Why Did I Borrow From My Pension Plan?

Do some online research about borrowing or taking out a loan from your 401(K) plan and you will see about 99% of the sites you visit will tell you to never borrow money from your pension.

So, why did I borrow from mine? I will tell you.

First, mine is not a 401(K). It is similar and called a TSP Thrift Savings Plan. It is run by the US Government and is one of the largest pension plans in the world.

I wanted to invest in some property and looked at my options. My first option was a home equity line of credit. I have a condo now for about 20 years so I have some equity in it. My credit is good, and it was an easy acceptance from the lender.

The problems were the fees and interest rate.

The interest rate was actually decent but the fees were in the thousands of dollars.

I looked for an alternative and found that I could borrow from myself. So here are the reasons I took out a loan from my pension fund.

1.I had enough money in the fund. I was allowed to borrow 50% or 50,000, whichever was less. I borrowed $50,000.
2.The interest rate was the lowest in town. I borrowed the money on February, 21, 2008 at 3.5%.
3.Simple application. I had to fill out a one-page form and fax it to the TSP office. I could have submitted it electronically and received a check in the mail. But, to get a direct deposit, a signature and a fax was required.
4.Low fees. TSP charges a flat rate of fifty dollars for the loan.
5.Paying it back. This is the beauty in my mind. It is an automatic payroll deduction, with no paperwork, and the money goes right back to my TSP (pension) with the 3.5%. I dont have to think, and I will never be late with a payment.
6.Length of loan. TSP has two types of loans. 15 year and 5 year. The 15 year loan for investing in your primary residence. The 5 year loan is for personal use. I chose the 5 year because my property investment will be overseas in Thailand and will not be my primary residence.

What is the downside?

There are a few items to consider. The money I am using is pre-tax and now I borrowed it. There may be tax implications.

I plan to pay the loan for two of the five years and then retiring. So, what happens to the money that I borrowed and have not paid back? It will now be declared as income unless I pay it back within about 60 days. If I can not pay it back, I will have to count this as taxable income, but, I dont care. I will be retired and my income will be low.

My money is not in the market. True, 50K is now not going up or down. But, about $420 every two weeks, along with my normal investment, will be going back to my TSP. So, it will grow back.

Anyhow, that was what I did. It may not be the solution to your financial issue, but it is something to consider if you have a TSP and need some cash for college, a house, or to pay some bills.

Mutual funds: protect yourself with segregated funds

Segregated funds were initially developed by the insurance industry to compete against mutual funds. Today, many mutual fund companies are in partnership with insurance companies to offer segregated funds to investors. Segregated funds offer some unique benefits not available to mutual fund investors.

Segregated funds offer the following major benefits that are not offered by the traditional mutual fund.

1. Segregated funds offer a guarantee of principal upon maturity of the fund or upon the death of the investor. Thus, there is a 100 percent guarantee on the investment at maturity or death (this may differ for some funds), minus any withdrawals and management fees – even if the market value of the investment has declined. Most segregated funds have a maturity of 10 years after you initial investment.

2. Segregated funds offer creditor protection. If you go bankrupt, creditors cannot access your segregated fund.

3. Segregated funds avoid estate probate fees upon the death of the investor.

4. Segregated funds have a “freeze option” allowing investors to lock in investment gains and thereby increase their investment guarantee. This can be powerful strategy during volatile capital markets.

Segregated funds also offer the following less important benefits:

1. Segregated funds issue a T3 tax slip each year-end, which reports all gains or losses from purchases and redemptions that were made by the investor. This makes calculating your taxes very easy.

2. Segregated funds can serve as an “in trust account,” which is useful if you wish to give money to minor children, but with some strings attached.

3. Segregated funds allocate their annual distributions on the basis of how long an investor has invested in the fund during the year, not on the basis of the number of units outstanding. With mutual funds, an investor can invest in November and immediately incur a large tax bill when a capital gain distribution is declared at year-end.

