Important note: if you’re considering any tax relief company, manage your expectations. Nobody can make all tax debt disappear. Professional help may get you a better deal, but the outcome will depend on your situation. If you expect magic, you’re likely to be disappointed.

About Optima Tax Relief

Optima Tax Relief describes itself as the nation’s largest tax relief company. It claims to have resolved over $3 billion in client tax liabilities. 

The Company is based in Santa Ana, CA, and has offices in Scottsdale, AZ, and Chandler, AZ. Online services are available nationwide (except Colorado and Minnesota).

Optima Tax Relief employs an in-house staff of enrolled agents, CPAs, and tax attorneys. Some tax relief companies may pass your case on to an outside law firm and keep part of your fee.

Optima Tax Relief was founded in 2010 by Harry Langenberg and Jesse Stockwell, both of whom remain with the firm as managing partners.

How Optima Tax Relief Works

Optima Tax Relief will work with federal and state taxes, but state tax services are not available in all states. You need at least $10,000 in tax debt to qualify for their services.

Optima Tax Relief works with many types of tax problems, including the following.

• Tax liabilities
• Back taxes
• Levies and liens
• Penalties and interest
• Wage garnishment
• Tax settlement
• Audit Defense
• Payroll tax negotiation

The company uses a three-step process.

• Consultation. You will have a free initial consultation with no obligation. A representative will review your case, lay out your options, and give you a realistic assessment of what Optima Tax Relief can do for you.
• Investigation. Optima Tax Relief will communicate with the IRS, examine your records in detail, and choose appropriate resolution options. You will have to authorize access to personal financial records.
• Resolution. The company will pursue the selected options and try to bring you into full IRS compliance. This does not mean you will have no tax debt. The goal is to reduce your debt as much as possible and work out a feasible payment plan for the rest.

There are many ways to resolve tax debt, and you will work with Optima Tax Relief to select the ones most appropriate for you. Here are some of the options available.

• Installment agreements will not reduce your debts but will make them easier to pay off.
• Offer in compromise is available to taxpayers experiencing financial distress.
• Penalty abatement or adjustment can reduce the penalties charged for previous issues.
• Extension requests may give you more time to pay without incurring penalties.
• Disaster-related relief provides tax breaks for people affected by natural disasters.
• Coronavirus tax relief may be available at both federal and state levels.
• Currently not collectible status may apply if you have no income or assets with which to pay your tax debt.
• The statute of limitations may apply in some cases dealing with older tax debts.
• Innocent spouse relief applies to taxpayers who are being held liable for a spouse’s mistakes or transgressions.
• A tax lien discharge removes a tax lien from a specific property, which may allow you to sell that property.
• A bank levy release means the IRS will no longer seize funds from your bank account. It usually occurs when you have agreed to a payment plan or other settlement.

It’s important to note that all of these devices are open to anyone. You do not need a tax relief company to apply for them. However, the process of assessing your eligibility, choosing options that are likely to be approved, and applying can be complex and challenging. 

Professional assistance does not guarantee success, but it may improve the probability of success.

Availability

Optima Tax Relief provides federal tax relief services online in all states except Colorado and Minnesota.

State tax services are available online in all states except Arizona, Georgia, Delaware, and Connecticut.

The Cost of Optima Tax Relief: Is It Worth It?

Optima Tax Relief does not disclose pricing information on its website. Pricing information given here is sourced from third-party websites and customer reviews. Prices vary according to the specifics of your case and you may be quoted prices higher or lower than those discussed here.

Optima Tax Relief appears to assess fees at two stages of the tax relief process.

• Investigation: you can expect an investigation fee of $295.
• Resolution: Resolution fees can vary widely with the circumstances of your case. Reported fees vary from $995 to $5000 and may be higher for complex cases with large tax liabilities.

These fees are substantial, but they are consistent with fees across the tax relief industry. Optima Tax Relief isn’t offering a screaming great deal, but pricing appears to be fair relative to competitors.

While the overall pricing scheme appears to be fair, it is not transparent: there’s no consistent pricing formula disclosed on the company’s website. Some customer reviews contain complaints indicating that the customers believe they were overcharged, and some reviews report payments much larger than those referenced above.

Optima Tax Relief will refund payments for the investigation phase within 15 days after the initiation of the investigation phase. No refunds are possible after 15 days or for the fees paid for the Resolution phase.

Optima Tax Relief: Customer Reviews

Customer reviews are a useful tool, but they have limitations. It’s important to understand how to evaluate customer reviews. Some reviews may be based on unrealistic expectations, and some companies have been known to manipulate reviews.

Let’s look at what major review sites can tell us about Optima Tax Relief.

Better Business Bureau (BBB)

Optima Tax Relief has an A+ rating from the Better Business Bureau (BBB). BBB ratings are based on the company’s responsiveness to complaints, not on the average of customer reviews.

The BBB site lists 686 complaints closed in the last three years and 209 in the last 12 months. The company has responded to all complaints and most appear to be resolved to the customer’s satisfaction

Optima Tax Relief gets 3.88 out of 5 stars from a total of 1,164 customer reviews on the BBB site. The reviews break down into two categories, very positive and very negative, with very few in between.

It’s important to remember that the BBB tends to attract negative reviews, as it’s a place where people traditionally go to complain when they are not satisfied.

Trustpilot

On Trustpilot, Optima Tax Relief gets 4.1 out of 5 stars from 3,116 reviews. 89% of the reviews are five-star or four-star, and 9% are one-star, with negligible percentages in between.

Here are some typical positive reviews.

Here are a few sample negative reviews.

Results on most review sites seem to follow a consistent pattern: large numbers of positive reviews mixed with a smaller number of highly negative reviews. Most customers who leave reviews seem satisfied, but when things go wrong they seem to go seriously wrong.

Some of the negative reviews may come from customers who have unrealistic expectations, but this is impossible to ascertain. If you’re considering retaining Optima Tax Relief you should be aware that while reviews are generally positive there is a minority who have had very unsatisfactory experiences.

The Bottom Line: Is Optima Tax Relief Right For You?

Optima Tax Relief is a legitimate tax relief company with an extensive track record. Some customers have left negative reviews, but that’s true of almost any tax relief company, and the number represents a relatively low percentage of customer reviews.

Does that mean that Optima Tax Relief is the right choice for you? Maybe, maybe not. Even the best financial services companies aren’t always the right fit for a given client. To find out, ask yourself these questions.

• How much tax debt do you owe? Optima Tax Relief won’t consider your case unless your tax debt is $10,000 or above.
• Does Optima Tax Relief provide services in your state? If you live in a state that is not served by the company you’ll need to look for another option.
• How complex is your case? If you have a straightforward problem – for example, if you simply need to ask for an installment agreement or an extension – you might be better off doing it yourself. If you are overwhelmed even thinking about dealing with it, professional help is probably a good idea.
• Have you considered local alternatives? A tax attorney or firm in your area might offer you a competitive package, and you’d have personal contact. If you’re not comfortable dealing with a remote service or working through online customer service, this could be a better option for you.
• Have you shopped around? Comparing several alternatives is always a good idea when you’re in the market for a financial service. There are other tax relief companies out there, and most offer a free initial consultation. Comparing several offers is always worthwhile.

If you answered “yes” to all of these, you might be a good fit with Optima Tax Relief.

Remember that this is a nationwide company with many clients. Your interactions are not likely to be personal. A free initial consultation may feel like a sales call, and during the process, you are likely to be interacting with customer service representatives, not the tax experts doing the work.

If this is a problem for you, you might be better off consulting a local business or law firm with a physical presence in your area.

How We Rated Optima Tax Relief

Tax relief is a unique financial service. No tax relief company can change the tax laws or compel the IRS to cancel tax debts. Tax relief companies can only work with existing laws and policies, and their main service is simply cutting through the masses of red tape and detail that characterize tax problems.

It’s important to assess tax relief companies according to realistic criteria. This is how we evaluated Optima Tax Relief.

• Effectiveness. No tax relief company can make tax debt go away, but Optima Tax Relief has a solid record of achieving as much relief as is legally possible in a given circumstance. Not all customers are happy, but that is true of almost all financial services companies.
• Availability. No service will help you if it isn’t available to you. Optima Tax Relief provides federal tax services in all but two states and state tax services in all but four, resulting in a high score in this category.
• Customer Service. When you’re dealing with a firm that delivers its services online, customer service is important. You need to know that you can reach someone when you have a problem, and you want to do it without fighting your way through masses of automated call centers. Optima Tax Relief gets generally good reviews on this score, but there are a substantial number of complaints about contact and service issues, dropping the score in this category.
• Price. Optima Tax Relief does not disclose its pricing formula online. Third-party reports suggest that services are not cheap, but are analogous to those of competing firms.

We’ll repeat the recommendation that you should shop around before choosing any tax relief company. Comparison shopping can get you a better deal and give you confidence that you’ve selected the best partner for your specific needs.

The post Optima Tax Relief Review 2024: Are They Legit? What Do They Cost? appeared first on FinMasters.

$3000 a month may be more or less than you need, but it’s a benchmark that can give you a sense of what we’d need to invest to generate any other amount.

How Much Money Do I Need to Invest to Make $3000 a Month?

The answer will depend on the yield of your chosen investments. The yield is the percentage of your capital that the investment returns to you each year. If you invest $100,000 at a 5% yield, you’ll earn $5000 a year (before taxes) or $416.67 a month.

Here’s a look at what you’d need to invest to earn $3000 a month, or $36,000 a year, at different yields, courtesy of Vanguard’s investment income calculator.

As you can see, the amount you need to invest to earn $3000 a month varies widely with the percentage yield of your investments. The higher the yield, the lower the amount you need to invest to make $3000 a month.

