Financial Resolutions For The New Year

Financial Resolutions For The New Year

“There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.”

Albert Einstein

This year has been extraordinary and challenging. The coronavirus has been a cloud over our heads virtually all of 2020. Reshaping our lives has been necessary as we are socially distanced from friends and family, worked remotely, and learned online.

Historically high unemployment has negatively impacted our economy. The Fed has acted aggressively by lowering rates and expanding the money supply to provide liquidity to financial markets.

Early in the crisis, Congress passed The CARES Act with generous financial support for small businesses, hiking unemployment benefits, issuing stimulus checks, enacting pauses in student loan repayments, and other services. President Trump signed the COVID relief bill for $900 billion. However, there is still a significant need to provide more support.

Be Optimistic For The Future

On the positive side, the distribution of approved miracle COVID vaccines is happening. However, as we approach 2021, cases are still rising, so we are not out of the woods. Vigilance remains as the virus is still among us.

Yet there are reasons to be optimistic in 2021. Besides the vaccine rollout, I believe there is a wider consensus that the wealth gap needs to narrow significantly, improved growth as the economy opens up, and the resilient stock market will remain so. The silver lining of the pandemic brought a greater appreciation of science and digital technologies.

Adapt some financial lessons we learned the hard way in 2020 for a better plan in 2021.

Financial  Resolutions For 2021


1. Set Financial Goals

Realizing your financial goals in 2020 may have been impossible to achieve. Vacations shelved, unexpected loss of a job, buying or selling your home. On the other hand, you may feel more determined to revisit your goals for the coming year. Set reasonable financial goals for 2021. The pandemic crisis may impede us in the first few months.

We can learn from our experiences that may have highlighted some of our mistakes, such as not saving enough for unexpected emergencies such as a pandemic. There isn’t a crystal ball to prepare for such events, but you should realize that things can happen to us.

2. Build An Emergency Fund

Having savings on hand for emergencies should be a top financial goal. Establish an ample emergency fund to cover your necessary and urgent living expenses for up to a year. In regular times, 3-6 months may seem plentiful, but in reality, saving for an extended period may have proved necessary in 2020. This money is a cushion for you to feel more financially secure should you lose a job, have a medical emergency for you or your pets, or a flood in your basement.

Invest these funds in liquid investments with easy access. With the low-interest-rate environment, you won’t be earning much income from current yields, but liquidity–the ability to quickly have cash without much loss of value– matters. Think of this as savings, so you don’t have to borrow on your credit card that will make it hard to pay off high-cost debt.

Your fund should be a big enough cushion to pay your monthly bills and costs such as food, rent or mortgage, utility, health care, car, property taxes, and pet care. Ample savings will allow you to sleep better at night. You can read more about the emergency fund and how to invest it here.

3. Have A Budget To Keep You On Plan

To be financially disciplined, you need to understand your monthly budget. Our combined income sources, less total expenses (fixed and variable expenses) equals our bottom line. Many people had significant challenges if they lost a job, had emergency medical costs, or both. When your income, fortunately, exceeds your expenses, you have money to save. This money can be added to your emergency fund, pay down debt, or invest in the future.

On the other hand, if your costs exceed your income, you will need to earn more income, borrow to pay expenses, reduce spending, or a combination of these. Bring down whatever costs you can. Borrowing on your credit cards will put you in a terrible financial bind. The interest costs of credit card debt, averaging 16%, are destructive.

Plan to review the budget monthly.  Some people use spreadsheets; others use apps. Whatever way works for you to plug in your monthly pretax income less fixed costs, mostly your living costs such as rent, utilities, monthly car payments, insurance, typical food/grocery,  and other debt. 

Your variable costs are often discretionary and include dining out, entertainment, travel, and potential costs. Another way to budget is to track your monthly expenses by reviewing your bills regularly. You may be motivated to save once you see how much you spend on things you didn’t need.

4. Spend Less Than You Earn

Manage your spending. Invest your leftover savings. During the pandemic, we had fewer opportunities to spend as we hunkered down in our homes. We didn’t go on vacation, dine out much, and commuted less. On the other hand, we spent more on groceries, subscriptions, and gaming platforms this past year. An October 2020 survey showed that consumers are now paying for seven video streaming services on average. Spending on gaming platforms (e.g., Xbox, PlayStation) rose by 37% in 2020.

One surprise was the amount of saving we were making in the first half of 2020. US personal savings rose to unsustainable rates of 33.7% in April, but remain at reasonably good levels.

People are tired of social distancing and craving to go back to their regular lives. We all want to enjoy living, but we need to be careful about temptations to overspend after a year of deprivation.

There are reasons why we justify spending more than we should. We often prefer instant gratification, living today but not focusing on our future. To be in good financial health, we should be doing both. Our emotional biases impact our purchases, and marketers leverage those tendencies. Our lifestyles and personalities play a significant role in overspending, especially when we want to impress people with our success.

5. How To Spend Less and Save More

When overspending habitually, we need to motivate ourselves to change our ways. When we diet, we often take a break and eat something we know we shouldn’t. If we correct that error, usually no sustainable damage has been done. On the other hand, sometimes falling off a diet means we have given up. The best thing is to dust yourself and get back on to your diet.

If you realize your overspending is harming your finances, you may need some motivation to reduce spending. When your overspending and debt accumulation is severe, you may want to consider therapy or meeting with a financial counselor to help you.

Motivate Yourself To Spend Less:

  • Focus on your financial future.
  • Understand your household budget.
  • Track and review your spending on items you may not need.
  • Be more conscious of how you shop and biases that interfere with your decisions.
  • Negotiate any agreements you have if you are facing challenges.
  • Cancel subscriptions you no longer need.
  • Invest, pay off debt, or add to the emergency cushion with extra savings.


6.  Be Disciplined When Using Credit Cards

Having too much debt will make it difficult for you to achieve financial security and wealth. Make trade-offs that minimize debt accumulation. When credit card issuers charge 15% or higher on your balances, resolve yourself to spending less.

Pay your bills on time each month and aim to pay them in full.  It may mean making trade-offs between buying something you don’t need and may not even want very much. Carrying significant credit card balances is a substantial financial anchor and is a habit hard to break.

Instead, try to reduce your credit card balances to zero, so you never have to pay the issuer any interest owed. I consider credit card debt to be among the most toxic. Use more cash, which often limits your spending, or just buy less until you have more control over this debt.

7. Manage Your Debt Wisely

Like paying taxes, there is a certainty you will accumulate debt in your lifetime: mortgage, cars, student loans, smartphones, and credit cards. But you need to be prudent when you borrow money so that it doesn’t interfere with your wealth accumulation. Where possible, pay down debt, particularly your credit card balances, which can be financial weapons of destruction.

The trade-off for extra savings should go to your emergency funds, high-cost debt, and investing your money.

Find SavingsTo Pay Down Debt From: 

  • Annual tax refunds.
  • Passive Income.
  • Your annual bonus or a raise.
  • Extra savings can help.

