You want to learn how to be frugal but not cheap… then, you are in the right place. Simply put… frugal living is saving money at it finest. To be honest, though, learning how to be frugal can come with spending more money than you planned in the name of frugality. The truth can hurt. … Read more
Read More… How to be Frugal with these Frugal Life Hacks
Buying a home is a huge, expensive decision, no matter if you're a first-time homebuyer or have been buying and selling real estate for decades. Homeownership comes with financial upsides and risks, and for many people, it's an emotional transaction as well.
So how do you get fully prepared to buy a home? Getting ready should begin long before you start scrolling through online listings, going to open houses, or working with a real estate agent.
Today, I'll help you understand if homeownership is right for you, how much you can afford, ways to save for a down payment, and tips to get the most affordable mortgage possible. The more you know about the home buying process and prepare for it, the cheaper and less stressful it will be.
Here's more about each step you can use to prepare your finances to buy a home.
1. Evaluate renting versus buying
Before you start obsessively searching for your dream home, the first step is to make sure owning a home is the right move for you. There's no financial rule that says you must buy a home. In some cases, you're better off not becoming a homeowner.
In general, it's not wise to buy a home unless you're confident you will live in it for at least three years.
Whether you should own or rent depends on various factors, including:
Where you want to live. If you're in a large city, renting can be much less expensive than buying a home.
How long you plan to live somewhere. In general, it's not wise to buy a home unless you're confident you will live in it for at least three years. That gives you enough time to recuperate your buying costs and prepare to sell the property.
What lifestyle you enjoy. For many people, being a homeowner allows them to enjoy hobbies, such as gardening or home remodeling, which they couldn't do as a renter. But renting may be more appealing to those who travel frequently or don't want to be responsible for the upkeep and ongoing maintenance of a home.
2. Check your credit
If you decide to explore homeownership, the next step should be doing a deep dive into your credit reports and scores. Staying on top of your credit is always important, but it's critical before buying a home because it's a primary factor that mortgage lenders use to evaluate you.
Not only does repairing and building credit help you get approved for a mortgage, but it's a critical way to qualify for a low-rate loan, which saves a massive amount of interest.
For example, if you have excellent credit and get a $200,000 fixed-rate mortgage, you pay about $145,000 just in interest over the life of a 30-year loan. But if you have average credit, you'll pay close to $190,000 in interest, or $45,000 more, for the same loan!
Your credit scores get calculated using data in your credit reports, which frequently changes as new information gets added and old data falls off. Check your credit reports and get any errors, such as incorrect account balances, payment dates, or personal information, corrected as quickly as possible.
You can access your information directly from the national credit bureaus: Equifax, Experian, and TransUnion. There are also many free credit sites, such as AnnualCreditReport.com, Credit Karma, and Credit Sesame.
3. Repair your credit
If you have black marks on your credit, such as late payments or accounts in collections, start making repair efforts at least six months to a year before applying for a mortgage. You can't remove accurate negative information, which stays on your credit reports for seven years, even if you pay off an overdue balance. However, the older a delinquent account gets, the less it hurts your credit scores.
Before submitting a mortgage application, consider paying off any past due balances or negotiating settlements with creditors. Getting caught up on late payments helps clean up your report, making you look less risky to a lender.
One word of caution is that if you have old past-due accounts, making a payment can restart the statute of limitations, resulting in legal risks. So, if you have a large amount of delinquent debt, consult with an attorney before you speak to your creditors or send a payment.
Read The Statute of Limitations and 4 Options for Old Debt for more information about dealing with old debts wisely.
4. Check your debt-to-income (DTI) ratio
Before applying for a mortgage, figure your DTI and see what changes you may need to make. Mortgage lenders evaluate a few debt-to-income ratios to know how your expenses stack up against your income. It's a good indicator of how comfortably you could take on additional debt.