Important note: all investments involve risk. With income investments, yield is inversely proportional to risk: safer investments carry lower yields and riskier investments carry higher yields. Income investors must balance the desire for high yields with a careful assessment of risk.

Where Should You Invest to Make $3000 a Month?

Income investors have multiple investment options, each with advantages and disadvantages. These are some of the most common.

Bonds

When you buy a bond, you are lending money to the bond issuer. The bond issuer will pay you a fixed interest rate and return your principal when the bond matures. You can also sell the bond to another investor.

There are several types of bonds. As with all income investments, the riskier bonds carry higher interest rates. They also carry the possibility that the bond issuer may default, in which case you lose your investment.

Bond yields don’t just vary according to risk. They may change considerably with the prevailing interest rate at the time the bond is issued. There are two types of bond yields.

• Fixed-rate bonds pay the same interest rate for the life of the bond.
• Variable-rate bonds carry an interest rate that will change with the overall interest rate environment.

It’s important to know which you are buying. In a high interest rate environment, it is usually preferable to choose a fixed-rate bond.

US Government Bonds

US Government bonds are available in a huge range of maturities, ranging from a few months to 30 years. US bonds are regarded as one of the safest income investments, and the benchmark 10-year bond yield has been below 3% for most of the last 10 years.

Municipal and State Bonds

Local governments in the US also issue bonds, and they are also regarded as highly secure. These bonds typically carry interest rates slightly below those of US Government bonds.

Foreign Government Bonds

Foreign governments also issue bonds, many of which are for sale to any investor. Stable governments with good reputations will issue bonds with low interest rates. Bonds from less stable or less fiscally responsible countries carry higher rates and higher yields.

Corporate Bonds

Corporations also issue bonds. The interest rates on these bonds are determined by ratings issued by rating agencies, like Moody’s or Standard & Poors. These range from AAA-rated bonds issued by large, stable companies to high-interest “junk bonds” issued by high-risk companies.

Bond Interest Rates Compared

These sample bond interest rates are as of Dec 29, 2023. They will change over time, but these rates will give a sense of how rates of different bonds typically compare to each other.

These rates come from a generally high-rate environment and will fall as inflation stabilizes and the Fed cuts rates.

Dividend-Bearing Stocks

Dividend stocks are a favorite of income investors. They offer both regular income and the potential for appreciation, meaning that you can earn income and build a more valuable portfolio at the same time. They can also lose value if markets fall.

Companies that pay dividends are usually profitable, established firms with limited growth potential. They attract investors by returning some of their profit to shareholders through dividends.

Companies pay dividends as a fixed sum per share per year, usually in quarterly installments. The dividend yield is the annual dividend amount as a percentage of the amount you paid for the stock. The price of the shares may go up or down, but your dividend yield will always be your return as a percentage of your investment.

Many stocks carry dividends. They are common in sectors like energy, utilities, and Real Estate Investment Trusts (REITs), which are required by law to distribute 90% of their profits as dividends.

The average dividend yield of the S&P 500 is 1.62%. Many companies pay larger dividends. High-dividend stocks can be a valuable addition to an income portfolio, but a dividend that’s too high can indicate serious problems with the company that have pushed the share price down. Extreme cases include Petrobras, the national oil company of Brazil, which pays a dividend of 18.57% and carries a high risk of nationalization.

Here are some high-dividend stocks with solid track records and their dividend yields as of December 2023.

These yields may change at any time as the stock values change. If you’re looking for high-dividend stocks you’ll need to study dividend investing and make your own selections.

High-Interest Savings Products

Savings vehicles like high-interest savings accounts, CDs, and money market accounts are FDIC-insured and highly secure. Because risk is low, interest yields are also relatively low. Interest rates are also variable in most cases. They will fluctuate with the overall rate environment, which makes yields unpredictable.

Because the APYs change so often, these products will not be a good choice if you want to invest enough to make $3000 a month, unless you are confident that rates will remain stable or increase.

Rental Real Estate

Purchasing rental real estate can produce reliable returns on investment. It’s very different from bonds and dividend stocks, though: returns can vary widely with the property, and you will need to include financing costs, maintenance and management costs, potential vacancies, and taxes in your calculation to produce an accurate yield projection.

These costs can vary widely from property to property and from year to year with the same property. Forbes Advisor provides these estimates.

• Residential Real Estate yields average 10.6% annual yield. It would take a $339,623 investment for you to make $3000 a month.
• Commercial Real Estate yields an average of 9.5%. It would take a $378,947 investment for you to make $3000 a month.

These yields may vary widely based on location, management requirements, financing costs, and many other variables. Selecting and managing real rental real estate investments requires specific expertise and may not be the best choice for the inexperienced investor.

Peer to Peer Lending

Lending money and charging interest is one of the oldest ways of gaining income from an investment. Peer-to-peer lending platforms like Prosper and Upstart allow you to do just that, connecting lenders and borrowers and allowing investors to offer the same types of loans that banks and online lenders provide.

Peer-to-peer lending platforms like Upstart and Prosper connect investors with individual and business borrowers, with some platforms specializing in real estate loans. The platforms vet the borrower and charge a fee for their services.

Peer-to-peer lending yields will vary with the platform, the type of loan, and the creditworthiness of the borrower. According to Experian, Prosper claims a historical return rate of 5.7%, while LendingClub returns range from 4.7% to 10.3%.

There are risks, of course: like any lender, you run the risk that the borrower will default and fail to pay.

Start or Buy a Business

The most traditional way to turn an investment into income is to go into business. This may not be suitable for retirees – running a business is a lot of work – but for those with the interest and inclination, going into business can be extremely rewarding, both personally and financially.

There’s a near-infinite range of possibilities for going into business. You can start from the ground up or buy an existing business. You can go into online business or stick to bricks and mortar.

Whatever your choice, some things will be constant. You’ll face competition. You’ll need to work hard and bring a lot of passion, commitment, and time to the table. You won’t have any guarantees.

It is not possible to reliably estimate the ROI of any business venture, and returns, are not guaranteed at all. You won’t know how much you need to invest to make $3000 a month, and you won’t know how much growth potential your business will have until you try!

Building an Income Portfolio

If you want to invest enough to make $3000 a month – or any other figure – you will probably not want to put all of your investment capital into one vehicle. As with any investment portfolio, diversification is key.

That’s especially true for high-risk/high-yield income investments. You wouldn’t want to pour all your capital into bonds issued by one high-risk company, but spreading capital among the bonds of many high-risk companies can get you a high yield with somewhat reduced risk.

If you have a target yield – like $3000 a month – and a fixed amount to invest, you have two options.

• You can look for a mix of investments that will generate $3000 a month with the amount of capital you have.
• If you don’t have enough capital, or the risk profile needed to generate $3000 a month with your capital is unattractive, you will have to bring in more capital to reach your goal.

There is no specific fixed amount that you need to generate $3000 a month. The amount you need will depend on your risk tolerance and the yields you can reasonably expect to get from the investments available to you. Careful selection and blending of investments is key, and professional advice is one of the most effective ways to assure the optimum blend of risk and reward!

The post How Much Money Do I Need to Invest to Make $3,000 a Month? appeared first on FinMasters.

But which of these funds is right for you? Let’s take a closer look, starting with the basics.

SPY vs QQQ: By the Numbers

Five-Year Performance

SPY vs QQQ: What’s the Difference?

The most prominent difference between SPY and QQQ is that they track different indices:

• SPY tracks the S&P 500. The S&P 500 is an index of 503 of the largest companies in the US. The companies represented are listed on the New York Stock Exchange (NYSE), the NASDAQ, and the Chicago Board Options Exchange (CBOE) BZK Exchange.
• QQQ tracks the NASDAQ-100. The NASDAQ-100 tracks 101 of the largest non-financial stocks trading on the NASDAQ exchange. The NASDAQ is considered a tech-heavy exchange but also includes non-financial companies.

Both of these indices and both ETFs are market cap weighted, which means that they give larger companies a heavier weighting.

SPY vs QQQ: Sector Exposure

SPY and QQQ break down their sector descriptions in slightly different terms.

One thing that immediately stands out in these breakdowns is that QQQ is heavily concentrated in the technology and consumer discretionary sectors. Both of these sectors tend to outperform during bull markets but may experience significant drops during bear markets.

Tracking different indices is the fundamental difference in the SPY vs QQQ equation.

• SPY tracks a larger number of companies from a wider range of corporate sectors. That means it’s more diversified, has a higher dividend (tech companies often do not pay dividends), and could be considered a more defensive position, less likely to lose in down markets.
• QQQ tracks a smaller number of companies with a greater concentration in tech. That makes the ETF more likely to outperform in expansionary conditions, when tech tends to outperform, and also makes it a greater risk in bear markets when high-flying tech companies have further to fall.

Neither of these options is fundamentally better or worse. They provide exposure to slightly different sectors of the market, and that leads to different performance characteristics.

Deciding between #SPY and #QQQ for your portfolio? Compare the two in our recent index fund faceoff. #InvestingChoices #SPYvsQQQ

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SPY vs QQQ: The Similarities

SPY and QQQ have a lot in common. SPY is the largest single ETF trading on US markets, and QQQ is the 5th largest. They rank as the first and second-most traded funds in the country by average daily volume.

Both funds are managed by large investment firms with extensive track records: SPY by State Street Global Advisors and QQQ by Invesco. If you’re looking for large, highly liquid funds with credible management, both of these ETFs will pass your screen.

