Debt Archives - Rich on Money

When Whole Life Insurance is a Scam

by Rich

There are circumstances where whole life insurance is a scam.

I’ll tell you what they are.

I get nervous what I see Whole Life Insurance pitched as a good investment.

One of the most questionable sales tactics I’ve seen is saying the returns are superior to traditional retirement account investing.

They suggest foregoing, or even liquidating traditional retirement accounts to quickly fund whole life insurance policies.

I’ve even seen this outrageous advice given in (questionable) military real estate groups.

When whole life is sold under these conditions, it’s a scam.

It is dangerous and wrong.

You will lose out on millions over a lifetime.

Today I’ll discuss what whole life insurance salesmen aren’t going to tell you about this complicated and expensive investment.

While there is a small need for something like whole life for high net worth individuals with unique circumstances (I’ll talk about this at the end), to say this is an appropriate investment for the average joe or typical military member or veteran is flat out irresponsible.

The strongest advocates of whole life insurance, which as far as I can tell are only the people who sell it, claim it is a better investment than the stock market or retirement accounts.

This is flat out wrong. I’ll explain the math below.

The people that are pitching this crap have no training in finances or investing.

They are, unfortunately, trained in sales and marketing.

Their commissions are among the highest in the industry.

Term Life Insurance Defined

If you want to understand what whole life insurance is, you need to first know what the much more common and useful term life insurance is.

from Unsplash.com

This is probably what you are already familiar with, and for most people, this is insurance that is worth having.

Ready to Invest in Real Estate?

by Rich

Do you think you are ready to invest in real estate?

Many people want to invest in real estate before they should.

People see the success of others in real estate, and want that for themselves.

But it is as simple as it looks?

You are not ready to invest in real estate until you have:

your debt under control

regular contributions to retirement accounts

the right knowledge about where you will invest

the correct type of mentor

Why do we want to invest before we should?

Simple.

We have FOMO.

Fear of missing out.

We are under barrage from podcasts, books, lame blogs (like this one), and for some of us old people that can remember, Carleton Sheets infomercials.

Real estate investing is made to look easy.

8 Must-Do Steps to Survive Coronavirus

by Rich

My thoughts on Coronavirus and how it affects our investments, real estate, and life…

It seems like investments and real estate IS my life!

I have to admit.

I’m one of the people who thought this crazy thing was limited to Asia, and maybe a few tourist destinations.

There were a lot of people in agreement with me who kept asking what all the hype was.

Well, that hype somehow became reality, at least for the time being.

I tried to fly to Boston yesterday to participate in a real estate event I was asked to speak at.

The event got cancelled as I arrived in a DC airport.

I bought a return ticket same day back to Alabama, realizing this virus was having a significant effect in my life.

In all of our lives.

Here’s a list of things I think are smart to consider for life in this period of extreme uncertainty with Coronavirus (COVID-19).

1. Don’t Sell

Should I Payoff my Mortgage Early?

by Rich

You will often see articles on how to payoff your mortgage early. People seem to make up their minds it’s the best course of action.

What about the question: Should I pay off my mortgage early? Here is my take on both sides of the argument.

The Answer

Reasons NOT to payoff a mortgage are: It’s an inflation hedge, you can write off the interest, maintaining liquidity is important, and the money would be better off invested in higher yielding opportunities. Good reasons to pay off a mortgage include peace of mind and primary residence equity having special protection from creditors and bankruptcy in many states. Poor, but often cited reasons to pay off the mortgage are decreasing expenses and gain a risk-free return equal to the interest rate.

I rushed through listing these answers. I go into more detail below.

Before You Payoff a Mortgage Early

We will assume you have an emergency fund, your high interest debt like credit cards is paid off, and you are fully maxing out all retirement savings account opportunities.

This means you are contributing the max to your IRA, your spouse’s IRA if you have one, and your 401K, TSP, or equivalent vehicle. You should not bother paying off a mortgage if you have not done these basic things first.

In the end, I’m partial to keeping the mortgage. I feel like the evidence is strongly stacked against keeping it.

It’s a little ironic, because I paid off my primary residence in 6 ½ years. I also have 20 paid-off single family homes.

Yeah, that’s a little psycho.

This certainly qualifies me, however, to make a fair judgement on the subject.

Since I’m partial to keeping the mortgage, I’ll explore the pros of keeping the mortgage first.

Secrets to Investing with VA Loans

by Rich

Investing in rental property with VA Loan is a tricky subject. There are many rules that dictate how a VA loan should be used.

Bottom Line Up Front (BLUF): VA loans are not authorized for investment properties, but there is no rule stopping you from moving out after initially living in the property and making it an investment.

There is also a way to buy a 2, 3 or 4-plex property, live in one unit, and legally rent the rest out.

The VA doesn’t say you can use the VA loan for investing, but if you understand the rules, and buy properties as you move from assignment to assignment in the military, it is possible.

You can’t just buy a home and make it a rental property without living in it first. There is an occupancy rule I’ll be discussing.

You can, however, buy a house at your current assignment using your VA benefit, live in it, turn it into a rental property when you move away, and buy a house at your next location with a VA loan repeating the entire process.

Another possibility for real estate investing with a VA loan is buying a 2, 3, or 4-plex using your VA benefit and living in one of the units while renting the other units out. When you move on to your next assignment, you’ll be able to turn the entire property into a rental property legally.

Let’s start digging into the details!