Most home lenders require your future mortgage payment to add up to less than 30% of your income. And for all your debts, including the new mortgage, a typical acceptable ratio is no more than 40%.
Most home lenders require the payment on the mortgage you're applying for to add up to less than 30% of your income. And for all your debts, including the new mortgage, a typical acceptable ratio is no more than 40%. If you exceed these lending limits, you may need to pay down debt balances. But every lender has different underwriting guidelines, and they may adjust DTI ratios based on your financial situation.
When you're preparing to buy a home, be sure to pay your bills on time, reduce your debt as much as possible, and avoid applying for new credit accounts, such as a credit card or auto loan. Those actions boost your credit and help lower your DTI.
5. Calculate how much you can afford.
The next step is to consider all the home-buying costs you'll have to cover. Check out Bankrate's How Much House Can I Afford? Calculator, which allows you to input your monthly income and estimated home expenses.
In addition to a mortgage payment, here are some additional expenses to keep in mind:
Property taxes are owed to the local government and vary depending on where you live. An average amount could be in the range of $3,000 to $4,000 per year.
Home insurance is required by mortgage lenders to protect the property from various disasters, such as fire, windstorms, and vandalism. The price depends on many factors, including the home's value, location, and amenities. An average premium could be in the range of $800 to $1,500 per year.
Private mortgage insurance (PMI) is another requirement when you pay less than a 20% down payment. The premium depends on your home's value but could add a range of $50 to $150 to your monthly mortgage payment until you have sufficient equity for your lender to cancel it.
Homeowner association (HOA) fees may be required in some neighborhoods or communities to pay for communal amenities such as a pool, boat dock, or landscaping. The cost could be $50 per month or much more.
Home maintenance should always be expected. A good rule of thumb is to save at least 1% of your home's value each year for upkeep. For example, if you have a $300,000 home, budget $3,000 per year to pay for potential repairs such as an HVAC system or a water heater that quits working.
6. Save a healthy down payment
If your goal is to buy a home, you've probably been thinking about how to save money for a down payment. To qualify for a mortgage, you must prove to a potential lender that you have enough savings to fund a down payment.
Since lenders don't finance 100% of a home's price, the down payment affects the balance you owe, in addition to the proceeds from a mortgage. The more you can pay, the less risky you are to a lender. And the larger your down payment, the smaller your mortgage and monthly payments will be.
While a down payment could be in the range of 5% to 20% of a home's purchase price, you may have additional upfront expenses to pay at the closing table, including:
Loan origination or underwriting fee
Mortgage discount points (which allow you to get a lower interest rate)
When you make a purchase offer on a home, one tip is to request that the seller pay some of your closing costs. You can also haggle with your mortgage lender not to charge specific upfront fees. In real estate, just about everything is negotiable, so don't be shy about asking for concessions.
If you're a first-time homebuyer, a veteran, have a low income, or want to buy property in a rural area, it's possible to qualify for down payment assistance through these programs:
Department of Housing and Urban Development (HUD)
Federal Housing Administration (FHA)
Department of Veterans Affairs (VA)
Department of Agriculture and Rural Development
Local homeowner programs database
The benefits of down payment assistance programs vary depending on their rules and your circumstances, but they offer low or no down payment, making it much easier to become a homeowner.
The money for a down payment can come from your savings or gifts from your family. And if you're already a homeowner, your down payment can come from the money you make when you sell your current home.
Here are some ways to save a down payment quickly:
Downsize your housing by moving into a less expensive place so you can save money for your down payment fund.
Automate your savings by having a portion of your paycheck deposited into a dedicated savings account or setting up a recurring monthly transfer.
Bundle services to pay less for utilities such as cable, internet, and wireless plans.
Shop your insurance if it's been a while since you compared prices for auto or renters insurance.
Save all extra money such as raises or bonuses at work, gifts, and tax refunds.
Start a side hustle to create additional income to squirrel away for a new home.