There are also less obvious similarities, stemming from three basic facts:

1. Many companies that trade on the NASDAQ are part of the S&P 500.
2. Major tech firms from the NASDAQ are among the largest companies in the US.
3. Both the S&P 500 and the NASDAQ-100 – and the funds that track them – are weighted by market cap.

What does that mean in practice? Let’s look at the ten largest holdings of SPY and QQQ.

Top Holdings: SPY vs QQQ

Those are very similar lists, with all but two companies appearing on both sides in very similar order. QQQ has higher concentrations in these companies, as expected from a fund with fewer holdings overall.

If the holdings are so similar what makes these funds different? The answer is simply that after the top ten, the holdings diverge substantially. Let’s look at the next ten holdings for each fund.

Here we start to see a real divergence in the holdings of the two funds. We also see the greater diversification of SPY: the QQQ list is still dominated by tech, while SPY has a strong presence in industries like energy, financials, and pharmaceuticals.

Which Is Best for You?

Both SPY and QQQ are solid choices for an investor who is looking for a quality index fund. Both are among the largest and most prominent ETFs in the country, and both are highly liquid.

Your choice will be based on what you are looking for in an investment.

• SPY is a relatively conservative, highly diversified ETF with very low management costs, a higher dividend yield, and less potential for dramatic losses during a market downturn.
• QQQ is a more aggressive, less diversified fund focused on major tech companies. This gives it greater potential for gains in bull market periods but also opens up the possibility of significant losses in a bear market.

How you see the markets makes a difference: if you think markets are set for an expansionary phase, QQQ would be a better choice. If you see potential for a market turndown and you want to minimize costs and risks, SPY might be your ETF of choice.

If you are weighing SPY vs QQQ and you’re having trouble making up your mind, consider allocating a portion of your portfolio to each fund. Keeping several ETFs in your portfolio can provide the best of both worlds!

The post SPY vs QQQ: Index Fund Faceoff appeared first on FinMasters.

If we look closely, we find that financial illiteracy education is everywhere in our society. It starts at a much earlier age and is much better funded than financial literacy education. Is it really a surprise that so many Americans are financially illiterate?

How Big Is the Problem?

These problems are often blamed on a lack of financial literacy. There is evidence to support that claim. The S&P financial literacy survey says that 57% of American adults can give correct answers to five basic financial literacy questions. That’s high by world standards but still leaves 43% unable to answer.

A FINRA survey indicates that 80% of Americans aged 18 to 34 failed a basic financial literacy quiz.

Those figures do indicate a problem, but the source of the problem is less clear.

What Is Financial Literacy?

The dictionary definition of financial literacy is pretty simple:

Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.

https://www.definitions.net/

The Financial Educators Council has a broader definition:

Possessing the financial knowledge, behaviors, systems, team, and plan to confidently take effective action that best fulfills an individual’s personal, family, and global community goals.

National Financial Educators Council

So, we see that there are two basic components to financial literacy: knowledge and action. The traditional approach to financial literacy education focuses on the premise that action comes from knowledge: that if people understand money and the difference between good and bad financial habits, they will abandon bad financial habits and adopt good ones.

This premise, in turn, is based on the assumption that the people we are teaching are essentially a blank slate, an empty void that has to be filled with knowledge to replace ignorance and lead us to the promised land of good financial management.

Recently, we’ve begun to recognize that this assumption isn’t accurate. There is no blank slate: we all have attitudes and habits that we have learned, often unconsciously.

The discipline of financial therapy has evolved because we are increasingly recognizing that confronting and managing existing habits and attitudes is just as important as building new knowledge. Extensive research has been done, for example, on the way that financial attitudes can be passed along through families.

Inherited attitudes are important, but financial literacy education has another hurdle to overcome that often isn’t recognized: our society actively teaches bad financial habits. We call this process financial illiteracy education.

What Is Financial Illiteracy Education?

Any deliberate attempt to teach bad financial habits can be considered financial illiteracy education. We don’t deliberately teach bad financial habits in school, but school isn’t the only place we learn.

Explore the impact of #financial-illiteracy education and its role in shaping poor money habits.

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Parents and teachers can teach and preach about living within your means, controlling impulse spending, not basing your self-image on what you own, not spending money before you have it, and much more. The reality is that there are other people making a ton of money by promoting the same habits that financial literacy education seeks to control.

It Starts Early

The American Psychological Association estimates that children view an average of 40,000 advertisements each year and that advertisers spend over $12 billion per year on youth-targeted ads^[1].

Advertisers design their messages with great care, hiring professionals in design, psychology, production, and other disciplines to trigger precisely the impulses that financial literacy educators are trying to help people control.

If financial literacy education starts in high school, there’s a good chance that students have been molded by close to half a million deliberate, professionally crafted messages delivering the exact opposite message before they get their first lesson. That’s a huge obstacle for financial literacy educators to overcome.

Peer Pressure Chimes In

The attitudes created by the tsunami of advertising aimed at children are reinforced by peer pressure. Children quickly learn that clothes, shoes, accessories, phones, and other objects are not just tools, they are status symbols that define their place in the social hierarchy.

These messages are not as sophisticated as the financial illiteracy education delivered through advertising, but they can be even more compelling because they are delivered so close to home, and they appeal so directly to the desire for social acceptance.

Adults Aren’t Immune

As we grow to adulthood, the barrage of advertising designed to make us want more continues. Peer pressure doesn’t stop, either. On top of that, another layer of financial illiteracy education comes into play: the promotion of credit as an “easy” answer to the problem of wanting more than you can afford to buy.

Lending is a large and highly profitable business, and lenders are always looking for ways to bring in new customers or persuade old customers to borrow even more. Sellers join the chorus: “What do you mean you can’t afford it? We can finance it. Don’t look at the price, look at this low monthly payment”.

Adults face an incessant barrage of credit offers, from pre-approved credit cards to in-store financing to buy now pay later plans to payday advance apps to storefront payday lenders, there’s a huge industry – hundreds of billions of dollars huge – built on convincing us that whatever we want is affordable. All we have to do is kick the cost down the road a bit.

The temptation is severe enough already. With a range of ready-made “solutions” being thrust on you at every turn, it can easily become overwhelming.

How Does This Affect Financial Literacy Education?

We are not going to stop financial illiteracy education: there’s just too much money in it. It may be possible to seek some controls on what advertisers can say and promise, but people will be urging us to spend and borrow for a long time.

Awareness of financial illiteracy education can affect the way we approach teaching financial literacy. That means recognizing two brought realities.

There Is No Blank Slate

Financial literacy educators often approach their work as a simple problem of replacing ignorance with knowledge as if we were filling an empty glass. The assumption is that once the knowledge is there, the behavior will change, and all will be well.

The problem with this assumption is that the glass isn’t empty. It’s overflowing with desires, impulses, and behavior patterns that have been carefully and deliberately cultivated over many years. Before we can fill the glass with knowledge we have to dump those pre-programmed habits out, and it’s not easy.

Seen through this lens, teaching financial literacy is as much deprogramming as it is education. An essential part of this process is helping the learners understand that they have been programmed and look honestly at where their attitudes and spending habits come from.

There Is No Place for Condescension

The personal finance community is, naturally, committed to personal finance. We tend to think of personal finance knowledge as a basic, normal competency that any adult should have.

That often leads to a subtle but noticeable negative attitude toward people who lack this knowledge or – even worse – those who have the knowledge but still make bad decisions. That attitude often expresses itself as barely repressed condescension.

Of course, there are people – lots of people – who don’t know the basics of personal finance. There are also people who “know” things that they should but still fall into the traps of overspending and abusing credit.

It’s easy to see this as being their fault or evidence of some kind of a character flaw: why else would people keep making bad, self-destructive choices? It’s frustrating to watch, especially in people that we’re close to.

That frustration can easily creep into the personal finance conversation, leading us to talk down to our audience and come across as condescending even when we don’t intend to. This can actively harm efforts to build personal finance knowledge.

It helps if we recognize that bad decisions are not necessarily the result of poor discipline, ignorance, or weakness. They are often caused by decades of lavishly funded, professionally executed manipulation. Average people who are not aware that they are being deliberately taught bad habits have little chance of standing up to the manipulation without help.

Around 60% of American households live paycheck to paycheck. Instead of seeing this as evidence that Americans are really bad at managing money, we should see it as evidence that the people who are actively promoting overspending and abuse of credit are very good at what they do.

Is Personal Finance Education the Solution?

Personal finance education is a popular solution to the crisis facing American households. 30 US states now offer personal finance courses to high school students, and 14 of those states require them for graduation. More states are considering introducing these courses.

This is a popular solution because it’s non-controversial. It may not be a total response, but it’s hard to argue against it. What harm can learning about personal finance do?

The answer, of course, is “none.” Learning about personal finance is not going to hurt anyone, and it may help many people. It’s still not enough, and the emphasis on education can trigger a backlash.

Many younger Americans burdened by low incomes, soaring costs for housing and basic necessities, and student debt are not happy with the lectures. They are understandably tired of being told to cut back on lattes and avocado toast, save money they haven’t got, and plan for retirement when they can’t pay rent.

They have a point. You can’t personal finance your way out of a gross imbalance between income and expenses. We have to recognize that there are real structural issues in the way of financial success and that public policy needs to adapt. Like it or not, personal finance is political.

Still, financial knowledge is always going to help, even if it’s not the sole solution, and surveys consistently show that even families earning six-figure annual incomes are living paycheck to paycheck and struggling with excessive debt.

So How Does This Help?

Financial illiteracy and bad financial habits are not just the result of sloppiness, carelessness, or lack of discipline. They are actively, energetically, and very effectively taught.

Recognizing that fact can help both personal finance educators and individuals struggling with destructive financial habits.