There has been a lot of marketing and publicity surrounding segregated funds and how much value should be placed on their guarantee of principle protection. In the entire mutual fund universe, there have been only three very aggressive and specialized funds that lost money during any 10-year period since 1980. Thus, the odds of losing money after ten years are extremely low. If you decide you need a guarantee, it can cost as much as 1/2 percent per year in additional fees.

However, with further market volatility these guarantees could be very worthwhile. In addition, most major mutual fund companies also offer segregated funds.

Business Finance Problems – Here;s Some Canadian Capital Financing Solutions

Business Finance Problems – Here;s Some Canadian Capital Financing Solutions

If there is one benefit of meeting and speaking to numerous companies with business finance problems its that one quickly gets a sense of what financing solutions are needed… and when!

In fact a lot of what we could call early warning signs in business challenges emerge pretty clearly – even though those same signs are often ignored or misinterpreted by the Canadian business owner and financial manager. Let’s look at some of these business warning signals and how you can nip them… in the bud as they say!

Experienced business owners know that access to capital tends to come and go… its those good times, bad times and boom and bust that makes the journey somewhat… exciting.

Most owners / managers are simply happy to ensure they have access to the right financial solutions for their company. Even more important is ensuring those solutions come with terms, rates and structure that suit those present situations.

Your ability to have access to up to date information at any time is critical to both managing your business and having access to solutions. So when we meet a client that can’t produce regular monthly balance sheets and income statements that has always been a warning sign of bad things to come.

Mismanagement of current assets is the real killer in working capital and cash flow problems. If there is any good news in that it’s that there are some great finance vehicles to help you both manage those current assets and address the cash flow challenges that come with any business that’s both surviving, and growing.

Let’s take a look at some of those current asset warning signals. Key in that category is the double whammy of growth and slowdown in accounts receivable. Not knowing your day’s sales outstanding and the ongoing relationship of sales and receivables is a business killer. Financing receivables in Canada can come in a number of different ways – they include”

Receivable financing / factoring

Comprehensive asset based credit lines that margin A/R at 90%

Bank credit facilities

All of the above solutions come with different rates and structures – some will work for your firms overall credit quality, some might not. What these solutions do provide though is an immediate increase to your ‘ cash on hand ‘… and that’s a good thing.

Inventory deterioration, or even inventory build up are also key warning signals to a business finance problem. It’s important to know your inventory turns, and, similar to receivables monitor those inventories so they arent continually representing more and more a percentage of your total assets.

We’ve been talking ‘ current assets’ but at the same time fixed asset concentrations can be a killer also. Here is where proper use of term debt and lease financing are critical.

In summary, knowing what financing you need, and when it critical to the fix for some of those early warning signals we’ve talked about.

Speak to a trusted, credible and experienced Canadian business financing advisor on ‘ realistic ‘ financing vehicles for your firms operations, challenges, and growth.

Insurance Brokers

Marketing yourself and deciding how to advertise your business can be a daunting task. There are so many avenues available to brokers. Insurance is something everyone needs from infant to ancient. Brokers need to be well versed in as many areas of insurance as they can. Life, auto, home, health and disability are just a few. How is a broker supposed to get the word out that he is in business? Everyone familiar with sales knows the phrase ‘circle of influence’ or your ‘warm market’. These terms refer to the people you know best, your friends, family and colleagues. Let them go to work for you with referrals and word of mouth advertising. Take the top ten from your list and offer gift certificates for every person they refer that you write a policy for. It’s a nice way to say thank you and show how much you appreciate their loyalty.

Check out other brokers and their websites, advertising efforts and community involvement. Take their best secrets and tweak them to fit you and your way of doing business. Don’t discount becoming involved with your community. When you are out there working for the common good the common good is coming to you for their insurance needs.