7. Tap retirement accounts cautiously
Another way to come up with a down payment on a home is to tap a retirement account, such as IRA or 401(k). While I don't recommend this option, some provisions allow it.
Another way to come up with a down payment on a home is to tap a retirement account, such as IRA or 401(k). While I don't recommend this option, some provisions allow it.
For a traditional IRA, you're allowed to withdraw up to $10,000 for a down payment if you're a first-time homebuyer. You must pay taxes on the withdrawal—but even if you're younger than 59½, you won't get hit with the 10% early withdrawal penalty.
If you have a Roth IRA, you can withdraw your original contributions without owing taxes or a penalty, no matter your age. However, tapping the earnings portion of the account before age 59½ means that taxes and the early withdrawal penalty would apply.
If you have a workplace 401(k) or 403(b), they typically allow "hardship" withdrawals, which include buying or repairing a primary home. However, making a distribution means paying income taxes and a withdrawal penalty if you're younger than 59½. Plus, you may get restricted from making contributions to your retirement account for six months.
Some workplace retirement accounts allow loans. You may be permitted to borrow half of your vested balance, up to $50,000. You must repay it with interest to your account within five years. However, the term may be longer for a home purchase. If you repay a loan on time, you don't have to pay income tax or a penalty on the borrowed funds.
One of the biggest problems with taking a loan from your 401(k) or 403(b) is that if you don't repay it on time, the outstanding balance becomes an early withdrawal. That means you must pay income tax plus an additional 10% penalty if you're younger than age 59½.
While taking a loan or withdrawal from a retirement account may make sense for some home buyers, the best scenario is to have plenty of savings, so you don't need to touch your retirement nest egg in the first place.
If you leave your job or get fired, you'll probably have to come up with the entire outstanding loan amount within a short period, such as 60 days. So be sure to read your retirement plan document or ask your benefits administrator for all the details on taking a loan before signing up.
To sum up, if you need to tap a retirement account to buy a home, taking a modest withdrawal from your Roth IRA is the best possible option. However, in general, I don't recommend draining a retirement account for any reason. It comes with too many downsides, including not being allowed to make new contributions for a period, missing employer matching, being left with a depleted retirement account, giving up the opportunity to build wealth.
While taking a loan or withdrawal from a retirement account may make sense for some home buyers, the best scenario is to have plenty of savings, so you don't need to touch your retirement nest egg in the first place. Always speak with a financial adviser to carefully weigh the pros and cons of dipping into your retirement account for any reason.
8. Get a mortgage preapproval
Once you've reviewed your credit, calculated how much you can afford, and have enough of a down payment, it's time to get pre-approved for a mortgage. You might apply with several potential lenders and compare quotes.
In a preapproval, a lender checks your credit, verifies your income, and approves various documentation. They offer a maximum loan amount and interest rate for a period, such as 30 or 60 days, while you find potential homes.
Remember that just because you qualify for a mortgage doesn't mean you should take out the maximum amount. It's a big commitment that has to fit in with your overall financial goals. For some, spending the full amount may be a wise decision. However, if it would leave you "house poor" with an exceptionally tight budget, consider spending less or delaying your home purchase until you've saved up a larger down payment.
The following is a sponsored partnership with Capital One Shopping. Capital One Shopping compensates us when you get the browser extension using the links we provided.
Are you looking to learn how to grow your savings fast?
Today, I’m going to talk about some of the best ways to save money, and they can be quite easy as well.
Some will be a no-brainer and extremely easy (such as adding an easy browser extension), whereas others may take more time (such as finding ways to make extra money), but they can all help you to grow your savings so that you can change your life.
Growing your savings fast may allow you to:
Pay off your debt quicker
Save for something big, such as a vacation
Build an emergency fund
Save for retirement
And so much more!
Use Capital One Shopping
Capital One Shopping helped users find more than $160 million in savings and coupon codes in the last year, and they can help you do the same.