• Personal finance educators can recognize that their job is not merely to teach good money habits but to help learners recognize and break free from years of potent mental conditioning.
• Consumers can understand that their problems are not entirely their own fault: they have been professionally manipulated. Recognizing that manipulation is the first and most important step toward breaking free from it.

Understanding the impact of financial illiteracy education won’t make it go away, and it won’t magically transform the personal finance landscape. It does give us one more tool to help us, and others recognize how bad financial habits form and what we can do to reverse them.

The post Financial Illiteracy Education: How We Teach Bad Financial Habits appeared first on FinMasters.

There has been a great deal of speculation over a possible SpaceX IPO, with CEO Elon Musk refusing to give any specific projections or even hints as to when it might occur. There has also been speculation that SpaceX might consider a Starlink IPO, potentially even before SpaceX goes public.

Elon Musk has reportedly told employees that a Starlink IPO is possible in 2025 or later.

Moving Starlink public before SpaceX could be an appealing strategy. Starlink is the best-developed segment of SpaceX’s business, with some projections anticipating revenues of $16 billion/year by 2027. Selling even a portion of Starlink could provide SpaceX with abundant funding for its other efforts while allowing it to retain operational control.

A Starlink IPO would also provide substantial profit potential for shareholders. But can you buy Starlink stock?

Let’s take a closer look at how to buy Starlink stock:

What Is Starlink?

Starlink is a satellite-based global Internet Service Provider. The company uses a constellation of low-orbit satellites to address the latency problems that have traditionally plagued satellite communications systems.

Starlink has been marketed to mobile users and to rural or developing-nation residents who need high-speed internet but have limited or no access to traditional internet service providers.

The Starlink system consists of an antenna, cable, and router, which users install themselves. A mobile app assists in location selection and verifies that a location is free of obstructions. The antenna is self-adjusting and will seek out the best angle to connect to available satellites.

Starlink launched its first 60 satellites in 2019 and now has over 4000 satellites in low-earth orbit. The Federal Communications Commission (FCC) has already approved 12,000 satellites, and Starlink parent SpaceX has requested approval for 30,000 more.

Starlink connections become faster, more reliable, and accessible to more users as more satellites are placed.

Starlink is operated by SpaceX, and satellite development takes place at a SpaceX facility in Redmond, WA. Starlink uses SpaceX equipment to launch and place its satellites.

The Business

Starlink operates on a fairly straightforward business model. Customers purchase hardware from Starlink and pay a monthly subscription fee. Starlink offers several packages.

• Standard residential service covers a single location. Initial hardware cost is typically around $599, and the monthly service fee is $90-$120 depending on location. Download speed is typically 100-200 Mbps.
• Mobile service is used by RVs and others requiring use in multiple locations. The setup cost is the same, but the service fee can reach $135/month. Speed varies with location.
• Maritime service is used on water only and can deliver up to 350 Mbps. The installation cost is $10,000, and the monthly fee is $5000.
• Business service costs $500 a month and delivers up to 500 Mbps, with priority 24/7 service.

Starlink’s customer base has been expanding rapidly.

Starlink has attracted both individual and corporate users. In August 2022, Royal Caribbean Group, a major cruise ship operator, announced that Starlink will be installed on all of their 64 ships and any new ships they order, including 10 vessels currently under construction.

When Will Starlink Hold Its IPO?

Discussion of a Starlink IPO goes back to February 2020, not long after the first satellites were deployed. No dates or necessary conditions for an IPO were discussed at that time.

A year later, a series of Musk tweets gave slightly more insight into what it would take for Starlink to go public.

In June 2022, CNBC stated that Musk had told SpaceX employees that a Starlink IPO was 3 to four years away, which would place it in 2025 or 2026. Musk emphasized that the company should be “in a smooth sailing situation” with “good predictability” to support an IPO.

In October 2022, CCI Insight reported that Starlink could go public as early as 2025 with an offering designed to raise capital to expand its satellite constellation.

Starlink has arguably satisfied some of the conditions Musk set in 2022, with a stable revenue base 0f 1.5 million subscribers paying an average of $110/month each. An IPO will also depend on the health of the overall market, the IPO market in particular, and on public perceptions of the space business.

Musk’s most recent statement on the hot topic of Starlink was in June 2023, when he commented, “It would not be legal for me to speculate about a Starlink IPO”

Starlink and SpaceX have not filed any prospectus or pre-IPO paperwork with the SEC, and at this point, any prediction of an IPO date remains speculative.

Starlink’s Financing and Valuation

Starlink is a subsidiary of a VC-backed private company, SpaceX. Because of this relationship, Starlink’s initial funding has been effectively included in SpaceX’s funding. Starlink has not held private placements expressly for Starlink.

We can assume that the venture capital backers behind SpaceX are also exposed to Starlink and would receive Starlink shares in any IPO. We do not know how any share distribution would be organized, how many shares would be retained by SpaceX, how many would go to SpaceX investors, and how many would be sold in the IPO.

The same phenomenon makes it almost impossible to arrive at a meaningful valuation for Starlink. Private company valuations are usually based on the prices of recent share offerings, and without a share offering specifically for Starlink, any valuation assumption is too speculative to be useful.

SpaceX is currently the most valuable venture capital-backed private company in the US and the second most valuable in the world (behind TikTok parent ByteDance), with a current valuation close to $150 billion. Starlink certainly represents a substantial portion of that.

Venture capitalist and former Facebook executive Chamath Palihapitiya has claimed that Starlink’s value would be approximately 50% of the SpaceX valuation, which would place it at $75 billion. This figure – like any estimate of Starlink’s value – must be regarded as speculative.

Starlink Financials

Until Starlink files a formal prospectus, we will have no audited financial statements providing reliable information on Starlink’s finances. Some information has been publicly discussed, and more can be deduced for information on Starlink’s customer base.

• SpaceX President Gwynne Shotwell has stated that Starlink had a cash flow positive quarter in 2022 and “will make money” in 2023.
• Payload Space, a space industry newsletter, reported in 2022 that SpaceX is generating around $1 billion in annual revenue from Starlink.
• Starlink reportedly has 1.5 million subscribers. At an average of $110 per month each, that would indicate recurring revenues close to $2 billion, potentially higher as some users subscribe to the higher-cost mobile, maritime, and business services.

These figures are, of course, not a substitute for audited financials. Starlink clearly has a sustained revenue stream that will grow as the subscriber count grows. We still don’t have a clear understanding of Starlink’s costs or debt.

Many of Starlink’s startup needs, including the design, construction, launch, and placement of the satellites, were supplied by parent company SpaceX. We do not know how these costs are accounted for or what amortization schedule exists between the two companies.

Starlink owns SpaceX and will presumably retain a majority interest even after an IPO, so we can assume that the financial relationship between the countries is organized on mutually advantageous terms. We still don’t know what those terms are or how large an obligation Starlink has to SpaceX.

How Can I Buy Starlink Stock?

Starlink is still privately held, meaning its shares are not available on the stock market, yet many are wondering how to buy Starlink stock. Are there alternative methods to acquire it?

Invest Through a Pre-IPO Secondary Market

There is a secondary market for pre-IPO shares, and it is sometimes possible to purchase them. Online pre-IPO marketplaces may acquire shares from early investors or employees who have received shares through stock options.

You may be able to buy Starlink shares through these marketplaces.

• Forge Global/Sharespost is the product of a merger between two major pre-IPO marketplaces. The minimum investment is $100,000. Some shares may have higher minimums. Potential buyers may need to pass a qualification process.
• EquityZen acquires pre-IPO shares from early investors and employees and makes them available to qualified investors. There will be a qualification process, and the minimum investment is $10,000, potentially higher for some shares.
• SecFi specializes in linking outside investors with employees who need to liquidate their stock options.
• Nasdaq Private Market provides access to private company shares for investors who meet the SEC’s accredited investor criteria.
• EquityBee is a private marketplace that allows investors to fund an employee’s stock options in exchange for a share in the proceeds from their eventual sale.

To use these platforms, you will have to register and open an account. You may need to meet a minimum level of income and investment experience to qualify, and there may be other criteria. There’s no guarantee that any marketplace will have Starlink shares available.

Learn more: Explore efficient ways of funding stock options even when you’re on a tight budget with our new post.

Invest in SpaceX

There is no assurance that any of the companies above will have Starlink shares available for sale. If they do not, you could consider reviewing the same companies to see whether you can buy SpaceX shares.

There is also no assurance that SpaceX shares will be available, and SpaceX carries all the same risks common to any pre-IPO company and some specific risks of its own. SpaceX shares – if you can get them – would still be a way to invest indirectly in Starlink.

Learn more: Diversifying your investments with Musk’s ventures? We’ve got details on how to get your hands on boring company stock, and for social media enthusiasts, there’s a guide on how to buy Twitter stock.

Invest in the IPO

When considering how to buy Starlink stock, you should note that several major brokers offer account holders the opportunity to participate in IPOs. All of them have requirements that investors have to meet. You will have to answer questions to confirm that you comply with the rules on IPO investment.

• TD Ameritrade allows participation in IPOs if TD Ameritrade is part of the selling group. Participating account holders need a minimum balance of $250,000 or 30 trades in the last calendar year.
• Fidelity allows participation for customers who are in the Premium or Private client groups or those who meet minimum household asset requirements.
• Charles Schwab requires an account balance of $100,000 or a history with at least 36 trades.
• E*Trade does not restrict IPO participation by account balance or trading history. You will have to fill out a questionnaire from the underwriter of the IPO to determine your eligibility.

Most IPOs allocate only a small number of shares for retail investors. Even if you qualify, you may not be able to be able to buy the number of shares you want. You may not be able to buy shares at all.