Some debt accumulation is associated with borrowing that is more like investing. Borrowing is not always a bad thing especially for good reasons like your college education, furthering your career, or buying your home. As we mentioned earlier, credit cards are incredibly toxic.

 Refinance Your Mortgage

Consider refinancing your mortgage loan, which is at record low rates.  According to Bankrate’s weekly survey, the average 30 year fixed rate mortgage dipped to 2.95%. It doesn’t necessarily mean you will automatically get the lowest rate as lenders will look at your credit background and the property.

Several factors influence mortgage rates: the Fed’s actions, which brought down interest rates, economic indicators, and inflation. Besides, a higher credit score and a lower loan-to-home-value will contribute to more attractive mortgage rates.

Get The Right Mortgage And Car Loans

Make sure you are getting the right loan. If you handle shorter terms for your cars and home, you will benefit by paying less debt. When buying a home, consider the 15 years fixed mortgage vs. the 30 years fixed mortgage. True, the shorter mortgage term will cost more per month but your total cost, when factoring in the interest payments for your home will be lower.

The same goes for a car loan. According to Credit Karma, the average new car loan was 72 months but more people are opting for longer loan terms. Surprisingly and perhaps ridiculously, exotic car financing is more extended, averaging 144 months (Lending Tree). The longer loans stretch out your interest payments and make them more manageable. However, you are paying more for your car when adding in the higher interest, and unless it is deductible for a business’s car, it is not worth it.

Buy what you can afford in a home and car, not for pleasing or impressing others. Drive your car longer and consider buying with more cash as a down payment or in its entirety.

8. Review And Fix Your Credit Report

As part of this new year’s resolutions, make sure to review your credit reports periodically. You can do so for free through You can rotate among the 3 credit bureaus to examine your report every few months.

Lenders rely on our creditworthiness to see our borrowing rates. The higher the score on a 300-850 score, the lower the annual percentage rate (APR) we are charged on car, mortgage, or private student loans. Check for errors you can fix quickly on your report and follow-up with vendors when you spot those issues. These errors can hurt your credit.

9. Raise Your Credit Score

There are few parties–landlords, employers–  that have stakes in our credit scores besides lenders. Improving your credit score can meaningfully help you reduce the total size of your debt (mortgage, car, and other loans) and provide financial security. Have a better understanding of how your credit scores are determined and how to raise them here.

A Better Score Means Lower Interest Payments

A good credit score ranges between 700 and 750.  The difference in the APR based on credit scores are meaningful. The borrower with a 650 score would pay a 5.40 % APR  on a $250,000 30 year fixed mortgage loan. This score would require a monthly payment of $1,404 or $255,440 in total interest paid over the loan’s lifetime. A borrower with a better credit score of 700 would have a lower APR of 4.58% or $1,279 for the same property and pay far lower in lifetime interest payments of $210,440. 

10. Save For Retirement – Max Out Your 2021 Contribution Limits

Your situation at your job may have been more challenging as a result of the pandemic.  What happens to your 401K employer-sponsored plan? If you lost your job, you probably can leave your 401K with your former company to manage it as is. However, you can’t make new contributions or receive employer matching programs. But it is a good place to keep your plan for the time being.

If you changed jobs, and your new employer offers a 401K plan, you can roll it over. If you are not working, you can rollover this money to your IRA to avoid penalties if you are younger than  59.5 years.

If you remain at your job, be grateful. It has been a demanding environment for many people. You may find that if you are working at home, you have extra savings that can be applied to your retirement or investment accounts. If you started a new job, save as early as possible.

A Company Match Is Valuable

For example, your company offers a 50% match of your contributions up to 6% of your salary. Suppose you contribute 6% of your $55,000 annual salary, or  $3,300. Your employer will match 50% for their contribution of $1,650. The employer’s contribution is like getting free money.

As soon as you start working, you should enroll in your firm’s 401 employer-sponsored plan. Automate a specific amount or percentage of the money you receive from your paycheck to be deposited into your retirement, investment, or any savings account.  It’s an easy way to save consistently for your retirement to build this account through compounding.

Save as early as you can to leverage compounding benefits and for maximum contributions.

2021 Contribution Limits -Some Changes

For 2021, there are some changes in contribution limits for retirement accounts from last year.

The 401K contribution limits are the same at $19,500  and the catch-up contribution for plan participants age 50 or older remains at $6,500. Employers can make matching and nonmatching contributions for their employees even if they have already maxed out the account. As such, the overall contribution limit (i.e., employer and employee deposits) is 100% of contribution or $58,000 (up from $57,000), whichever is less. For plan participants age 50 or older, the overall contribution, including the catch-up portion, is  $64,500( up from $63,500).

The IRA limits remain at $6,000 in 2021, with the catch-up provision remaining at $1,000 for individuals age 50 and older or $7,000 in total. The IRS did increase income ranges for the traditional IRA and Roth IRA contributions.

11. Essential Investing Lessons 

It was an unusual year for investors.  Market volatility in 2020 was unprecedented. At the beginning of 2020, we had low unemployment, economic growth, and low inflation. These favorable conditions supported a long bull market which peaked on February 19th. From its market peak to its bottom, the S&P dropped 33.9% spooked by rising coronavirus cases, and we entered a bear market.

However, aggressive Fed actions and Congress’s moves to provide financial support quickly steadied the financial markets. As a result, the bear market was short-lived as S&P 500 resumed its climb despite continued high unemployment pressuring the economy. With the year virtually over, the S&P 500 rose 14.6% year-to-date.

A Few Lessons Learned In 2020

  • Stay the course, don’t bale when the market becomes volatile, looking at the long term horizon.
  • Use extra savings to invest in a down market opportunistically.
  • New winners–stay-at-home stocks, replaced stocks hurt by social distancing.
  • New retail day traders and investors emerged using apps from Robinhood, Charles Schwab, and TD Ameritrade, spending up 65% on average.

These new investors have only seen an upmarket and may be using riskier strategies (eg. options, margin buying, short selling).

We advocate Buy/Hold strategies, rather than short-term trading. We recognize the excitement of day trading and swing trading long term (which are different schemes) discussed here. On the other hand, ‘boring” long investment strategies take advantage of compounding your returns, lower capital gain tax rates if you hold stocks more than a year, and allow you to ride out market volatility.

There are some investing rules we believe you need to know to achieve success such as diversifying and rebalancing your portfolio. The recent rise in the stock market may have resulted in your portfolio being overweight in stocks. That said, with interest rates at historical lows, it may be difficult to find much income in money markets and bond securities at this time. We believe that you should have a mix of high-quality dividend growth stocks and corporate bonds.

12.  Update Your Designated Beneficiaries

Chances are, if you are working, you have some assets. You likely received forms to complete at work, the bank, or online to designate beneficiaries. Beneficiary designations identify who your intended heirs are for most of your assets. These assets represent the non-probate property.  These assets can be efficiently and effectively transferred outside of your last will,  overriding your estate planning documents.