Capital One Shopping is a really simple and free way to help you save more money when shopping online. You simply add their browser extension, and it will instantly search for coupons and apply the discount to your shopping cart for you automatically.
This is great because you don’t have to worry about finding coupon codes anymore.
Or, forgetting to use a coupon code to begin with!
Capital One Shopping makes it easy and is a no-brainer to use.
To get started, all you have to do is:
Add the browser extension by clicking here
Simply shop as you normally would. Capital One Shopping works in the background.
Capital One Shopping will then help you get better pricing while you shop, find and apply coupon codes, get credit back on purchases, and/or you can get notified when prices drop.
Capital One Shopping also compares prices for items on Amazon, Target, and more. So, while you are shopping, Capital One Shopping will tell you if a better deal is found, so that you can save the most amount of money.
You do not have to be a Capital One customer in order to use Capital One Shopping. There are no ads either, and it is completely free!
Capital One Shopping is available on Google Chrome, Mozilla Firefox, Microsoft Edge, and Safari.
Please click here to start saving now.
Save money when grocery shopping
Grocery expenses are usually one of the biggest bills for a family each month.
To save money when grocery shopping, I recommend:
Meal planning so that you know exactly which ingredients you need to purchase. This will help you cut back on food waste as you will be shopping with a specific grocery list.
Only grocery shop when you’ve had a meal beforehand. Shopping when you are hungry will lead to many additional purchases!
Get a grocery store’s loyalty card so that you can get additional savings.
Shop the sales, and if there’s a good sale – stock up!
Build a budget
Budgets can help you grow your savings fast, and that is because you will know where your money is coming from and going to all the time.
There will be fewer surprises, as you’ll know exactly how much money you are working with.
Whether you create a budget with a pen and paper, or online with something such as a spreadsheet, there are many options for you.
But, the key here is to properly track your income and expenses.
Find a cable TV alternative
So many people overspend on cable TV each month and every single year. In fact, the average person spends around $100 to $200 a month on their TV bill.
Perhaps you’re even paying for cable TV, plus a bunch of subscription services such as Netflix, Hulu, and more?
I recommend sitting down and seeing how much you spend on TV each month, and cutting your bill down.
You can read more about this at 16 Alternatives To Cable TV To Save You Money.
Make extra money
There are many different ways to make extra money, and this is a great way to grow your savings lightning fast.
You could start your own business on the side, find a part-time job, sell items for profit, and more.
This option will take more time than the rest of the list above, but it can definitely be well worth it.
One thing I always like to point out is that the average person watches around 35 hours of TV each week. Even if you could only make extra money for half of that time (around 17 hours per week), that could be a nice chunk of money to earn with your free time.
How can I increase my savings fast?
I hope you enjoyed this list of 5 ways to quickly grow your savings. As a recap, these include:
Using Capital One Shopping
Finding a cable TV alternative
Creating a budget
Grocery shopping tips
Ways to make extra money
What are you currently doing to quickly grow your savings?
The post 5 Ways To Grow Your Savings Fast appeared first on Making Sense Of Cents.
So, I kind of just bought the house next door to me.
This is already somewhat amazing, for a small-town boy who refuses to even buy himself a new car. But even stranger are the details that surround this deal:
Iâm not moving into it.
I donât really need or want a second house.
I have no long-term plans to be a landlord.
I made the decision on a whim, and the whole transaction only took about 45 minutes of actual work.
I paid âcashâ for the house, avoiding the hassle of getting a mortgage – while not having to accumulate an entire house price worth of cash.
And most importantly to you, I used a financial trick that I only recently learned about, but upon further study is an incredibly useful thing to have at your disposal (as long as you use it responsibly).
The real story is this:
About two months ago, I learned through the grapevine that the house next door would soon be on the market. There was a cryptic âfor sale by ownerâ entry on Zillow with a $400k asking price, but no pictures and no information on how to contact the sellers. In response to the information vacuum, Zillow had just automatically sucked in a really ugly Google Street View picture of the house.