The first thing we need to understand is the occupancy rule.

Occupancy Rule

TSP Loan – Should I Get One?

by Rich

It is possible to get a TSP Loan.

But should you?

Couldn’t we use it to buy real estate and make a fortune?
Couldn’t we invest in the next hot thing, like an IPO, or bitcoin?
What about gold!?!

These are some of the questions we are here to answer today. I’ve heard people suggest these very things.

I’m going to first explain how the program works, then explore how using it will impact your future retirement income (ouch).

If you want the BLUF (Bottom Line Up Front) and skip the TSP Loan intro, click this section , just tell me if I should get it or not!

THE TSP LOAN PROGRAM

I’ll be abbreviating the TSP loan program here, but here is the source link from tsp.gov.

The TSP Loan program lets you borrow money from your own TSP account while you are either in the armed forces or employed by the federal government.

HOW IT WORKS

When you borrow the money, it comes out of your actual TSP account. It can be any amount between $1,000 and $50,000, not to exceed your contributions and earnings from those contributions. It does not include any agency contributions (blended retirement system or BRS) or earnings from agency contributions.

As you are repaying this loan, it is repaid with interest through payroll deductions back into your own TSP account. This means that this large amount of money will not be growing tax advantaged in your TSP account during the time period you have borrowed it. You lose the opportunity for that growth. More on this later.

Keep in mind, even though you are paying interest, it’s a low, low rate and you pay it back to yourself, so it’s not really a cost to you. The interest, however, is not tax-deductible.

LOAN ELIGIBILITY

To be eligible for a TSP loan, the following must apply:

Employed by uniformed services or federal government
In pay status
Only have one outstanding general purpose loan and one outstanding residential loan from any one TSP account at a time
Have at least $1,000 in your TSP account not counting agency contributions and earnings
Have not repaid a TSP loan of the same type within the past 60 days
Not had a taxable distribution of a loan within the past 12 months unless it was the result of your separation from Federal service
Not had a court order against your TSP account

5 Worst Financial Mistakes to Avoid for Military Members

by Rich

Maybe you’ve made some of these mistakes military members make.

I made a few of these mistakes myself, but I’m still here today doing relatively well.

Let’s see how you measure up.

1. GOING INTO DEBT

I want to use a few other phrases to signify what kind of mistakes get military members or families in trouble.

It’s living large when you haven’t made that money yet.

Spending money you haven’t earned. Otherwise known as… Keeping up with the Jones’s.

The funny thing is, the Jones’s are going into debt to keep up with you too!

Here are some things that will really put you into debt:

Buying or renting much more house than you need…

I see it time and time again in the military. A married couple with one newborn buying a 4000 sq ft property. Not sure what they will do with 6 bedrooms and 4 baths!

You want to be well off? Get the smallest property that will fit your needs. (Awww, that’s no fun!)

Having a new house custom built…

But it’s so nice to have a big house built to your specifications. You deserve it!

Big houses need lots of things to fill them up. They just don’t look right without expensive furniture and nice cars. They are also expensive to heat and cool. Good luck!

New or expensive cars…

Whatever you do, don’t buy a new car. On top of that, don’t ever fall for that crap where you think you are getting some special benefit through military car sales. You are still overpaying and getting KILLED on depreciation the day you put the first mile on it.

I like buying used cars with one previous owner and low mileage. Ideally, you pay cash for it.

Vacationing while overseas…

You are stationed in Germany, and there are LOTS of 4 days weekends, so you are hitting a different country on each one. You are in Japan, and it’s the perfect gateway to Southeast Asia. Everybody will be filling their Facebook and Instagram feeds with travel while stationed overseas.

Don’t overdo it. Take advantage of existing geography and vacation in areas around you that you. Try to drive there instead of flying, and try to Airbnb instead of hotels.

The cardinal sins of debt…

Military Millionaire – Seven Crucial Steps

by Rich

It is possible to retire a military millionaire?

Definitely.

I did it well before retirement.

That’s with making plenty of mistakes along the way.

No trust fund, no help, wife didn’t work.

How can the average military member go from being in debt to military millionaire?

We all see websites, books, and courses from people who were deep in debt and somehow quickly made millions.

ALL THAT STUFF IS SHADY!

These gurus get rich off people looking for shortcuts. Most that try the guru route fail miserably.

It often involves going into lots of debt or paying a lot upfront for a product, course, or coaching.

These products do a good job of making money for who’s selling them.

They do a poor job of making you anything!

It also requires no common sense

How to Save Money and Never Work Again

by Rich

These are 9 debt payoff hacks that actually work.

I did some research before writing this post. I’m always horrified whenever I realize the amount of advice at the top positions in google search results that is bad. The subject of paying off debt is no exception to this rule.

Debt Pitfalls for Military Members

by Rich

The military has some unique debt traps that are easy to fall into.

Buying New Cars

One is this whole military car sales thing.

“Let me go talk to my manager!”

You’ve seen them lurking around the BX preying on new enlistees just getting started out in life.

They try to sell you a new car when you are overseas. They’ll tell you it’s an amazing deal because you are in the military. They sometimes try to sell it as a military benefit.

It is simply not true. A military benefit is when the US government subsidizes the cost.

Here are examples of actual military benefits:

Commissary
BX
Medical and dental care
Space-A Travel
Tax-free housing
Montgomery GI bill

Here’s an example of what is not a military benefit: