that Blacks are far more likely to die as a result of COVID-19 complications underscores two major issues:

  1. Access. Quality care is more accessible to white Americans than it is to minorities.
  2. Career Opportunities. Minorities are more likely to have lower-income customer service careers. These jobs made it impossible for many in minority communities to work from home during the pandemic, making them more susceptible to contracting the virus.

Considering the above, there’s a serious need for improved access to quality health care among minority communities. Some medical centers are focused on providing health care services to underserved communities.

By investing in those companies, you have the ability to lend a hand in making a change.

Moreover, there are several ailments that still have few or even no therapeutic options. At the same time, there’s a robust community of companies that employ the world’s top scientists in an effort to find solutions for these medical ailments.

By investing in these companies, you’ll be able to sleep well at night, knowing your investments are being used to help find treatment options that will potentially improve the quality and length of life of members within your community and around the world.


The Global Impact Investing Network

The Global Impact Investing Network (GIIN) is a nonprofit organization that exists for the sole purpose of increasing the scale and effectiveness of making social and environmental impacts through investments.

The GIIN website is a compelling source of information, education, and data that will help you support changes through your investments.

The company offers a forum that connects investors who have a similar goal of pushing for change through their investment portfolio. The company has also developed IRIS+, a widely accepted list of performance metrics designed to measure the social, environmental, and financial performance of publicly traded companies.

Perhaps the most valuable section of the GIIN website is its research section. The section provides information including market performance and trends, giving investors a better understanding of the diversity and depth of investing for impact.

Finally, the GIIN offers training designed to give newcomer investors all the tools they need to become successful social impact investors.


Understanding ESG Criteria

As you begin to get involved in socially responsible investing, you’ll likely encounter the term ESG, an abbreviation for environmental, social, and governance.

Some of the largest institutional investors, private equity firms, venture capital firms, ETFs, and even some personal financial institutions are adopting ESG criteria to identify high social impact investments.

The ESG investing strategy considers the three metrics that are most important in measuring the sustainability and societal impact of an investment.

Investors looking to make an impact with their investments use these criteria when assessing investment opportunities both from a social and environmental perspective as well as from a financial perspective to ensure a sustainable investing plan.

1. Environmental

Environmental criteria center around how the company performs as a steward of nature. For example, companies with a focus on the environment often use clean energy or offset their carbon footprint by planting trees.

These companies may also make investments in companies that focus on the provision of clean energy or donate to charities with a core focus on environmental health and sustainability.

2. Social

The social criteria in the ESG score are based on how a company manages its relationships with employees, suppliers, customers, and the communities in which it operates.

Companies that make a strong social impact investment provide compelling employment experiences, treat their suppliers and customers with the utmost respect, and invest in their communities through charitable donations and community outreach programs.

3. Governance

Finally, governance relates to the company’s leadership. Governance metrics include executive compensation, audits, internal controls, and shareholder rights. Companies with strong governance offer executives competitive compensation but avoid overpaying them.

Moreover, these companies provide transparency in terms of financial reporting, display a high level of respect for their shareholders, and have strong internal controls in place to ensure longevity, including thorough balance sheet practices, debt controls, and the retention of enough earnings to make it through hard times.

Essentially, companies with strong governance are managed well and show appreciation for the shareholders who fund their growth.


How to Get Started as an Impact Investor

If you’re an individual investor looking to make an impact, you’ll be delighted to find that getting started is relatively simple. As with any other form of investing, the key is finding quality companies that align well with your goals.

So, how do you go about doing that? The steps below will put you on the right track:

1. Start With Industries You Know Well

Whether you want to invest in the traditional sense or you’re looking to make a social or environmental impact with your investments, it’s important to start by looking for opportunities in industries that you understand.

Successful investors will tell you the key to making money in the stock market is research. So, if you know an industry well, you’ve got a leg up. Not to mention, if you know an industry, there’s a strong chance the industry interests you — otherwise, why would you know anything about it?

Although it’s possible to make money investing in sectors that you don’t find interesting at all, you’re more likely to do deeper research when investing in something that grabs your attention. The increased depth of research you’re willing to do will likely pay off in the long run.