In my area, we are in the middle of an insane housing boom. Every new property that comes to market, no matter how modest, is treated like Justin Timberlake stepping onto the stage of a dazzling arena of adoring fans.
This has left several friends who arrived more recently searching fruitlessly and losing the inevitable bidding war for each uninspiring property, over and over again.
And my little street happens to tick a lot of boxes for our type of shoppers: a walkable and bikeable central location which also backs onto open space and features newer (1990s) houses with a layout that can easily be split into two units with separate entrances. All at lower prices than the older houses without views and without house-hacking potential, just up the hill.
So I knew this place was a good deal and a good investment, and sure enough several friends were interested. The only problem was, so was everybody else: a bidding war was already bubbling up and we only had a few days at most to lock it in.
And my most interested friend was self-employed, and in the middle of a year-end business boom – both factors that would delay her ability to get a mortgage. How could we secure this house, so she would get an amazing deal and I would get to live next to a really great group of friends (and continue my plan to gradually take over more of the street) rather than rolling the dice with a random set of new neighbors?
The solution: we made a deal where I would make an all-cash offer to buy the house, with very quick and friendly terms to the seller so we could beat the other offers. Then my friend would take her time to get a mortgage, and buy the place from me at a more leisurely pace – effectively just leasing it from me in the meantime.
The problem: I didnât have anywhere near $400,000 sitting in my checking account, and I did not want to sell a bunch of shares and trigger capital gains taxes (which in my case would be at least $60,000), just for this short term project. Iâm a good friend, but not that good.
The Ultimate Solution: Learning from a friend who has been doing this for years, I transferred some of my existing investments out of Etrade and into a new brokerage firm (Interactive Brokers), which has an unusually good Margin Loan capability.
This let me borrow money against my own shares, at an interest rate of about one percent (1%!), without selling any of them.
So end result for me is like a very flexible mortgage, but at less than half the interest rate, and with a virtually-overnight origination speed. And I am the CEO of the bank!
Introducing the Margin Loan
Let’s start with an example of what I did, although with fictional rounded numbers just to make it simple.
You may have already heard about the often-risky practice of âbuying stocks on marginâ, along with its notorious darkside, the possibility of a âmargin callâ. But there’s also a big potential advantage, which is why people do it. Let’s summarize both of them so we can see how to do it right.
In the best case, a margin account allows you to do things like this:
Put in $100,000 of your own money and buy, say, some shares of the VTI index fund.
Use that as collateral to borrow an additional $100,000 to buy more shares (VTI or otherwise).
You end up with $200,000 invested.
If the stock goes up by 10% per year ($10,000) and you are borrowing the money at only 2% (which costs you $2000), you get $8000 every year for âfreeâ.
The downside is that this can happen:
You invest your $100k, borrow that second $100k, and buy the same $200k of shares.
COVID hits and your shares suddenly go down 50% (total value is now $100k)
BUT, that $100,000 margin loan you took out hasn’t changed. In other words, you still owe the brokerage $100k, and your account value is now only $100,000. The total value of your account is now zero.
Even worse, the brokerage is not cool with this situation, because they require a 50% âmaintenance marginâ.
They automatically sell half of your shares in order to reduce the loan balance to $50k.
Youâve just lost 100% of your money (because you own 50k of shares and owe the brokerage 50k), and you were forced to sell the shares at the worst possible time, shutting you out of the possibility of a rapid rebound (like we saw just after the 2020 Coronacrash).
Note: if the stock drops fast enough, you can even lose more than all your money.
So, margin is a powerful tool that can multiply your profits or your losses. However, since the stock market tends to rise over time, it can still be a valuable option, as long as you use it with great caution.
So why, and how, am I using a margin loan?