Many IPO purchases come with a lock-up period, usually 90 or 180 days. You will not be able to sell your shares until this period expires.

Learn more: Stock trading can be more efficient with the right platform; our post reviews the best online brokers out there.

Invest After the IPO

The most conservative approach on how to buy Starlink stock would be to wait for the IPO and buy the shares in the public post-IPO market. You can do this through any brokerage account.

You won’t get in at the low price offered by pre-IPO or IPO purchases, but it’s the simplest way to invest, and there’s still a substantial upside if the company succeeds.

Learn more: For those curious about the IPO market, check out our guide on how to buy IPO stock. And if you’ve ever considered getting in earlier, our post on pre-IPO investing might be worth a read.

Are There Any Concerns About Starlink?

If you want to know how to buy Starlink stock, it’s important to note that, like all companies, an investment in Starlink carries its own set of risks. Those risks are accentuated by Starlink’s status as a pre-IPO company with no established schedule for going public. There is no assurance that there will ever be a market for the shares that you buy.

Interested in Starlink's investment potential? Learn how to buy #Starlink #stock in our new post.

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These are some risks specific to Starlink.

• Space-based competition. Amazon’s Project Kuiper aims to fill essentially the same niche as Starlink. Starlink has a huge headstart, but Amazon has enormous financial clout and may be able to deliver a superior product.
• Land-based competition. Starlink primarily serves users who do not have access to modern land-based fiber broadband networks, which typically provide higher speeds and lower latency at a lower price. As these networks expand, Starlink’s user base could shrink.
• Affordability. Much of the potential user base that does not have access to high-speed internet is located in developing countries, where Starlink’s high upfront cost could limit adoption.
• Capital-intensive business. Placing satellites requires enormous upfront costs, potentially involving either debt or dilution of the company’s equity base.
• Dependence on a single individual. SpaceX and Starlink are heavily dependent on Elon Musk. Questions have been raised about Musk’s stability, and these companies could lose much of their appeal to investors if Musk or one of his companies experiences significant difficulties.
• Regulation. Starlink intends to place tens of thousands of satellites in low-earth orbit. It is not clear whether these placements will interfere with other communications or space-based functions.

Any or all of these factors could emerge as significant threats to Starlink.

Starlink does not share one risk factor common to companies in the private space industry. Companies that depend on launch revenue or space tourism could be dramatically affected by any accident anywhere in the industry.

This risk is less important for Starlink, which derives continuing revenue from satellites already in place. In 2022, up to 40 Starlink satellites were destroyed during placement by a geomagnetic storm without any lasting impact on the company.

Conclusion on How to Buy Starlink Stock

If you’re wondering how to buy Starlink stock, there are several methods to invest in private companies like Starlink. Some ways are more difficult than others. But if you’re willing to do some digging, you might be able to purchase Starlink stock before the company’s IPO.

Starlink is a highly speculative investment with substantial risks. There’s no way to anticipate when an IPO will be held, so your funds could be tied up for some time. If the gamble pays off, the gains could be substantial.

If you want to stay up-to-date on when Starlink goes public, sign up for our newsletter, and we will let you know!

Learn more: For those wondering about the intricacies of how to sell stock in a private company, our latest post offers clarity.

FAQs

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What Is Blue Origin?

Blue Origin is a privately held company based in Kent, Washington, USA, with launch facilities in Texas. The company maintains a rocket engine manufacturing plant in Alabama and an additional launch site at Cape Canaveral, Florida.

Blue Origin is the brainchild of Jeff Bezos, the founder of Amazon and off-again-on-again richest man in the world. Bezos’ involvement has a direct impact on the structure of the company: instead of relying on venture capital, the company has been funded by Bezos personally, with some capital contributions from US government agencies.

Because of the absence of venture capital investment, it is impossible to cite a specific valuation for Blue Origin.

Learn more: You might find it interesting to explore the investment narrative of Elon Musk in our recent post – a detailed peek into his journey.

The Business

Blue Origin has several lines of business, all related to the aerospace and defense industries. The company is focused on developing reusable spacecraft and engines.

Rocket Engines

Blue Origin has several rocket engines currently in production:

• The BE-3 and its variants are liquid hydrogen/liquid oxygen engines capable of controlled landings.
• The BE-4 engine is a liquid oxygen/liquid natural gas engine developed for the Atlas V and Vulcan Centaur rockets operated by the United Launch Alliance (ULA), which had previously used Russian engines.
• The BE-7 engine is currently under development and is designed for use on a lunar lander.

These rocket engines are made both for Blue Origin’s own launch vehicles and for use in other craft.

Launch Vehicles

Blue Origin has incorporated its engines into two launch vehicle designs.

• New Shepard is a reusable sub-orbital launch vehicle capable of vertical takeoffs and landings. It was developed for space tourism and is the vehicle that carried the highly publicized Jeff Bezos space trip on July 20, 2001.
• New Glenn is a heavy lift launch vehicle powered by seven BE-4 engines. New Glenn is currently under development and is expected to be launch-ready in Q3 2024. It will have twice the payload capacity of any other available launch system and the highest potential payload size. New Glenn will compete with the Falcon and Falcon Heavy rockets from SpaceX.

NASA has selected the New Glenn launch vehicle for the deployment of its two Escape and Plasma Acceleration and Dynamics Explorers (ESCAPADE) missions. These will be placed in orbit around Mars approximately one year after launch, which is scheduled for late 2004.

Blue Moon

Blue Moon is a crew-carrying lunar landing vehicle that is expected to carry payloads of up to 3.6 tons to the moon’s surface with a soft landing. A larger variant is planned, with the ability to carry up to 6.5 tons.

NASA has entered into a $3.4 billion contract with Blue Origin to use the Blue Moon landing vehicle for its planned Artemis mission, which is intended to explore the moon – first with an unmanned mission and then with a manned mission – and prepare for a potential manned mission to Mars.

Other Projects

Blue Origin is involved with other space-focused projects, mainly in consortiums with other companies.

• Orbital Reef is a low-orbit space station being designed for both NASA and commercial use. Blue Origin, Boeing, Sierra Space, and other companies are working on the project, which passed an initial design review in August 2022.
• Nuclear rocket propulsion is widely seen as the future of space flight. The Defense Advanced Research Projects Agency (DARPA) has selected Blue Origin and Lockheed Martin to develop competing spacecraft concepts, with General Atomics developing the reactor.

These projects are forward-looking and could be considered speculative, but they carry substantial government funding, and it is possible that they could hold major places in the future of space exploration.

Blue Origin and Project Kuiper

Project Kuiper is an effort to provide global broadband services through a constellation of low-earth orbit satellites. This is very similar to Starlink, a subsidiary of Elon Musk’s SpaceX, and Project Kuiper will compete directly with Starlink.

Project Kuiper is not a part of Blue Origin. It is a direct subsidiary of Amazon. Project Kuiper uses Blue Origin’s launch services, along with those of other providers. That makes Project Kuiper a customer of Blue Origin, but other than the direct involvement of Jeff Bezos in both projects, there is no ownership connection.

Blue Origin competes with equipment and launch services provided by SpaceX, and the two often compete for space-related contracts awarded by the US government and private companies. Blue Origin does not, however, compete directly with Starlink.

When Will Blue Origin Hold Its IPO?

There is no indication that Blue Origin is preparing for an IPO. Because the company is not financed by venture capital, there are no investors pressing for an exit strategy, and the company can wait as long as Mr. Bezos’ capacity to finance the company continues, potentially a very long time.

Any prediction of an IPO date for Blue Origin would be entirely speculative.

Blue Origin’s Financing

Blue Origin has raised $167 in three funding tranches.

Additional working capital has been sourced from contracts with NASA and the US Space Force.

How Can You Buy Blue Origin Stock, Really?

Blue Origin is still privately held, meaning its shares are not available on the stock market yet. So, you might be wondering how to buy Blue Origin stock through other avenues.

Learn more: Discover the process of selling stock in a private company with our informative guide.

How to Buy Blue Origin Stock: Invest Through a Pre-IPO Secondary Market

If you want to learn how to buy Blue Origin stock before it goes public, you should know that there is a secondary market for pre-IPO shares. Online pre-IPO marketplaces may acquire shares from early investors or employees who have received shares through stock options.

Learn more: Explore the methods for purchasing pre-IPO stock and gaining early access with our informative guide.

You may be able to buy Blue Origin shares through these marketplaces.

• Forge Global/Sharespost is the product of a merger between two major pre-IPO marketplaces. The minimum investment is $100,000. Some shares may have higher minimums. Potential buyers may need to pass a qualification process.
• EquityZen acquires pre-IPO shares from early investors and employees and makes them available to qualified investors. There will be a qualification process, and the minimum investment is $10,000, potentially higher for some shares.
• SecFi specializes in linking outside investors with employees who need to liquidate their stock options.
• Nasdaq Private Market provides access to private company shares for investors who meet the SEC’s accredited investor criteria.
• EquityBee is a private marketplace that allows investors to fund an employee’s stock options in exchange for a share in the proceeds from their eventual sale.

To use these platforms, you will have to register and open an account. You may need to meet a minimum level of income and investment experience to qualify, and there may be other criteria. There’s no guarantee that any marketplace will have Blue Origin shares available.

Learn more: Get an unbiased look at Equitybee, including its workings and potential drawbacks, in our comprehensive review.

How to Buy Blue Origin Stock: Invest in the IPO

When exploring how to buy Blue Origin stock, it’s important to note that several major brokers offer their account holders the chance to participate in IPOs. All of them have requirements that investors have to meet. You will have to answer questions to confirm that you comply with the rules on IPO investment.