The mistake many people make when designating their loved ones is that their designations may out-of-date or unreasonable. You thought it was cute that your boyfriend selected you (or so he said), so you reciprocated by naming him.

If you don’t review your appointed beneficiaries periodically and at the same firm, you may still have your parents, siblings, and ex-spouse indicated as recipients. Review these forms regularly. You should review your documents after significant life events such as loved ones’ passing, marriage, divorce, and births. Updating your records can usually be done online. We explain more about designated beneficiaries here.

13. Update Your Estate Plans

The pandemic has been a disaster for so many families who lost loved ones. Earlier in 2020, there was an urgency to do your will for the first time or review estate plans. That would be sound advice if you didn’t do so. As mentioned, the distribution of most assets can be for the average person by designating beneficiaries. However, distributed probate assets need to be through a will or a trust.  Probate assets are real estate, cars, and personal possessions such as jewelry, art, antiques, and collections.

Create your estate plan to have control over your asset distribution to your loved ones during your lifetime. Your plan should be as litigation-free as possible, so your loved ones can avoid the often painful and lengthy probate court procedures.

14. Charitable Giving

“We’re in the same storm but not the same boat.”

Unknown Author

Originating from a tweet, This statement was everywhere this year and should not be forgotten. It may have derived from a Damian Barr tweet but it seemed to have disappeared. This year may prove to be significant for charitable giving. The pandemic and protests highlighted the divide between the wealthy or those less fortunate. Those who are lucky should give more this year and any year.

Whatever the cause, charitable giving is a necessity. Others depend on us. As Winston Churchill said, “We make a living by what we get, but we make a life by what we give.”  

15. Be Grateful

Having a grateful attitude is always healthy, especially this year. We became more sensitized to those essential workers who were in harm’s way and grateful to them. The NYC beating of pots and pans became a habitual sign of giving thanks.

Let’s take time to be grateful for our loved ones, friends, colleagues, and those who would appreciate our recognition.  We made it to another year, not an ordinary year. It has been a time when we all shed tears.

Final Thoughts

I will not be unhappy to see this year-end. A dark year will make way for light and optimism in 2021. As my mother often urged us, step with the right foot to have a better time. I told my daughter Alex when she was still a baby that her grandma always said that and was always right. Alex even steps with her right foot (sometimes clumsily) now. Start the year off on the right foot, with financial resolutions to achieve your financial goals.

A happy and healthy New Year’s to you and your family! Thank you for reading!  If you find this of value, do you mind sharing with others as we grow The Cents of Money community? Have a healthy 2021!

What Is Real Estate Commission?

What Is Real Estate Commission?

If you are in the market to sell your home, a good real estate agent is an invaluable asset.

Agents help their clients navigate the market and find potential buyers, and in return for their time and expertise, they charge commission fees. But what exactly is covered in agent commission fees? And what can homeowners expect to receive in exchange for these costs?

Read on to gain a full understanding of what real estate commission is, how much it costs, who pays for it, and alternative routes sellers can take if they are looking to save money. There are 7 steps to buying a home that you can read about here.

What Is the Average Real Estate Commission?

How much is the commission of a real estate agent? According to a nationwide agent survey by Clever Real Estate, the national average is 5.45% of a home’s final sale price. However, the actual answer to that question really depends on which state you’re in, as realtor rates are highly localized.

For example, in Florida, commission fees average 6%, split between the buyer’s and seller’s agents. In Texas, on the other hand, commission fees average only 5.65%. Moreover, the rates in New York, California, and D.C. are all lower than the national average, at 5.29%, 5.02%, and 4.90%, respectively. Note, though, that home sale prices in New York, California, and D.C. are also higher than the national average, potentially offsetting any cost-savings one might gain from lower commission rates.

Prices vary because agents all charge different rates, and some agents will charge lower rates if you negotiate with them. Moreover, there are also discount brokers such as Clever Real Estate that negotiate with agents on their clients’ behalf for lower rates; but we will cover all of that later in this article.

Who Pays Real Estate Commission Fees?

Typically, it is the seller’s responsibility to pay real estate commission fees. That means sellers pay for both their own agent for listing the property as well as the buyer’s agent.

Agents will usually split the commission between themselves, but the split can vary. Sometimes, more experienced agents will get a larger cut than new agents. If an agent represents both the buyer and the seller, known as a dual agent, the agent will get paid both commissions.

Regardless, both the seller’s and the buyer’s agent fees are determined ahead of time in their respective contracts with their clients.

What Do Real Estate Commission Fees Cover?

Real estate agents charge a commission for their time, services, and expertise. A good real estate agent will make the home-selling process much smoother and should have a large network of potential buyers to show your property.

They know their locality like the back of their hand and can potentially bring in multiple offers, especially in a seller’s market. And multiple offers means you may even start a bidding war, which will give you more leverage during negotiations.

Your agent will also take care of the minutiae of selling a home, such as listing it on the MLS, marketing it via different real estate channels, negotiating with potential buyers, and finalizing the closing process.

Using a knowledgeable and well-connected agent is also more likely to result in a higher sale price. A recent survey by the National Association of Realtors found that the typical FSBO (“for sale by owner”) home sold for $190,000, compared with $249,000 for agent-assisted home sales. This enormous difference in the sales price and the amount owners save is why most people opt to use an agent.

Can I Negotiate Real Estate Commission Fees?

Yes, you can negotiate commission fees, and you should!

In the current seller’s market, agents know that clients can easily look elsewhere if they think their rates are too high. And if you’re in a hot market such as Miami or San Francisco or if you have a desirable home that will sell quickly, then you should definitely try negotiating a lower rate.

Although you can ask your agent for a lower rate, they are not required to oblige your request. According to a 2019 report by the Consumer Federation of America, 73% of agents said they would not lower their standard rate if a client asked. If you’re a glass-half-full kind of person, though, that study also reveals that more than one in four agents will lower their standard rate if a client asks. Therefore, it doesn’t hurt to try negotiating for a better deal.

Are There Ways Around Paying Commission Fees?

To avoid paying commission fees, homeowners can choose to forgo an agent altogether and use a local multiple listing service (MLS), which typically charges a flat fee between $99-$500.

However, the owner will be responsible for all of the responsibilities an agent usually handles, such as marketing their property, negotiating closing costs, home inspections, and more. Selling a home as FSBO (for sale by owner) is not quite a walk in the park, which is probably why only 7% of sellers used this method in 2019.

Another option that owners can turn to if they are looking to reduce commission costs is working with a discount real estate broker such as Clever Real Estate, which charges a flat fee for their services instead of a percentage-based commission. Clever negotiates better rates for their clients with top local real estate agents, offering a full-service sales experience for a flat fee of $3,000 or 1% if your home sells for more than $350,000.

These brokers can charge such competitive rates because they supply agents with a steady stream of revenue, allowing them to make up in volume what they sacrifice in commission.

Which Option Is Best for Me?

When determining whether to use an agent or which type of agent to use, you must consider how much time and effort you personally want to spend selling your home. If you are an experienced real estate professional who understands the market, then listing on a local MLS service might be the best route for you. If you are like most home sellers, though, and aren’t a real estate guru, then using an agent is probably the better option.

If you’re curious about what it would cost to use a traditional agent versus a discount broker versus a flat fee MLS listing service, here is an example to demonstrate what you’d pay in commission for each instance on a home that sells for $211,000:

The Traditional Model

Home price: $211,000

Seller Commission: 3%

Buyer Commission: 3%


($211,000 x 0.06) =

$12,660 total commission paid

The Discount Broker Model

Home price: $211,000

Seller Commission: $3,000 flat fee

Buyer Commission: 3%

Service Fees: $0


($211,000 x 0.03) + $3000 =

$9,330 total commission paid

The Flat Fee MLS Listing Model

Home price: $211,000

Flat Fee MLS Service Fee: $299

Buyer Commission: 3%


($211,000 x 0.03) + $299 =

$6,629 total commission paid

As you can see, the cost savings on using a discount broker versus a traditional agent are significant. That’s why many people opt for discount brokers such as Clever Real Estate. Clever offers its customers a full-service sales experience for a flat-fee of just $3,000 or 1%, and all of Clever’s agents are top-rated in their area.

Visit to get in touch with thousands of local agents and list your home today.

This article originally appeared on Your Money Geek and has been republished with permission.

How Swing Trading Can Propel Your Wealth Creation

How Swing Trading Can Propel Your Wealth Creation

The dirty secret of investing is that the traditional buy and hold portfolio is dead. Well, I’m exaggerating a little, but make no mistake, increased stock market volatility is forcing change.

By including an element of swing trading in their portfolio, investors can evolve their approach to match the new investing world. This evolution can both mitigate increased volatility and accelerate their wealth creation.

The new investing world is notable for increased volatility. This volatility is, in part, caused by algorithms that now dominate the investing space; A small ripple of selling can trigger huge waves of algorithmic selling in response. Look at the speed of the market’s collapse at the start of the Covid-19 pandemic as evidence.

What is Swing Trading?

Swing trading can go a long way to counter this volatility and add extra juice to investors’ returns.

While long term investing has a timeline measured in months if not years, swing trading has shorter time frames. Swing traders aim to profit from changes in prices over as little as a day to several weeks.

For example, investors concerned about a short-term fall in the stock market can insure themselves using inverse Exchange Traded Funds (ETFs) such as SQQQ. Other investors might look to complement their stock portfolio with exposure to foreign currencies (forex) or commodities.

Some long-term investors might indeed be inclined to steer away from trading. Perhaps they regard it as too risky.

But as I’ll explain, it doesn’t have to be that way. Remember also, buy and hold portfolios aren’t immune to risk. As I’ve already explained, it’s just the opposite.

Swing traders look to profit from relatively short-term price changes in stocks or other financial instruments. They have little use for the kind of fundamental analysis which buy and hold investors use.

Instead, what swing traders do use are price charts.

Within these price charts, traders look for recurring patterns that may give clues about future price direction.

Additionally, they have numerous technical indicators that can guide when to buy and sell. Risk management – the protection of a trader’s money becomes a swing trader’s primary focus.

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

Warren Buffett

As the great investor Warren Buffett has said. The key to wealth creation is not to lose money. For swing traders, it is to manage risk in return for the potential for making greater profits. So, for every $1 risked, they might aim to make at least $3.

How many buy and hold investors do you know who can define the point at which the investment’s original premise is no longer true?

I bet not many

When combined with highly disciplined risk management, swing trading can become less risky than any buy and hold type investment.


  • Swing traders primarily use price charts, while investors tend to use fundamentals.
  • Swing trading focuses on profiting from short term changes in the price.
  • The risk/reward ratio of a swing trade is calculated before a trade.

Day Trading Vs. Swing Trading

While you still might struggle with the concept of swing trading, you may be more familiar with day trading.

As the term suggests, day traders look to profit immediately from very short-term moves in the price during the day. So they will open and close trades during the day and will seldom keep a position longer.

These traders will buy and sell multiple times, and as a consequence, they plan trade entries and exits using price charts in minimal time periods.

Typically, day traders will use 1 hour, 30 minutes, 15 minutes, 5 minutes, 1-minute, or even ‘tick’ price charts. Each point on the chart represents an hour’s (or whichever period) worth of trading activity. With tick charts, each price point is a single incremental change in price.

As you can imagine, the shorter the timeframe, the more ‘busy’ the price chart looks. Consequently, it can be hard to see through the market’s randomness to find sustainable and tradable price changes.

Day traders will rely almost exclusively on technical indicators and have little concern with the fundamental factors driving price over longer time-frames.

Conversely, swing traders, while also primarily using technicals, will take their risk home overnight. In other words, they hold positions for days, sometimes, multiple weeks.

Such traders aim to profit from a single, strong price change in the market (swings). They will generally plan their trades using the daily charts. Although shorter time-frames such as the 4 or 1 hour, or even lower, may help calculate entries with more accuracy.

Day trading for a living?

I’m arguing the case for swing trading as part of a larger buy and hold portfolio. I’m not here to suggest quitting your job to take up day trading.

I did exactly this; I traded futures on commodities and currencies for a period, so I speak with some authority on the subject.

I know that day traders need to spend considerable time at their trading computers each day from my own experience. That’s not the case when swing trading.

Day trading didn’t suit my temperament. At times, I found it very intensive and very exhausting; I wouldn’t recommend it. However, if your emotional make-up is right and you’re super motivated, don’t let me stop you.

Profitable day trading relies on fast and accurate technical analysis. Beginner traders need to realize they’re competing against algorithms that do whatever they do but in milliseconds.

On the other hand, swing trading, done the right way, can be stress-free. Plus, swing traders can ignore the daily financial news cycle that is part of the “noise.”

The Key Advantages of Swing Trading

If you are working a full or even part-time job, then it’s likely that swing trading could be a good fit for what limited time you have.

Trading decisions can be made once per day, perhaps at the end of the day, with orders to enter new trades emailed to your broker for the next day. Remember, you’re risking a defined amount in the expectation of making a multiple more. However, you don’t know in advance which one of your swing trades will be profitable.

So, when you’re in the trade, what’s the best thing you can do? Absolutely nothing, there’s nothing you can do. Let go of the need to monitor what the market is doing. The trade will either work or not. You’re free to carry on with your day job or whatever else you’ve got going on.

Another advantage of swing trading is that it can introduce the trader to trading on margin.

The concept of margin trading might be new to investors, but it’s common to swing traders and day traders.

Margin trading allows the trader to borrow funds from their broker (in return for paying interest). Thus, trading on margin means the trader can commit less capital to any one trade idea.