Although the basic idea (and risks) are the same, I am using my margin loan a bit differently, to withdraw cash instead of buying more shares. And I am keeping my borrowing well under that 50% threshold in the example above, in order to reduce the risk of trouble in the case of another market crash. Here is what I did:
I created a new account for myself at Interactive Brokers, selecting the “IBKR Pro” account type to get the lower margin rates, and set it up as a “margin” account versus the unnecessarily complex “portfolio margin” option.
I transferred a relatively large amount of shares of stable, diversified companies (mostly the VTI index fund and some Berkshire Hathaway) into this new account.
With a securities transfer, your actual shares move between from your old brokerage to the new one, rather than being sold on one side and re-bought on the other. This avoids triggering unnecessary capital gains taxes. I was able to make this part happen entirely online – no phone calls required.
Then, since my account was new, I had to sit and wait for 30 days, to clear the security lockup period. This is a good reason to plan in advance by setting up an account when you aren’t rushing to buy a house. But the deal still worked out, and I’m even more prepared for next time.
After that I was able to withdraw cash using the margin loan feature. The brokerage lets me go all the way up to 50%, but I kept mine to a lower percentage.
Now, when I go to make a withdrawal from my account, I see a screen like this one:
This money simply went immediately to my checking account. I used a wire transfer, which the brokerage did for free.
Within less than an hour of that money hitting my checking account, I was able to wire it right back out to the title company, and buy the house.
Technical note: In this case, I did already have a portion of the house price ($140k) available in cash. This allowed me to borrow a smaller amount ($260k) using the margin loan, which made it possible to stay within a conservative borrowing range without requiring millions of dollars in shares.
The Real Magic: Ludicrously Low Interest Rates
For a brokerage, a margin loan is an easy and automated way to safely make money off of their clients, because they are really just lending you a portion of your own money.
So as long as they set the rules conservatively, they have your shares as guaranteed collateral and can sell them instantly if needed. This means they can offer rates barely above the prime rate. And Interactive Brokers is particularly aggressive, offering the rates below at the time of writing.
For comparison, Robinhood offers margin loans at 2.5% and Etrade is something silly like 7.95% and up as I write this. Even the low-fee standard Vanguard is in the 7% range. So, Interactive Brokers is truly unique for now – which is why I created my account.
Rates will Fluctuate:
For US customers, that “Benchmark Rate” in the table above is based on a multiple of the Federal Funds rate. As I type this, that rate is around 0.25%, and one year ago it was 1.25%.
Since it is adjusted during quarterly committee meetings, it rarely moves more than 0.25-0.5% during any given three month period. As example of rapid increase, from 2004-2006 it went up from from 1.25 to 5.25%. More history here.
Cool Implications of This New Trick
1: Staying fully invested without fear
In recent years, I have found myself disobeying my own advice and holding more cash in checking accounts than I should have. By foregoing the returns I would have earned if I left this money in the stock market, I have cost myself many thousands of dollars.
But I was holding back due to a range of fearful excuses like, âWhat if thereâs a stock market crash and I want to get some shares on sale? What if my income tax bill is higher than expected? What if a house comes up on the market and I want to be able to spring on it quickly?â, and so on.
With the margin loan option now in place, all of these fears disappear. I can now safely remain fully invested, and in the unlikely event of one of those âemergenciesâ above, I can just pull out any amount of money I might desire. No delays, and no taxes.
2: Being able to buy houses on short notice (or even become a mortgage company for your friends)
In my situation, I was able to lock in a good deal on a house due to the power of the âcash offerâ, which benefits my friend who will eventually buy it from me to become the final owner. After buying several properties with actual money rather than a mortgage, I have found that the benefits are huge:
By offering cash (and providing proof of funds as needed), you show the seller that you are serious, and that you can actually afford the house. In a hot market, many buyers make offers on houses that they can’t truly afford. Several weeks later, they find that the financing falls apart, leaving the seller hanging and needing to re-start the sale process. A cash buyer is thus much more reliable
Mortgage companies can be very slow, taking a wise but extensive list of steps before they hand over the money. It can be 6-8 weeks between offer and closing. With your cash, it happens at your own pace (it could be as fast as one day, but 3-4 weeks is reasonable if you are doing inspections and other due diligence.