Try and think back to the first time you purchased insurance from a broker. You can make a niche for yourself by going after the newest drivers, homeowners and start up businesses. Share your wealth of knowledge with them and they will remain loyal customers for all their insurance requirements.

What Do Lenders Gain?

With the rising of the consumers spending power and with more debts being taken to repay their old one.the question should be what does the lender not gain? But the fact is that everything is not easy for the lender. With the increase in the acts and regulation passed to hold the lender community in check and with a watch over the ceiling of the interest rates, the lenders are in more trouble than we know. The time consumed in processing the debt and the cost involved in recovering the same is a matter to consider.

Of the two types of lenders i.e. the banking community and the private lenders. It is the private lender who is at more risk; this is because most of the private lenders offer credit without actually looking into the credit worthiness of an individual. But to safeguard themselves against such circumstances the lenders charge high rate of interest and ask for security in the form of property or house. The lenders in order to safeguard themselves against various vagaries have formed communities and the interest fixed by them is uniform among all, though there might be some exception. Be it educational loan, car loan or house loan, it is the lender who is at risk. The highest amount of debt taken is for home loan category. It is found that the lenders gain with refinancing. Refinancing is nothing but paying off existing debts and taking a new one. Refinancing is on the increase because of lower interest rates, the lenders gain by the amount of refinancing loans that are applied. It is to safeguard against the various risk that the lenders drawn an agreement between the borrower and themselves.

Another method that the lenders have adopted in order to increase the speed of processing the loan and to alert them on any discrepancies is the LEAP system, LEAP is Lenders Easy Access Program where all the details of a borrower are keyed and the processing of the borrowers application is done at a faster pace allowing the borrowers to get the amount at a quicker period of time and helps the lender by reducing the time and the cost involved in processing of documents.

Therefore the risk faced by a lender while lending money, are many. The only way to safeguard them is to abide by the rules set forth by the banking community and adopt honest and transparent method of lending.

Getting Out Of Debt As Quickly As Possible

One of the most important things you can think of is how to get out of debt as soon as possible, especially if your debt is significant.

This incredible important task can seem very mighty, but if you take certain appropriate steps, it can be easier than it seems. For instance, I am now almost out of debt compared to what my situation was just a decade ago.

You would be shocked if you knew what my situation was before I paid off my debt in full.

Like many people, I got my first credit card while still in the college. If you don’t know, this is the worse time in the world to get a credit card.

At such time you would get into debt with the vain hope that you would easily get out of debt in the future.

The idea that you would easily get a good paying and great job after graduation makes matters worse.

For me, the credit cards kept coming while in college. They were handy to a poor college student like me. There was one time when I took a very hefty cash advance for the purpose of paying tuition.

It was a very good idea to me, back then. I was also able to afford all the newest fashions and other accessories on credit. To me, there wasn’t anything to worry about as I would get out of debt with ease as soon as I entered the labor market.

How wrong I was!

After college, the great job I was dreamed of was more elusive than ever. By the time I started work I had a high stack of unpaid bills.

In my mid-twenties I knew that I had to get out of debt fast or crash under the load of debt. Sadly, there wasn’t any way for me to get out of debt. I didn’t spend the money overnight, so how on earth did I expect to get the money to pay it off overnight?

Eventually I found the steps which I took to get out of debt. You can follow these steps too and it won’t take you as long as you think.

The first thing you need to do is for you to take action. Don’t continue to wait for one more year or one more month before you start on your plan to get out of debt.

Decide, then make a plan. Don’t let your old habits get in the way.

First, pay off the credit cards that have the highest interest rates. Never allow the months to pile up before paying the minimum. If you do, it would take you decades before you can pay off the high interests on the credit cards.

Also, make a list of all those you owe. Then make your plan of repaying them. Many creditors would be willing to take a payoff which is less than your balance.

And of course – stop using your credit cards while trying to get out of debt. Follow these steps and they will help you get out of debt faster than you can ever imagine.