Capital use can become much more efficient. An investor might allocate a small portion of his capital to swing trading, say, less than 10%. With this 10% allocation, he can both target protecting his long term, buy and hold portfolio while also capturing price changes. There’s strong evidence this diversification of strategies and markets should improve his overall returns.

Trading in this way also allows you to pay attention to the economic and political news events that may be about to impact the price of stocks, currencies, or commodities.

Remember that the principles and strategies of swing trading set out below can be applied to all markets, not just stocks but also forex and commodities.

Swing Trading with Candlestick Charts

This is a term you will hear all the time as you learn about trading. But there’s no mystery to it. All it means is how supply and demand are reflected in the changing price of the instruments we want to trade.

Fortunately, we have at our disposal one of the most straightforward but most ingenious analytical tools ever invented – the candlestick chart.

First devised in the 17th century by Japanese rice traders. The candlestick is simply a visual image that gives, at a glance, five crucial pieces of information about any instrument.

The candle’s body will tell us the opening and closing levels, and the candle’s color will tell us whether the price increased or decreased during any given period.

Above and below the candle body, the wicks (or shadows) will tell us the high, and low prices reached during the same period.

So, once you know what to look for, even a single candlestick can provide you with a wealth of information.

That said, better value is found in understanding the recurring patterns that successive candlesticks typically form.

Thorough knowledge of these patterns is the foundation of success. They will tell you whether the price is trapped in a horizontal range or trending strongly in one direction or another.

They will notify you when the price is likely to stall or reverse (at areas of support or resistance) and the best places to enter and exit your trades.

Two Simple Swing Trading Strategies That Work

That said, numerous technical indicators can help us interpret and act upon what the candlesticks are telling us. These are simple to use on today’s trading platforms.

Additionally, simple swing trading strategies can make highly profitable use of both candlesticks and indicators. Below, I outline a couple of common strategies. If you want to go into more depth, check out this post.

The Moving Average Trend Trading Strategy

Moving averages are simply an average of an instrument’s closing prices over a given number of periods. Moving averages are plotted as lines on the price charts.

That said, Exponential Moving Averages (EMAs) are far more useful. These averages give greater importance to the most recent price changes.

What’s interesting is that traders often use these EMAs as areas to buy or sell. So for swing traders, EMAs become places to enter or exit trades. EMAs are so widely used they almost become self-fulfilling.

So when entering a trend, it’s always best to wait for a pullback and pause in price. Often, this consolidation brings price close to the EMA before the trend resumes.

A small body candle close to an EMA offers a low-risk entry where price frequently tends to hug the EMA as it trends up or down.

The example below shows a typical bull trend trade.

This kind of trade is widespread and illustrates why “the trend is your friend” is one of the best-known sayings in trading.

It’s a straightforward entry that led to a 7-day move and healthy profit.

When exiting the trade, we can take profits when we hit a pre-determined target – ideally, three times the amount we’re risking.

If we want to extract the maximum profit, we can let the trade run its course.

We need to know, though, that when the price gets too far away from the EMA, it’s highly likely to pull back, as happened in this case.

Nevertheless, we could still have exited safely and profitably when the first red candle closed below the EMA.

These kinds of trades frequently occur in strongly trending markets, and they’re an excellent way for beginners to get started. Unfortunately, though, markets are often chopping sideways, with price trapped in a horizontal range rather than trending.

If we are to maximize our profit, we need to have another strategy in our toolbox. We need a strategy that allows us to trade when the price is frequently reversing.

The Double Top or Bottom

Double top or bottom patterns can indicate potential price reversals. These happen when trends are losing momentum or price is caught in a range.

This is one of the simplest swing trading strategies. Both double top and double bottom partners occur when price tries and fails in two attempts to break a level of resistance (double top) or support (double bottom).

With intervening candles forming, double tops often show a pattern resembling a letter M, double bottoms a W.

However, these patterns are rarely, if ever, perfect.

Tops and bottoms will not always be at precisely the same price levels. So support and resistance lines may not be exactly horizontal. And it may be that several small consolidation candles occur between the tops and bottoms.

What’s important is not finding perfect geometrical patterns but identifying clear areas of support and resistance that price has reacted to on at least two occasions.

Here’s an example showing a double top and bottom that could both have led to profitable swing trades.

Conclusion: Mind Your Emotional Intelligence

I’ve laid out above two basic swing trading strategies. There are many strategies available; you must test which works best for you. All are capable of accelerating your wealth creation.

However, far more important than any particular strategy is your mental approach to the market and your emotional self-control. Of course, don’t forget risk management.

No matter how much technical knowledge you acquire, you will not succeed at trading unless you can manage your emotions.

As a swing trader, you need to have the patience to wait for days or perhaps even weeks for the right trade.

Perhaps above all, you need to be able to accept with equanimity the losses that even the best traders inevitably suffer. You can do this by learning from the experience and waiting patiently for the next opportunity just around the corner.

This article originally appeared on Your Money Geek and has been republished with permission.

How To Save Money When Grocery Shopping

How To Save Money When Grocery Shopping

The pandemic has reshaped our lives in many ways. We are home more due to social distance, remote work, distance learning, traveling, and dining out less. We have spent more on grocery shopping to accommodate this “new normal” lifestyle. 

We were surprised to see a panic buying cause of shortages on store shelves for food and toilet paper. We recognized that as we spent more time at home, we had more significant needs. With vaccines becoming more available, we can start to see the light at the end of this very long tunnel to our regular lives. Hopefully, we will sport some new and improved financial habits. Americans are saving more time money, becoming more frugal.

We can save money by using grocery shopping tips to consciously change our ways. First, let’s take a look at some grocery statistics.

 Grocery Statistics

The average household spent $8,169 annually or 9.9% on food in pre-pandemic 2019. There are 2.53 people in the average household. Roughly 57% of the amount spent was for food at home and 43% for dining out. This year, many of us remained home rather than dining out. 

According to a Lending Tree study released in October 2020, the average consumer weekly grocery spending increased 17% due to the pandemic to $190 from $163.

C+R Research reported that most Americans (85%) found grocery prices have been higher during the pandemic. 

Before the pandemic, the 2019 American Time Use Survey showed the average shopper spent 41 minutes in the grocery store. That time may decline as we make more purchases online.

Ways To Save Money When Grocery Shopping


1. Have A Reasonable Shopping List

The better your shopping list is, the more productive your experience. Make your grocery shopping list as specific as possible. Peruse your pantry, frig, and freezer for what you have. I leave a pad on the counter for things we run out of to form our next list.

My kids aren’t that reliable in writing their preferences down, which are frankly more junk food-oriented. When I come home from shopping, and their stuff is missing, I feel it is their responsibility. They have gotten remarkably better at adding to the list ahead of time.

It saves time and stops us from meandering down all the aisles. I often give myself just enough time to buy what I need. When shopping for groceries without a list, I find surprises in my cart. It feels like somebody possessed me. I bought things we didn’t need but forgot the items I needed to cook with that evening.