• TD Ameritrade allows participation in IPOs if TD Ameritrade is part of the selling group. Participating account holders need a minimum balance of $250,000 or 30 trades in the last calendar year.
• Fidelity allows participation for customers who are in the Premium or Private client groups or those who meet minimum household asset requirements.
• Charles Schwab requires an account balance of $100,000 or a history with at least 36 trades.
• E*Trade does not restrict IPO participation by account balance or trading history. You will have to fill out a questionnaire from the underwriter of the IPO to determine your eligibility.

Most IPOs allocate only a small number of shares for retail investors. Even if you qualify, you may not be able to be able to buy the number of shares you want. You may not be able to buy shares at all.

Many IPO purchases come with a lock-up period, usually 90 or 180 days. You will not be able to sell your shares until this period expires.

Learn more: Discover the top online brokers for stock trading and make informed investment decisions with our in-depth post.

How to Buy Blue Origin Stock: Invest After the IPO

The most conservative approach on how to buy Blue Origin stock would be to wait for the IPO and buy the shares in the public post-IPO market. You can do this through any brokerage account.

You won’t get in at the low price offered by pre-IPO or IPO purchases, but it’s the simplest way to invest, and there’s still a substantial upside if the company succeeds.

Are There Any Concerns About Blue Origin?

Like all companies, an investment in Blue Origin carries risks. Those risks are accentuated by Blue Origin’s status as a private company with no plan to go public in the near or even medium-term future.

Explore the avenues to becoming a #stakeholder in #JeffBezos' aerospace manufacturer and sub-orbital spaceflight services company in our latest article.

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These are some risks specific to Blue Origin.

• Accident risk. Any serious or fatal accident, even if Blue Origin is not involved, could have a heavy impact on the prospects of the entire commercial space industry, including Blue Origin.
• Dependence on Government Contracts. Blue Origin relies heavily on US government contracts. Failure to deliver adequate performance or to bid competitively on future projects could jeopardize that business.
• Capital-intensive business. The commercial space business requires enormous amounts of capital with a very long return horizon. Failures and setbacks are expected.
• Dependence on a single individual. Blue Origin is heavily dependent on Jeff Bezos and might be unable to continue if anything happens to him.
• No visible exit strategy. There is no indication that Blue Origin is planning for an IPO or other liquidity event. Shareowners may not be able to dispose of their holdings.

Any or all of these factors could emerge as significant threats to Blue Origin.

Can Blue Origin Compete?

Blue Origin is one of three billionaire-funded commercial space companies. There are other private companies in this space, including diversified aerospace giants like Boeing and Lockheed Martin, but SpaceX and Virgin Galactic are widely seen as the primary competitors for Blue Origin.

Virgin Galactic is using a strategy similar to that of Blue Origin, focused mainly on launch services and space tourism. The company has consistently posted losses since its inception.

SpaceX is also developing launch vehicles but is heavily reliant on Starlink, its satellite-based internet service. Starlink is expected to provide 40% of SpaceX’s 2023 revenue, giving it a continuing revenue stream from subscriptions. Starlink is also considered an IPO candidate in its own right.

Jeff Bezos is adopting a different strategy, focusing Blue Origin on launch services and high-profile government contracts. Bezos’ entry into the satellite internet market, Project Kuiper, is a completely separate company under Amazon.

It remains to be seen which of these companies – if any – prevails in the private space race and which strategy will emerge on top. It is not even clear whether Bezos expects Blue Origin to become a public company and a major contributor to his net worth or whether he is focused mainly on building a personal place in the history of space exploration.

Conclusion on How to Buy Blue Origin Stock

Hopefully, this post has clarified how to buy Blue Origin stock. There are ways to invest in private companies like Blue Origin. Some ways are more difficult than others. But if you’re willing to do some digging, you might be able to purchase Blue Origin stock before the company’s IPO.

Blue Origin is a highly speculative investment with substantial risks. There’s no way to anticipate when an IPO will be held, so your funds could be tied up for some time. If the gamble pays off, the gains could be substantial.

If you want to stay up-to-date on when Blue Origin goes public, sign up for our newsletter, and we will let you know!

FAQs

The post How to Buy Blue Origin Stock: Is It Actually Possible? appeared first on FinMasters.

It is sometimes possible to buy shares in privately held companies. You may need to meet certain qualifications, and there is no assurance that shares in any given company will be available. There are also significant risks.

Let’s take a closer look at the company, how to buy Twitter stock, and some of the pros and cons of buying Twitter stock.

What Is Twitter (X)?

We should probably have a word about Twitter itself before we discuss how to buy Twitter stock:

Twitter (now X) is a somewhat unusual type of private company, outside the usual pattern of a VC-funded startup aiming for an IPO that provides investors with an exit strategy.

Twitter has already been through this process. It traded publicly from 2013 to 2022 and was then taken private after a high-profile buyout. Let’s look at how that process played out and what it means to potential new investors.

Twitter History

Twitter is a social media platform founded by Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams in 2006 as a spinoff from the podcasting tool Odeo.

Twitter was one of the early players in social media, along with Facebook (2004), YouTube and Pinterest (2005), and LinkedIn (2006).

Twitter was built on a short message format, allowing users to send and resend photos, videos, and comments. The platform initially surged. In 2009 Twitter won a “Breakout of the Year” Webby Award and was the third-largest social media site. By June 2010, users were sending 65 million tweets a day. In 2011 Twitter was hailed as a key method of information dissemination enabling the Arab Spring revolts.

Twitter went public in 2013 with shares priced at $26, achieving an initial valuation of $14 billion. Within a day, the shares rose 73% to $44.90.

The company’s momentum faded in 2014 and 2015, with user growth slowing, especially relative to competing platforms, and the company struggling to attract advertisers. Twitter posted consistent losses even as other social media players moved into profitability.

While the volume of tweets remained high, an increasingly large percentage of tweets were coming from a small number of users.

In the increasingly charged political environment of 2016 and the ensuing years, Twitter became the preferred venue for confrontational and sometimes abusive content. Twitter briefly achieved profitability in 2019, but the user count continued to dwindle, and losses soon resumed.

During the COVID-19 pandemic, Twitter was simultaneously accused of being a vehicle for medical disinformation and of censoring alternative views.

Twitter’s management was left in a near-impossible position, caught between political activists demanding the right to publish anything they wanted and advertisers demanding “brand safety”, primarily meaning assurance that their brands would not appear beside content they considered distasteful.

Enter Elon Musk

If you want to learn anything about how to buy Twitter stock, you should probably learn from the biggest buyer of these stocks, Elon Musk:

Billionaire investor Elon Musk was one of Twitter’s most prolific and most controversial users. In March 2022, he had over 77 million followers and was routinely posting 30 or more tweets a day.

Musk’s tweets were often controversial. In 2018, the Securities and Exchange Commission fined Musk $20 million and ruled that Tesla lawyers must approve tweets on the company to avoid violations of SEC  rules. Musk’s tweets dealing with Bitcoin and Dogecoin drove large swings in the price of the cryptocurrencies and raised concerns over market manipulation.

Musk was also a vocal critic of COVID restrictions and Twitter’s policy on controlling what was regarded as COVID-related misinformation.

In January 2022, Musk began purchasing Twitter shares, and by March, he was the single largest holder, owning 9.2% of the shares. On April 14, 2022, Musk made an offer to purchase Twitter for $44 billion, stating:

I invested in Twitter as I believe in its potential to be the platform for free speech around the globe.

After initial resistance, Twitter’s board accepted the offer on April 25.

Musk subsequently sold $8.5 billion in Tesla stock to help finance the deal and raised another $7 billion in financing. Reports indicated that Musk intended to increase revenues 5x and bring annual earnings to $26.4 billion.

Musk later tried to back out of the deal, claiming that Twitter had supplied inaccurate figures on the number of inauthentic accounts. After the case went to court, the deal was finally concluded on October 28, 2022. Twitter became a private company owned by Musk.

Musk used $13 billion in loans from a consortium of banks to help finance the acquisition.

Learn more: Exploring investment opportunities in Elon Musk’s ventures? We’ve detailed insights on both SpaceX and Boring Company. Take a look.

Twitter After Musk

Musk made immediate, dramatic, and sometimes chaotic changes to Twitter, numerous senior executives were dismissed, and as much as half the workforce was fired, leaving many functions unattended. Content moderation and media relations teams were dismissed. Moderation was drastically reduced, and previously banned accounts were reinstated.

Observers documented an immediate spike in tweets that would formerly have been classified as hate speech. Some accounts indicated that half of Twitter’s advertisers left the platform, including major spenders like Coca-Cola, Unilever, Jeep, Wells Fargo, and Merck.

The same source claims that monthly revenue from the top 1000 advertisers dropped from $127 million to just over $48 million.

Musk’s Twitter began charging for the blue checks that had been used to designate verified identities, an effort that soon backfired as impersonators rushed to buy “blue check” status for fake accounts.

On Dec. 18, 2022, Musk asked Twitter users if he should step down as the head of the company, promising to abide by the results of the poll. 57.5% of respondents voted “yes”.

In May 2023, Musk made good on that promise, stepping down as CEO and appointing former NBCUniversal executive Linda Yaccarino to succeed him. Yaccarino is a career advertising executive and will face the task of bringing desperately needed ad revenue back to the platform, reconciling the interests of free-speech absolutists with those of advertisers demanding brand safety.

What Does All This Mean for Potential Investors?

It’s unusual for a public company to be taken private and even more unusual for private company investors to be looking for ways to invest in such a company. There are two things that make Twitter different.

