When are loans the right option?

In a world dominated by headlines about economic difficulties and large debts, it is hardly surprising that the average consumer is more than a little concerned about their personal finances. Surveys conducted over the past couple of years have routinely shown money matters as a major area of worry for Brits, with individuals doing everything in their power to manage their financial commitments efficiently.

Perhaps the most common trend embraced by the public is an attempt to reduce reliance on loans and other forms of credit ' but is this always the best course of action? Whilst taking loans unnecessarily is never recommended, for those in need of credit these products can offer a vital life line and help consumers reach a position of financial security. The trick is knowing when they are the right option.

Responsible borrowing

Ultimately, loans are designed to help you cover costs when your own financial provisions prove insufficient. The amount you borrow will vary depending on your personal situation and the type of loan which you apply for. These can range from short term instant cash loans through to 12 month loans for people with bad credit.

Accepting a loan for a higher value than you initially requested may seem like a good idea at the time but will only result in you being asked to repay more money in the long run. Taking a higher value loan can also increase the likelihood that you are unable to repay it at the end of the loan period, thus increasing your chance of falling into further debt.

The interest rate is naturally something you will want to compare when receiving offers from different creditors but it should be remembered that this rate may vary depending on your situation. Those with bad credit are often penalised with higher interest rates but this doesn't mean that loans are not a viable option for these individuals.

Instead, products which are tailored to your specific situation, such as loans for people with bad credit, should be sought. Make sure you only accept these loans if you are confident of your ability to meet the required repayment schedule, however, as failure to do so will result in your credit rating being lowered even further ' making it increasingly difficult for you to obtain credit in the future.

When not to use loans

Whilst knowing the rules around responsible borrowing is one thing, it is also important that you are aware of when borrowing money is not the right decision. If you are already struggling with debts and repayment plans, then taking another loan is only likely to add to these worries.

Instead, take independent financial advice and consider consolidating your debts. This is designed to make repayments easier to manage and makes it far easier for you to track exactly what money it is you need to pay.

Loans should also not be taken to cover trivial purchases as relying on credit in this way puts you at greater risk of entering debt. No matter what you need a loan for, always evaluate your financial situation prior to submitting an application and check that you are in a suitable position to borrow money.

Being Safe When Making Charitable Donations

As we head towards another year end, you will begin seeing more attention being given to those in need. Just look at the recent news story of the New York City Police Officer buying boots and giving them to a homeless man as proof. My blog has its own Salvation Army Red Kettle to get others in the giving spirit to make donations as well.

My guess is that there are a handful of 'events' that lead to charities getting more attention during this time of year. First off, it is getting cold outside. Most don't worry about others having warm shelter when its 70 degrees at night and you are relaxing at the beach. Secondly, people are getting their taxes in order and charitable deductions are a big write off for many. And third, it's the holidays so we focus on giving and this includes giving to those who are in need the most. As a result of all of this, December tends to be the most generous month for donations.

Americans as a whole are generous people. In 2011, we gave more than $298 billion to charities. Of this amount, $211 billion was given by individuals or household donors. The rest was made by corporations and other entities.

If you are looking to donate this year, there are some precautions you should take. After all, with so many people making donations, scammers are prevalent.

Steps to Protect Yourself

Your first step should be is to go to the IRS website and search for the charity you are looking to donate to. Note that not all charities are listed here. If a certain charity it not, it does not necessarily mean it is not legitimate. You can ask the charity for its IRS tax-exempt letter.

You can also visit the website, GuideStar, which lists close to 2 million nonprofits, all having met IRS guidelines.

If your nonprofit is not listed on any of the options above, again it does not mean they are fraudulent. In fact, many small local nonprofits don't meet the IRS tax-exempt guidelines. So the high school kids promoting a car wash for their band trip or the beef n' beer event for a fallen police officer is not a scam. Just make sure you investigate the charity before donating. For the school car wash, you can check with the school to see that it is backing the students. For the event for a police officer or firefighter, it is best to call the department and verify the event is legitimate.

If you feel as though you were targeted in a charitable scam or you made a donation to a charity that you think is a scam, you need to contact your State Attorney General. They are the ones that oversee charities in your state.

Final Thoughts

There are many great charities out there and all rely on your generosity to continue running. This post was not intended to scare anyone away from making donations, but rather to educate you so that you know your donations are going to the good of others and not into some scammer's pockets. While it is great to donate to large, well-known charities (most of which can be found on the IRS website above), most prefer to donate to local causes. Just be prepared to do your homework before making the donation.

Investing in Real Estate vs. Stock Market

Retail investors often flock to two very different asset classes to reach their retirement goals. Two common investments seem to be real estate and publicly-traded stocks. Let's look at these two different asset classes to compare their pros and cons.

Investing in Real Estate

Real estate has a few advantages that makes it attractive for individual investors:

1. Leverage ' Real estate is an investment that performs best when leveraged. As an individual investor, real estate can be levered 5:1 with a traditional loan with 20% down. Enterprising investors who can make use of FHA lending programs can borrow with only 3.5% down to purchase a live-in four-plex, offering far more leverage to the investor.
2. Cash flow ' Real estate is all about cash flow. Unlike dividend stocks, which might yield 3-4% at the most, real estate brings impressive cash-on-cash returns to the investor. Depreciation tax benefits are most beneficial to investors in a high tax bracket, seeing as property is depreciated over 27.5 years, which creates a tax shield for high-income individuals.
3. Control ' Real estate investors have much more control over their investment than an investor in a public company. Whereas you have full control to set rental prices, make new investments, and select tenants, minority owners of public companies have very little control over the day to day decisions to be made in publicly-traded companies.