With a cash offer, you can make your own decisions about how to handle the inspection, or even perform your own (if you happen to be qualified as I am). You also don’t need to pay an appraiser $600 to take a random dartboard guess at the value of the house you are choosing to pay. As an advanced buyer, you presumably know the value better than anyone else.
Finally, with cash you eliminate any loan origination fees and you can choose your own insurance coverage and deductible, since you are the only one at risk.
Although this arrangement is unconventional, it doesn’t feel too risky for me, because the house is solely in my name. If my friend changed her mind or otherwise could not complete the deal, I still own the house, which could be sold at a small profit or rented out. From a legal and accounting perspective, all Iâve done is bought a house as an investment.
For those with sufficient savings (and who are not prone to worry), this “Cash Buyer Vigilante” idea could become a valuable service for other friends, or even a sort of business: you help your clients to make cash offers to buy houses, which gets you a better deal in a competitive market, and you collect a fee for the service. You may also earn a small spread on the difference between the mortgage rate and your broker’s margin interest rate.
3: Avoiding unnecessary taxes
If you never have to sell your shares, you can keep those gains on paper instead of out in the real world – perhaps even for your entire lifetime.
As long as youâre comfortable with the margin loan interest rate (which will not always be as low as it is today but should in general remain cheaper than a mortgage), you can borrow against your growing pool of investments for everyday living expenses, house purchases, and even charitable contributions.
And if you borrow to make additional taxable investments (which is exactly what I have done for the house next door) , the interest itself may be tax deductible as well. For example, consider the following hack, just one of many:
You have millions of dollars of appreciated Apple and Tesla stock, and want to tax-efficiently fund a nice lifestyle forever. You could
Use a margin loan against these shares to buy a solid multi-unit apartment building (preferably with a high yield and a hands-off management company to manage it for you)
Collect the considerable rent, while taking any allowable depreciation deductions
With a good property, the surplus after all of these expenses will more than pay for your margin loan interest and your own pleasant lifestyle. Groceries, household expenses, kids, travel, whatever you like. And you still own your original investments and haven’t paid capital gains taxes on anything.
You do have to be careful, of course. My rule of thumb is to be more than prepared for the worst stock market decline that has ever happened, and even then have a backup plan beyond that. So, my primary house will never be at risk, and only a small portion of my total investments will be subject to margin borrowing.
But if you do it right, I believe this trick allows you to trade a very small amount of risk for a rather large increase in life options and satisfaction – in other words, fun.
So I look forward to sharing more stories of how this neighborly arrangement works out, and the intriguing adventures I have with this new margin account after that.
In the comments: if you have more experience and/or questions about margin loans, please share them, and I will update this article so we can make it more comprehensive.
A note on Interactive Brokers: I chose this firm based on advice from some friends who are established investors, followed by some online research. I am happy with the results so far, and I received great customer service when setting up the account and going through the learning process of the margin loan (which is really easy). But, like everything in life, I still view it as an experiment. I have lots left to learn.
The company has a nice “online-university” style explanations of all sorts of things, with nicely formatted pages and video lessons – including more advanced forms of trading that I don’t plan to get into. But in the case of the margin loan, I found this guide to be useful.
IB also offers a referral program. If you establish an account and like the results enough to recommend it, you can share it with your friends. As the program currently stands, you will get $200 for each new customer, and your friend will get up to $1000 (1% of the value of the assets they use to fund it) – payable in the form of IBKR shares, which is kind of a novel way to pay a bonus.
If you are thinking of signing up and need a referral link to get your own 1%, you are welcome to use mine here – which will of course benefit the MMM blog so thanks if you do!