• Elon Musk. Musk has a reputation for building shareholder value. He’s a very public figure, and companies that he’s involved with always attract attention.
• Twitter’s controversies. Twitter is not a major player in the social media world, but it gets attention and has become a political issue. Individuals who share Musk’s vision of what Twitter could be may wish to invest in the company.

Whether these points of interest outweigh the obvious potential risks is another question.

Twitter’s current valuation, according to Fidelity (which helped to finance Musk’s purchase and owns a stake in Twitter), is $15 billion, a third of what Musk paid for the company. Going public at this stage would involve a massive loss. That makes a public listing in the near future highly unlikely.

Twitter has issues. It is only the tenth most popular social media site, with 217 million Monthly Active Users. That is tiny compared to Facebook (2.9 billion), YouTube (2.2 billion), or WhatsApp and Instagram (2 billion each).

Twitter has also shed advertisers, its primary source of revenue, who can easily move to other platforms. This is a characteristic feature of social media: there is no moat at all, and advertisers (the customers) can easily drop a platform and move to another.

Musk has plans to reverse that trend. Twitter is to become a “digital town square” devoid of bias. It will be an “everything app” combining public and private messaging, information sharing, digital payments, e-commerce, and other functions, as TenCent has already done in China.

How and when this is to be achieved remains to be seen.

What Do We Know About Twitter’s Financials?

Twitter is a private company and is not required to file financial reports. Until – and unless – the company prepares to go public and files a prospectus, we will not have access to detailed financial records.

Twitter’s last reported full-year revenues were $5.1 billion in 2021. Revenues in Q1 2022 were $126 million, dropping to $30 million in Q2, its last report as a public company. A report on June 5, 2023, citing an internal presentation, stated that year-over-year revenues had declined 59%.

Musk’s mass firings have reduced costs dramatically, but Twitter also has to make interest payments on the $13 billion in debt used to finance the acquisition. Musk himself estimates Twitter’s costs at $3 billion a year, including $1.5 billion in interest payments.

The same interview stated that Twitter could break even in Q2 2023 and could become cash flow positive in 2023.

All of these figures are estimates and cannot be confirmed.

How to Buy Twitter Stock

Twitter is a privately held company, and its stock does not currently trade on any public exchange. You will not be able to buy Twitter stock through a conventional broker until the Company holds an IPO.

It is sometimes possible to buy shares in private companies through private share marketplaces. These marketplaces acquire shares or broker shares being sold by early investors or by employees who have received shares as part of their compensation.

This is not a sure thing. Shares in any given company may not be available at any given time, and there may be restrictions on who can buy private company shares. If you’re convinced that a company has a bright future, it’s still worth a try as long as you have fully considered the risks of private company investing.

As of June 2022, the private company market presents a unique opportunity for investors with a long time horizon and cash that they are willing to place in a high-risk investment (all private company investments have to be considered high-risk).

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Today’s flat IPO market has led to a radical drop in demand for private company shares. Investors are reluctant to buy shares that may remain illiquid until the IPO market improves. Significant numbers of employees in private companies are looking to offload shares. That increased supply and lack of demand point to increased availability and more accessible pricing for private company shares.

How to Buy Twitter Stock: Secondary Market Transactions

These marketplaces often impose investor qualifications, and there is no guarantee or assurance that they will have available shares in any given private company.

• Forge Global merged with Sharespost in 2020. The combined company is now the world’s largest marketplace for private company shares. Investors must make a minimum purchase of $100,000 worth of shares. The minimum may be higher for some companies. Investors may need to meet qualification requirements.
• EquityZen acquires shares from early investors or from employees who have received stock as part of their compensation. They work with companies to assure that transactions will be recognized and sell the shares to investors who meet the revised SEC “accredited investor” criteria. There’s a minimum investment of $10,000, which may be higher for some companies.
• Nasdaq Private Market provides access to private-company shares for investors who meet the SEC’s accredited investor criteria.
• EquityBee is a private marketplace that allows investors to fund employee stock options in return for a share in the proceeds of an eventual sale.

Most private company transactions must be approved by the issuing company, Beware of unknown platforms offering shares. They may not be approved or legally tradeable.

There are substantial risks in private company investing. An IPO may not take place as expected, and if it doesn’t, there may be no market for your shares. Learn more about private company investing.

How to Buy Twitter Stock: Invest in the IPO

If private company shares are unavailable or the requirements are too strict, investing in the IPO may be a better option. Many IPOs allocate limited numbers of shares to major brokers, and if your broker has a shared allotment, you may be able to buy at the IPO. You may still need to meet the qualifying requirements.

You’ll have to tell your broker how many shares you’d like to buy, and there’s no guarantee that you’ll get that number or any allocation at all.

Several major brokers provide IPO investing access for clients. Different brokers have different requirements.

• Charles Schwab requires a history of 36 trades or an account balance of at least $100,000 for IPO participation.
• E*Trade has no account balance or trading history requirements for IPO participation. You may have to pass a questionnaire provided by the IPO underwriters.
• Fidelity allows IPO participation for clients who meet a minimum household asset requirement or are members of their Private and Premium client groups.
• TD Ameritrade allows IPO participation if they are part of the selling group. Participants must have a minimum account balance of $250,000 or have made 30 trades in the last calendar year.

Buying at the IPO has one major advantage over a private company purchase. At least you know that after the IPO, there will be a public market for your shares. You may not be able to take immediate advantage of that market, though. IPO share purchases typically come with a 30 or 60-day lockup period.

There is no assurance that Twitter will ever hold an IPO.

How to Buy Twitter Stock: Invest After the IPO

If you’re convinced that Twitter will be a good long-term investment you may be wondering how to buy Twitter stock. Well, the simplest way to buy the stock is simply to wait until the IPO concludes. You can then buy through your regular broker with no restrictions or requirements. You’ll be able to sell the stock at any time you like.

You will not get the low per-share price that you’d get from a private company or even an IPO investment, but you’ll face substantially less risk. You’ll also get a chance to see how the market responds to the IPO before you pull the trigger.

If the stock rises immediately after the IPO, your entry price will be substantially inflated, but that is by no means guaranteed. If you intend to hold the stock for an extended period, the difference will probably be minimal.

Are There Any Concerns About Twitter?

Any private company investment involves substantial risk. There is never any assurance that the company will go public or that there will ever be a liquid market for the shares.

In addition, there are specific concerns about Twitter.

• There is no assurance that Twitter shares will be available for purchase.
• Twitter has barely completed the transition from public to private. There is no assurance that it will ever go public again. If you are able to acquire shares, there may never be a market for them.
• Twitter’s revenues have dropped dramatically, and there is no assurance that its owner’s plans to rejuvenate and expand the business will succeed.
• Elon Musk’s involvement attracts investors, but it is also a risk factor. Musk is as eccentric as he is brilliant, he has numerous other commitments, and there’s no assurance that he will retain an interest in Twitter.
• Musk’s plan to minimize moderation may run afoul of regulators in key markets and could create liability if the platform is used to plan or expedite illegal activities.

You should review all of these and other risk factors before you consider an investment in Twitter.

Conclusion

Twitter is currently one of the most visible and widely discussed companies in the world. That invariably attracts attention from the investment community, and many investors are wondering how to buy Twitter stock.

If you’re considering an investment in Twitter, you will have a great deal to consider. All private company investments are risky, but Twitter presents an unusual case with a special set of risks.

Of course, that may change, and even if you don’t see Twitter as a viable investment – or if shares are simply not available – right now, that may change at some point in the future!

The post How to Buy Twitter Stock in 2024, Really appeared first on FinMasters.

Let’s look at the things you need to know.

Why People Want to Get Out of Timeshares

Timeshare companies spend a great deal of time and money convincing buyers that a timeshare is a great deal: as much as 60% of the cost of a timeshare goes to sales and marketing expenses.

Many owners find that the reality doesn’t live up to the promise. These are some of the reasons why owners want to give up their properties.

• Maintenance fees. Timeshare maintenance fees average around $1000/year and may increase without warning. Some resorts, especially larger or more prominent ones, have higher fees.
• Special assessments for repairs and improvements are mandatory and unpredictable. They may involve substantial amounts.
• Difficulty getting quality weeks. Many owners report that they had a hard time getting access to the property during premium vacation periods.
• Changing vacation habits. Many owners find that as they age, they no longer want to go to the same type of destination they chose when they bought the timeshare.
• An unwanted inheritance. You can get out of inheriting a timeshare, but people who don’t know how may be stuck with an inherited timeshare they don’t want.

A timeshare can be extremely expensive, and changing financial conditions and vacation preferences leave many owners eager to escape their commitments.

Be Realistic

There are two unpleasant realities that you will have to face up to if you’re trying to get out of a timeshare.

1. Your timeshare is probably worthless. If you think you can sell your timeshare, you’re probably wrong. Most timeshares have no resale value. The market is filled with people trying to give their timeshares away to escape the fees.
2. This won’t be easy. A timeshare agreement is a legal contract. Most of them have “perpetuity clauses” tying you to your timeshare for life. Those clauses aren’t fair, but they are legal. Timeshare contracts are designed to tie you down.

It is still possible to get out of a timeshare. You’ll have to make the right moves, and you’ll have to be careful: there are many scammers preying on people desperate to escape timeshare contracts. Anyone promising a guaranteed easy timeshare exit is probably a scammer.

How to Get Out of a Timeshare

These are the steps you’ll need to take.

1. Use the Rescission Period

If you were persuaded by a high-pressure sales pitch and changed your mind immediately, you can use the rescission period. This is a cooling-off period within which you can back out of a contract.