Real estate also has disadvantages:

1. Time ' You can't passively invest in real estate like you might stocks. Real estate investing requires time and energy to find good properties and tenants. Investing in real estate is much more like running a business than investing in stocks.
2. Operating leverage ' The effects of real estate spill directly into your personal finances. Each dollar you borrow to buy real estate is a dollar of debt for which you, as an individual, are 100% responsible to repay. Furthermore, if rental units go without tenants, you have to cover the cost of debt service and maintenance out of your own pocket.

Investing in the Stock Market

The stock market has its own upsides, as well:

1. Less active ' It is significantly easier to be a passive stock investor as the day to day operations of the businesses you invest in are handled by someone else.
2. More liquid ' It's much easier to sell $100,000 in stock than it is to sell a $100,000 home. The stock market is far more liquid of a market, making it a better investment for people who will need to make principle withdrawals in the future to cover living costs or immediate cash needs.
3. No credit needed ' There are plenty of companies on the stock market that are just as leveraged as your average real estate investor. However, these companies borrow on their own balance sheets, meaning that the investor isn't required to carry debt themselves. When you buy into a public company you are not liable for losses should it go bankrupt. The same can't be said of an individual investment in real estate.

Of course, the stock market isn't perfect, either:

1. It's all correlated ' In the short-term, stocks move up and down with each other. The real estate market moves very differently, and home prices do not follow the ups and downs of the stock market on a day-to-day basis.
2. You have no control ' Unless you own 51% of a public company, or can persuade 51% of stockholders to agree with you, you have little to no impact on how a company performs or what it does going forward. This is very different from real estate, where the cash goes directly to the individual for reinvestment or deployment elsewhere. Shareholders are at the mercy of executives to make decisions that favor shareholder interests. No one stands in the way of a real estate investor who owns his or her own properties.

Real Estate vs. Stocks: The Biggest Factor

All in all, the biggest difference between real estate and stocks isn't in the returns, the leverage, or even the correlation. I think the biggest difference is the amount of time you'll need to invest in either one.

As a real estate investor, you are a business owner who has to set prices, deal with customers, and hire employees (contractors when necessary) to take care of your inventory (homes.) As an investor in the public stock markets, your only requirement is capital ' you won't have to listen to customers, hire workers, or manage your own business. You're just a partner in a much bigger entity when you own stock in a company.

Are there any investors out there who invest in stocks and real estate? What's the biggest difference between the two that you see?

Financial Carnival for Young Adults ' 40th Edition

Welcome to the fortieth edition of the Financial Carnival for Young Adults. My purpose with this carnival is to create an easy-to-find place for information about finances for young adults. The carnival is hosted here at 20's Finances almost every week and features the most recent articles from around the web. I hope you enjoy this edition of the carnival. I made sure to add in my own commentary to make it a little more interesting. I can't believe I've been doing this carnival for almost an entire year.

This first article is one that I can relate to. We still have most of our emergency fund and it's nice to have one, but it's always painful when you have to tap into it. Jennifer Lynn @ Broke-Ass Mommy writes Cripes. Nearly Our Entire Family Emergency Savings Got Gobbled Up - We just depleted our emergency fund, and thank goodness. If we didn't have one we'd be hurting. Read more on how my Emergency fund got gobbled up!

Maybe this is the time for tapping into emergency funds, because Little House @ Little House in the Valley writes Squeaking By Without an Emergency Fund - Good financial, common sense tells us that we should be saving 5 ' 10% of our income for emergencies, let alone another 10 ' 15% for retirement or large purchases, like a house. But when you compare everyday expenses to modest incomes, sometimes it's hard to find that extra cash to stash away.

Lance @ Money Life and More writes using the pros and cons of the American Express credit card. It's been a while since I've seen such an elaborate review. Be sure to check it out.

Tushar @ Start Investing Money writes Get the Most Back ' Benjamin Franklin once said that there are only two things in life that are certain- death and taxes. To many people, the thought of paying their taxes at the end of the year is a mind-numbing, heartbreaking prospect.

Daniel @ Sweating the Big Stuff writes How an Internship Abroad Helped Shape My Career Path ' Most internships don't have a profound effect on the future, but mine helped propel me to choose my future career and the way I think.

Jester @ The Ultimate Juggle writes Frugal Family Christmas Activities ' Enjoy a glimpse into our frugal family Christmas activities. These activities is why Christmas is my favorite time of the year.

The following submission was just too good to ignore: Ashley @ Money Talks Coaching writes I Don't Just Want a Nest Egg' I Want Nest Chickens ' My husband grew up on his grandpa's farm. From this experience we have several grandpa-isms in our house. One of them is I don't count my eggs'

After spending a lot of money this month, I also started asking myself how much I need and whether buying stuff makes me happy. Of course it doesn't, but sometimes I think I am tricked into believing it. Similarly, Young @ Young And Thrifty writes How Much House Do You Really Need? ' As a fairly lazy dude who isn't a big fun of seeing his Saturdays spent doing housecleaning (and yes ladies, I am a modern man and do my fair share), all I could see in a large house was endless dusting and vacuuming.