2. Use Unit Pricing As A Great Tool

Unit pricing is a valuable tool to use to help you find the best prices. The price label on grocery shelves usually includes the unit price for the product. Sometimes in small writing, the unit price tells you the cost of the product in ounces or pounds, allowing you to compare the price of different sized packages better. Larger sized products and store brand items often have a lower unit price but not always.

Take the case of buying carrots:

  • One pound of baby carrots,  $0.99 ($0.99 per pound)
  • Two pounds of baby carrots, $1.89 ($0.94 per pound
  • One pound full-size carrots   $0.68 ($0.68 per pound)

If you have time to peel and cut the carrots, the full-size carrots are the better deal. All you need is basic math to make better buying decisions.

A Teachable Moment With My Son

Tyler had bought one ounce of cashews at a small grocery store with about 18 cashews for $4.99. He was “starving” on the way home from school, about a 15-minute walk home. We had just bought a large container (40 ounces) of cashews from Costco a day earlier. He had asked for them.

I asked him to do the math. He then realized he had paid 10x more for his little plastic cup. Incidentally, Costco sells that large-sized Kirkland cashews for $26.99. Just saying!

3. Cut Your Fresh Produce and Grate Your Cheese

In a pinch, I will buy fruit, cheese,  and veggies, cut up already. However, I find cutting fresh produce very therapeutic. They stay fresher longer, tastier, and are less expensive. I have all the tools–shredders, graters, dicers–and I use them as needed. However, I enjoy the feeling of cutting a cucumber or carrots. It may not look as pretty (so I have been told), but it is a relaxing activity.

Making our salads and experimenting with dressings has been fun and rewarding. Alex always asks for the recipes, but they are different each time. We have also bought bagged greens or salad packages to save time but feel better about our own. Saving money is a collateral benefit when you are enjoying your salads more.

Grating your cheese from a block is better compared to pre-shredded packages, which can spoil faster.

There is still way more processed food such as Kraft Mac and Cheese than we should have in our home. On American shelves since 1937, I’m sure I am not alone in hoping that one day these boxes disappear.

4. Leftovers Provide Benefits

Leftovers are the bane of so many people’s existence. Not to me. Growing up, we had leftovers though we never called it as such. My mom, a Holocaust survivor, believed in plentiful portions, eating at home, never in restaurants, and having a refrigerator filled to the gills. We didn’t discard food in our home.

Sometimes, leftovers, specially marinated recipes, taste better the next day. I view leftovers as extra portions after purposefully making more to freeze or have the next day or so. Having leftovers save time and money at the grocery store, in the kitchen, and searching for a new recipe. Certain foods are better (lean proteins, vegetables) the next day than other foods. 

I repurpose leftovers for snacks, breakfast, add-ons to other meals. Leftover chicken or salmon is excellent as a salad. As such, these portions provide me with some flexibility and feedback if I know my family liked the meal in the first place. I’m not a great or even a good cook, but I enjoy feeding my family.

 5. Bring Your Phone

There are good reasons to have your phone available. The calculator comes in handy for crunching unit prices, comparison shopping, or playing upbeat music to pick up your pace. It’s a good alternative to overcome piped-in Musak used to slow down your shopping.

6. Use Cash To Avoid Overspending

Credit cards are more convenient when I have significant grocery shopping to do. You can track your spending better. Plus, getting some money back is satisfying if you are using a cashback rewards credit card. However, I often use cash to pay for groceries as a way of limiting my purchases. You can still use some money and get rewards if you are in a store loyalty program.

When using limited cash to pay for groceries, you are increasing your pain which curbs overspending. As such, it is easier to budget.

7. Bulk Buys Don’t Work For Everything

When it comes to bulk buying, my husband, Craig, and I are different shoppers. When Craig goes shopping and sees sales on produce, he is liable to overbuy some things that aren’t bargains at the end of the day. He bulks up on perishables or non-perishables alike.

Buying in bulk does make sense for certain products that don’t have “Best by dates.”  Many household products fit that bill, such as paper goods, cleaning, or items you use frequently. If we buy too much of something like shampoo, my kids often overuse it. A lot of these items take up a lot of space. Family and friends envied us for having so much toilet paper during the early days of shortages. We mailed some rolls to friends. I am not kidding!

Perishables Are Not Good Candidates For Bulking

My daughter, Alex, was going through a veggie stage, asking for red peppers. Craig saw a pepper sale and came home with huge packages, amounting to 24 red peppers! After two peppers, Alex was bored with them. I used them for many recipes over the next week or so, then froze some, but we had some spoilage.

The next day, Alex wanted Brussel sprouts, cauliflower, and cucumbers. Of course, Craig found a sale and bulked up again. I am appreciative that Craig was doing a lot of the shopping those days. However, I finally pointed out the amount we were throwing out was outweighing the cost savings. There are better cost savings when buying large quantities of non-perishable items. That is not true when perishable food spoils.

 8. Buy Generic Brands

Buying generic brands for food, drug, and household products at supermarkets and wholesale stores are a terrific way to save money.  A generic brand for a consumer product is typically sold without a widely recognized name and is usually not promoted by expensive brand advertising.

Brand marketing for products is higher for often the same quality when you buy name brands. The private brands (also known as private label or generic brand)  and the name brands are often sitting next to each other, so it is easy to compare the ingredients’ labels. They are usually identical except for the price, with the generic brand costing one third-to-two thirds less. These savings are very worthwhile.

Kirkland Signature, a store brand, accounts for 25% of Costco Wholesale revenues.  Several notable brands—Starbucks, Duracell, Huggies, and Grey Goose—are manufactured under a private label by name brands with varied savings of up to 50% on some items.

9. Buy In Season

“For everything, there is a season.” These lyrics are from “Turn! Turn! Turn!” written by Pete Seeger and originated in the Book of Ecclesiastes. The words are a reminder that we should value our seasons. And so too, our seasonal foods. Sure, it is always fun and convenient to get a pomegranate when we want to have one.

Transporting produce is easier done these days, but if they are sourcing overseas, that country’s pesticide regulations may differ from ours. Convenience is not a good enough reason to eat out of season.

On the other hand, the cost of seasonal food is cheaper because farmers are harvesting in abundance. Fresher food is tastier and retains more nutrition than food consumed out of season.

10. Go To The Farmer’s Market

As a result of the pandemic, we have shopped less from farmers this year. I missed doing that this year as that is a fun experience to do.  Farmers are typically proud of their offerings,  appreciative of your purchases, happy to share information about their crop. We buy food from the farmer’s market for its freshness, organic, and uniqueness but not necessarily because it is cheaper.

However, buying eggs, cheese, and produce from the farmer’s market is usually better and cheaper. You are also supporting the farmers who have had a tough year.

11. Certain Stores Have Different Purposes

There are many different types of stores that sell groceries. Supermarkets have significantly more choices, such as Publix, Wegman’s, Safeway, and Aldi’s. We have shopped at Aldi’s, which has great prices. Wegman’s recently opened nearby, and we have found reasonable prices, especially for their private brands and excellent service. Their meat counter is accommodating and will cut to the size we need at the same price.