Start by diving into the industries you know, and making a list of three to five stocks representing brands you know and use.

2. Assess the ESG Criteria of the Investment

Once you have your list together, look into the ESG criteria of each stock on your list. One quick way to do this is by using the Yahoo! Finance ESG Risk tool. You can find this under the Sustainability tab on any stock ticker’s quote page.

For example, if you’re interested in Apple, you could type https://finance.yahoo.com/quote/AAPL/sustainability/ into your address bar, or look up Apple’s stock quote page on the site and click on the Sustainability header.

This tool is designed to provide easy-to-read risk analytics based on the environmental, social, and governance risk rating system developed by SustainAnalytics, which looks into ESG criteria and outlines any risks in an easy-to-read score.

When using the tool on Yahoo! Finance, you’ll be provided with an overall risk score. Under the score, you’ll see whether the stock comes with low, moderate, or high risk from an impact standpoint.

If the risk rating is low, continue your research; chances are you’ve found a highly impactful investment. If the risk rating is high, scratch the stock off your list and move on to the next.

At this point, your list will be a bit smaller. Now it’s time to dive in with some research based on the impact you’re looking to make. If you’re looking to make an environmental impact, look into what the company is doing to offset its carbon footprint and research its charitable contributions centered around environmental causes.

If you’re looking to make a social impact, research what the company is doing to improve opportunities in urban areas and its charitable contributions to causes that you find most important.

When doing this research, if you find the company you’re interested in to be making a meaningful impact when it comes to causes you care about, you’re on the right track. If the company you’re interested in isn’t making a meaningful impact, scratch the name off your list.

3. Assess the Investment Through Traditional Due Diligence

Making an impact with your investing dollars is important, but it’s also important to make money. Even if the company is making a massive impact on causes you care about, if you lose money in your investment, you’re not growing your wealth.

So, you should always do traditional research to make sure any stock you’re interested in buying aligns with your investing strategy.

Look into the historic performance of the stock, the company’s management team, the size of the market the company is working to tap into, and how well the company has done in terms of reaching its audience.

You’ll also want to dive into intellectual property and innovation that leads to an economic moat and the company’s ability to lead within its industry. If you find any red flags while doing your due diligence, scratch the stock off your list.

4. Invest in the Stocks Left on Your List

The stocks left on your list should represent companies that are making a difference in the social and environmental areas you care about while also representing strong investment opportunities according to your investing strategy.

Now, it’s time to determine how much money you’ll allocate to each stock left on your list and make your investments. If you’re a newcomer to investing, consider using the 5% rule as an allocation strategy.

5. Rinse and Repeat

At this point, you’ve likely made investments in one or two stocks. However, a properly diversified investment portfolio should consist of quite a few more securities than one or two.

Simply go back to step one and choose another three to five stocks to dive into and follow these steps until you have a portfolio of securities that have significant potential to generate a profit while making a difference in your community and around the world.


Consider Socially and Environmentally Responsible Investment Funds

Investing in individual stocks can be an arduous process. The amount of research required to make wise investment decisions often turns people off to the concept of investing as a whole, but it shouldn’t.

There are several investment-grade funds that provide access to a well-diversified portfolio of stocks, giving you exposure to the market without the requirement of researching each and every stock within your portfolio.

In fact, there are several exchange-traded funds (ETFs) on the market that are centered around making sustainable, socially responsible investments.

If you decide to invest in ESG or social impact ETFs, pay close attention to the fund’s historic performance, expense ratio, and asset allocation to ensure you know exactly what you’re investing in and what to expect from the fund.


Final Word

In the traditional sense, investing has been about building wealth, and that will never change.

However, one thing that is changing is the fact that investors are realizing their portfolios can make major differences not only in their own wealth but also in their communities and around the world.

As is always the case, the most successful investments are those that are made following deep research. Whether you’re investing to grow your wealth or a mix of impact and wealth-building, it’s important to do your research and get a strong understanding of exactly what you’re investing your money into.

Source: moneycrashers.com