Superstores like Walmart, sell food and household items at affordable prices. Also, they sell clothing, gardening, games, and much more.

We have been members of warehouse clubs, favoring Costco’s, especially for Kirkland Signature, and to a lesser extent BJ’s. Membership pricing has gone up, but they offer value.  In recent months during the pandemic, we have avoided these larger stores. These stores are great when bulking up properly. Trader Joe’s and Costco are exceptionally terrific when you return food without question that has spoiled or doesn’t taste right. We have done it infrequently, but everyone I talk to says the same thing about these retailers.

Aldi’s and Walmart are perfect for grocery staples. Amazon and Walmart are great for buying nonperishables online. I buy a variety of things at Ocean State Job Lot, from spices to hand sanitizer, when no one else had it.

On the other hand, our local grocery store is typically more specialized, smaller, often more pricey. That said, we favor them for their neighborhood feel and want them to do well.

Convenience stores are for grab and go stops to pick up eggs, coffee, bread, and milk at a gas station. Drug stores can serve a similar purpose with like prices for specific food items.

12. Know Store Policies, Sales Cycles

All stores have their own sales cycles, which vary every six-to-eight weeks. The key is to know your store’s predictable cycle to make your purchases at their lowest price points. This information can be found in-store ads, on websites, or ask in the store. You can also find more discounts on certain items during the quieter morning hours.

Certain stores have coupon policies that allow “coupon stacking” meaning you can use both the store coupon and the manufacturer coupon. Retailers may give you twice the discount on whatever coupon you use or double couponing. Some stores will take competitor coupons.

 13. Use APPs, Coupons, Rebates, And Other Tools

Technology has evolved for the grocery shopper to save more money. The first coupon was created by the Coca-Cola company in 1887, providing a free sample of the one-year-old drink. The rebate coupon became popular though there have been skeptics. Craig has been an avid user of coupons for years and is a loyal shopper at certain outlets.

There are useful apps for saving money on groceries, notably using Ibotta, Checkout 51, Rakuten, among others. We can’t do full justice in this article for all the apps that can be used efficiently for savings and will do a standalone post soon.

14. Grocery Owners Use Marketing Psychology

All retailers use behavioral psychology to form biases that cause us to spend more money than we should. We discuss cognitive and behavioral biases here.

Grocery store owners use their trickery to encourage us to meander and linger longer in the stores. That way, we will spend more money on higher-margin items, be attracted to colors like red sale signs, and use larger shopping carts than we need.

Here are just a few schemes they use:

Piping in easy listening Muzak to slow on our pace in the store and stay a little while longer.

Grocery store layouts encourage you to enter their stores by walking to the right, counterclockwise where revenues are slightly higher ($2 per trip on average). Most people, notably right-handed people, steer with their left hand and grab with their right hand. That is where the goods are. I am left-handed but conditioned to go in that same direction, right into the baked goods and produce area. Typical supermarkets want you to walk to the right pleasant smells, freshness, and beautiful colors.

The aisles are especially desirable places for retailers to want customers to go. There are displays in your way at the ends of the lane, which will be another way for customers to stay longer. Grocery owners fill their shelves with their higher-margin products on the shelves at eye-level. Manufacturer fight for this space and pay slot fees for desirable space.

15. Bigger Shopping Carts

The average family size in the US has not increased, and oddly the proportion of our spending on food has decreased to below 10% of income from far higher decades ago. So why has our shopping cart tripled since 1975?

Marketing consultant Martin Lindstrom has said that retailers tried doubling the size of the shopping cart as an experiment, resulting in shoppers spending 40% more on merchandise. Ever carry one of those little baskets? They can hurt and cause black and blue marks at least on my arms.

The giant carts are subliminally causing us to shop and spend more.

16. Order Online And Pickup Your Packages

New research reported that more than two-thirds of shoppers are buying online pick up in-store (BOPIS) for the first time, and more than half are spending more when doing so. The numbers were highest for April 2020. Even as grocery stores opened in May and June, they were at limited capacity.   

Still, online grocery shopping has some lasting benefits. You are less likely to purchase impulsively, more comfortable to compare prices, contactless payments, and more time-efficient.


Final Thoughts

There are many ways to save money when grocery shopping. Our lifestyle has changed due to the pandemic, causing us to reconsider how we make purchases. We may realize lasting benefits as we improve our financial habits and time management. Buying groceries is a prime example of how we can save time, money, and become more healthy.

Thank you for reading! If you enjoyed this article, share it with others and come visit us at The Cents of Money and subscribe to get our weekly newsletter and more.





































House Hacking 2020: Make Money With Less Down And Live For Free

House Hacking 2020: Make Money With Less Down And Live For Free

My first house hacking was my first primary residence. Although I technically became a landlord, I didn’t consider myself a real estate investor.

I sold that property at my first opportunity. However, if I only understood real estate investing strategies, I would have never let that property go!

In 2011, my wife shared that she wanted to own a condo downtown and rent it out. I quickly disagreed with her and told her, “I didn’t want to fix toilets.”

Fast forward, and I now own multiple investment properties in my local real estate market. My journey reminds me of two things 1) I love real estate investing, and 2) my wife is always right!

What is House Hacking?

House hacking is when an owner lives in their property and rents out other parts of the property. Ultimately, the tenants are the ones paying the monthly mortgage payment while the owner lives rent-free.

For example, a person can buy multi-family property (e.g., triplex), live in one of the units, and rent out the other units. Another example is a person who owns a single-family home, lives in one of the rooms, and rents out the other rooms.

My simple house hacking strategy was owning a single-family house and having roommates pay rent. I didn’t do this to start building wealth. Instead, I invited my friends to live with me, primarily for social reasons.

I technically became a landlord. I owned the property, but my roommates were helping pay the mortgage!

Benefits of House Hacking

Looking for your first investment property but unsure of where to begin? House hacking provides multiple benefits, especially to rookie investors.

Live Rent-Free

The first big benefit of house hacking is living rent-free! A mortgage payment is composed of the principal amount, interest payment, and potentially mortgage insurance. However, the tenants are the ones paying back the debt service.


Lenders offer lower interest rates to people who will occupy their property compared to investors who do not. Lenders offer low-interest rates to people living on their property because they tend to take better care of where they live. Thus, they are less risky.

My rental properties’ interest rate is about three to six percent higher than my primary residence’s interest rate.

Low Down Payment

Owner-occupied properties don’t require as much of a down payment compared to non-owner occupied borrowers.

For example, the Federal Housing Administration (FHA) insures mortgage loans and only requires a down payment of less than five percent of the purchase price.

Non-owner occupied properties require 20 to 25 percent of the purchase price for a down payment. The down payment for owner-occupied borrowers is significantly lower compared to non-owner occupied borrowers.

I won’t bore you with the math. But, this low down payment makes house hacking a steal!

Passive Income

Aside from living rent-free, successful house hacking can generate monthly cash flow, known as the net operating income. You can calculate the net operating income (NOI) by subtracting the monthly operating expenses from the gross rental income.

Net Operating Income = Gross Rental Income – Operating Expenses

Below is a list of monthly operating expenses to consider:

  • Mortgage payment
  • Property Taxes
  • Property Insurance
  • Utilities
  • HOA fees
  • Property Management Company

How To Get Started In House Hacking?

Step 1: Become Creditworthy

The most powerful thing in real estate is leveraging other people’s money. Therefore, for a lender to approve you for real estate financing, you need to be as creditworthy as much as you can.

You can become creditworthy by improving your good credit score, having a stable income source, and reducing your debt-to-income ratio.

Step 2: Build a Relationship With a Local Bank

I always recommend new investors to build a relationship with a local bank or a credit union. A banker at a local bank can sometimes have more influence over your loan than a banker at a “big name” bank.

Communicate with your banker what you’re trying to accomplish with house hacking. A creative banker can develop loan suggestions to help you reach your goals, such as an FHA, 203k loan, or HomeStyle Renovation loan.

My banker works with many investors, and I’m fortunate to have built a great relationship with her. Her motto is, “I don’t invest in houses. I invest in people.” We’re at a point in our relationship where she increased our credit line, allowing us to purchase more properties.

Step 3: Study Your Local Real Estate Market

Study your local real estate market and look for areas with good house hack opportunities: research property values, rental income, and the kind of tenants in your market.

I practiced analyzing multiple properties before I made my first offer on an investment property. I calculated various numbers, such as the cash-on-cash return and the return on investment.

By the time I receive a lead, I know off the top of my head if it’s a potential deal or if I should move on.

Step 4: Create a Process to Find Leads

Finding real estate deals is the hardest part of real estate investing. Hence, you need to create a process that leads to potential deals, such as finding absentee owners.

Below is a list of ways you can generate leads:

  • Driving for dollars
  • Direct mail campaign
  • Signs
  • Online marketing
  • Reviewing property tax records
  • Work with a real estate agent.

Step 5: Make an Offer

There are always other investors looking for great deals. So, once you’ve analyzed the property, it’s time to pull the trigger and make an offer!

But, don’t be discouraged if you don’t get your offer accepted. As you make more offers on multiple properties, you’ll grow to see that you can’t win them all. You need one.

One year, I’ve analyzed over 50 properties, visited 12 of them, and made over five offers. Only one of my offers got accepted, and it was a great deal!

How to Grow Your Real Estate Portfolio

Rental property investing is a great way to generate passive income. However, if you’re looking to replace your income or become financially independent, you’ll need to scale your real estate portfolio.

BRRRR Method

BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. The BRRRR Method is a real estate strategy that allows investors to recoup their initial investment and put it towards another investment property.

I often use this strategy. In less than two years, I acquired three properties. The method can be challenging to grasp at first. Therefore, it’s easier to explain through an example:

BRRRR Method Example

Joe BUYS a $100,000 property. His down payment is $5,000, while a bank lends him $95,000. For the sake of simplicity, I’ll ignore closing costs.

He spends $10,000 on REHAB costs to increase the after-repair-value and RENTS his property for $1,300 after he made improvements. Therefore, his overall initial investment is $15,000.

After a few months, Joe requests a bank to perform a cash-out REFINANCE. The property appraises for $150,000, and a bank creates a loan 75% of the appraisal valuation. Therefore, the principal balance of the loan is $112,500 ($150,000 x 75%).

The new loan of $112,500 replaces the other loan of $95,000, pays Joe back his down payment of $5,000, and the rehab costs of $10,000.

Refinanced Amount – First Loan Balance – Down Payment – Renovation Costs = $112,500 – $95,000 – $5,000 – $10,000 = $2,500

The rental income of $1,300 pays down the $112,5000 mortgage loan. Joe recouped his $15,000 investment along with an additional $2,500 from the cash-out refinance.

Joe can REPEAT the process and use the $17,500 as a down payment toward a new investment property.

The key to this strategy is purchasing an undervalued property and force appreciation through renovations.

1031 Exchange

A 1031 exchange is an Internal Revenue Service tax code that allows an investor to defer paying capital gains tax on their property’s sale. According to the 1031 exchange rules, an investor needs to exchange their current property with one that has a replacement value greater than or equal to its own.

Regarding house hacking, you’ll need to own the property for at least two years before you can take advantage of this tax code.

For example, Nathan purchased a house hacking duplex for $150,000 and made improvements to the property over time. After a couple of years, the property value became $600,000, and the net proceeds of the sale are $500,000.

  • Original Purchase Price: $150k
  • Fair Market Value: $600k
  • Net proceeds: $500k

Nathan can keep the net proceeds. However, the government will heavily tax him.

He can also scale and put it towards a more significant investment property, such as a 24-unit apartment complex or multiple short term rentals!

Besides paying capital gains tax, Nathan has also increased his ability to generate more monthly cash flow, reduce his maintenance costs, and improve tenants’ quality.

He went from a real estate rookie living rent-free to becoming an experienced real estate mogul!

Common House Hacking Mistakes

Treating Investing as a Hobby

Real estate investing is a business and should be treated as one. A common mistake that new investors make is treating it as a hobby. They don’t give their investing the necessary attention required, which can lead to financial ruin.

Not Following The Law

The city can shut down your business if you ignore any rental laws, such as not following local zoning ordinances.

I visited a property for sale because the owner was attempting to do creative house hacking. He illegally created a duplex from a single-family house, and none of his work was up to code.

Thus, the city shut him down. He had to cut his losses and sell.

Not Property Screening Tenants

Screening your tenants and doing a background check is essential!

You might feel desperate to have anyone rent your property to pay the mortgage. However, unfavorable tenants could lead to damages to your property. Those damages could cost thousands of dollars in repair or even force your property into vacancy.

I had potential tenants applying for one of my properties. Unfortunately, they had two large dogs that I don’t accept as part of my policy. Even though it would be nice to take their application, I still had to weigh the risks and move on.

Not Budgeting For Repairs

Another common mistake is that new investors don’t account for potential repairs or vacancies as part of their analysis. Also, they don’t have sufficient cash reserves to pay for these potential expenses.

I strive to maintain at least three months’ worth of rental income for each of my properties in cash reserves.

Final Thoughts

I did my first house hack unknowingly. However, if I had a plan when purchasing my first property, I would do a 1031 exchange and scaled my real estate portfolio.

I purchased that house for $135,000 and rented it out for $1,300 before selling it. Zillow says the estimated rental income for that property is now $1,600, and its market value is over $200,000.

These house hacking strategies are a great introduction to anyone interested in getting into real estate. Like any investment, you need to analyze your local market to make sure it’s a great deal!

This article originally appeared on Your Money Geek and has been republished with permission.