The length of this period varies with the state the resort is in, but is usually from three to 15 days. If you want to back out of your decision, notify the resort in writing immediately. They will try to talk you out of your decision. Be firm. You have the right to say “no.”

The rescission period is brief, so if you’re trying to get out of a timeshare that you’ve had for some time, you’ll need other methods.

2. Understand Your Contract

The first step is to read your contract thoroughly and understand it. This may not be easy: timeshare contracts are often deliberately complex and obscure. You may need to get a lawyer’s help to analyze the contract.

Even if it’s difficult, it’s still necessary. You need to understand what type of timeshare you have and any stipulations the contract has restricting your ability to give up the timeshare.

Don’t expect good news, Timeshare contracts are typically very one-sided and designed to protect the developer’s interests, not yours. You still need to know what you’re up against.

3. Do You Still Owe Money?

Many people finance their timeshare purchases. Developers encourage this and often bundle financing packages with timeshare purchases during sales presentations. These loans often carry exorbitant interest rates, adding to the burden on timeshare owners.

If you used a loan to pay for your timeshare, check the amount that you still owe. It will be harder to get out of a timeshare if you still owe money on it, especially if you financed your purchase through the resort. You may have to pay off the loan before you can get out of your timeshare.

4. Talk to the Resort

Many timeshare resorts offer “deed-back” or “surrender” programs for owners that no longer want their timeshares. Even resorts that don’t have such a program may take a timeshare back, especially if the owners are elderly or experiencing verifiable financial hardship.

Don’t expect this to be easy. The resort representative will try to talk you out of your decision and may even try to sell you an “upgrade.” You will need to be very firm and very clear on what you want.

5. Sell or Rent Your Timeshare

Most timeshares have little or no resale value. If you wonder why, just look at the second-hand timeshare market. It’s saturated with people trying to give their timeshares away just to escape the fees. Why would buyers pay for something they can get for free?

It still may be possible to sell a timeshare if you have a highly desirable property. It may also be possible to rent your timeshare weeks out to defray or cover the costs until you can find a more permanent solution.

Beware of companies that promise to sell or rent your timeshare for an attractive sum but want a large listing fee upfront. This is a common scam. Most will make little or no effort to find a buyer or renter, but they will keep charging fees. Watch out for promises that sound too good to be true!

You can list your timeshare for sale or rent for a very minimal cost using reputable sites like Timeshare Users Group or Redweek. Don’t let your expectations get too high, but you may be able to make a deal.

You should also be aware that many timeshare contracts allow the resort to come after you if you sell or give your timeshare to someone who subsequently fails to pay.

6. Stop Paying

This sounds appealing, but it can cause multiple problems. There are still some circumstances in which it might be the best option.

If you stop paying your maintenance fees and timeshare loan, penalties will be imposed. The late payments will be reported to the credit bureaus, and your credit will be affected. You can expect vigorous collection efforts at this stage. You will get calls, emails, and letters. You will not be able to use the timeshare unit.

If you still don’t pay, the resort will foreclose and take the property back. That may sound like exactly what you want, but you can expect your credit score to take a ferocious beating.

The timeshare resort could even file a lawsuit to compel you to live up to the contract. If you lose, your wages could be garnished. Your contract may specify that legal action be taken in the state where the resort is located. That would mean costly travel, and states with large timeshare industries often have laws that favor resorts. 

This option is most attractive if you’re older and don’t expect to be applying for loans again. You may not care about your credit score, and resorts are aware of the PR mess that suing old people can create.

7. File for Bankruptcy

Filing for bankruptcy may be overkill simply as a way to escape from a timeshare. If your timeshare payments are just part of a larger debt problem, it might be worth considering, especially if you are behind in your timeshare payments.

Bankruptcy is complicated and expensive, and it will remain on your credit report for up to 10 years. On the positive side, it can completely eliminate unsecured debts in as little as six months, and as soon as you file, all collection efforts must stop.

You can surrender a timeshare in either a Chapter 7 or Chapter 13 bankruptcy. Some ownership or membership fees may not be discharged.

8. Get a Lawyer and Fight Back

Timeshare contracts are incredibly one-sided… so why do people sign them? The answer is that many people buy timeshares at very aggressive, manipulative sales presentations. Those presentations are a timeshare resort’s best sales tool, but they are also a legal vulnerability.

Timeshare presentations typically rely on a bombardment of verbal promises. After the client gives in, contracts are produced, seemingly as a formality. Buyers are often pressured to sign contracts without reading them or getting legal advice.

This is an effective way to coax buyers into signing one-sided and abusive contracts, but it also calls the validity of the contract into question. In most states, a contract can be invalidated for fraudulent inducement: the use of inaccurate or deceptive information to persuade you to sign a contract.

If you bought your timeshare at a sales presentation and any of these things happened, you may have grounds to challenge your contract.

• The cost of the timeshare, including fees and interest costs, was misrepresented.
• The accessibility of the reservation process and the ease of making reservations were misrepresented.
• The company claimed inaccurately that it would help you sell or rent your timeshare.
• The sales staff misrepresented the annual fees, claimed that they could be eliminated or offset, or failed to inform you that they could increase.
• The salespeople described a timeshare as “an investment” or made inaccurate claims about its resale value.
• The duration of the timeshare presentation was misrepresented. For example, if a “90-minute presentation” becomes an 8-hour marathon.
• You were told that the deal you were being offered was good only for that day.
• The resort or its staff lied about or misrepresented any other critical information.

Almost every timeshare sales presentation violates one or more of these conditions. Timeshare resorts rely on fraudulent inducement because nobody that was fully aware of the contents of their contracts would ever sign them.

Timeshare resorts may tell you that their contracts are ironclad and there is no way to give up your timeshare. This is not true. An experienced lawyer can effectively challenge these contracts, and many resorts will take the unit back rather than face expensive litigation.

If you take this route, look for an attorney with experience in timeshare litigation. Expect to answer questions before the lawyer agrees to take your case. Reputable lawyers won’t take your case if they don’t think it’s winnable. Beware of anyone who promises results before they know the details of your case!

Lawyers aren’t cheap, and it may cost from $3000 to $15,000 to get out of a timeshare contract, depending on your contract and the specifics of your case. You’ll have to decide whether it’s worth it.

9. Use a Timeshare Exit Company

If you take this route, be careful. The timeshare exit world is filled with disreputable players. Many timeshare owners are desperately looking for a way out, and scammers are ready to use that desperation to prey on them.

Watch out for these danger signs:

• A company that promises to sell or rent your timeshare at a dream price but demands a large upfront fee to list it.
• A company that promises to sell or transfer your timeshare to a dummy LLC or donate it to a charity. These maneuvers generally won’t work, and the fees will be high.
• A company that promises to challenge your contract successfully before they even know the details of your case.
• Any company that charges large upfront fees or bases your fees on the value of your timeshare.

There are still reputable timeshare exit companies. You’ll have to do careful research and seek out companies that have strong customer reviews and impeccable reputations.

A reputable timeshare exit company will use the same methods that a lawyer would use to challenge your contract. Like a reputable lawyer, they will ask you detailed questions and accept your case only if they think it is winnable. If they are eager to take your case or accept it without question, that’s a bad sign.

You will have to assess the cost of using a timeshare exit company and decide whether it’s a better idea than hiring an attorney to represent you directly.

Timeshare exit companies typically charge between $3000 and $5000, but the cost can go much higher if your case is complex or if they think they can get more. Some companies charge more for more costly timeshares, even if they don’t require more effort.

One of the reputable timeshare exit companies, Resolution Timeshare Cancellation, charges a flat $2900 for a paid-off property and $4,400 for a mortgaged property. Like most credible companies, they will only accept cases they believe are winnable.

The Bottom Line

Getting into a timeshare contract is easy. Getting out is not. The timeshare industry’s business model is built on maneuvering customers into deals they don’t fully understand and forcing them to stay in those deals.

Getting out is not easy, but it is possible. Use the steps outlined here and be persistent. Don’t expect the resort to cave in easily because they won’t. Stick to your guns, stay focused on your goal, and watch out for scams!

The post How to Get Out of a Timeshare Legally in 2024 appeared first on FinMasters.

As with so many financial questions, the answer is “It depends.” Choosing the best option for you can make a real difference, so it’s worth looking closely at the choice.

Let’s start by reviewing our two contenders.

Personal Loans

The personal loan is the Swiss Army Knife in the borrower’s tool kit. It’s not tied to any particular expense and can generally be used for almost any legal purpose. These are some common uses for personal loans.

• Debt consolidation
• Home or car repairs
• Paying tax debts
• Moving
• Weddings, vacations, and other major expenses

A personal loan is a straightforward transaction. Many online lenders and physical banks offer these loans. You can usually prequalify with a soft credit check that will not affect your credit.

The lender will check your credit and verify your income and debt-to-income ratio before making you an offer.

Your interest rate will depend on your creditworthiness.

As of May 2023, the average personal loan interest rate is 10.97%. Borrowers with weak credit may pay up to 30% or even higher, while borrowers with excellent credit may get rates as low as 6%.

Personal loans usually have terms of three to five years. A shorter loan term means higher monthly payments but less interest expense.

401(k) Loans

A 401(k) is an employer-sponsored tax-advantaged retirement account. These accounts are typically placed in diversified investment portfolios and held until retirement. The rules governing 401(k) plans are set by the IRS.

The IRS allows you to borrow up to $50,000 or 50% of your vested balance (whichever is less) from your 401(k) plan. If your vested balance is $40,000, you could borrow up to $20,000. If your vested balance is over $100,000, your loan is still capped at $50,000.

“Vested” refers to funds that you own. Your contributions are vested from the start. Employer contributions may only be vested after you’ve been with the employer for a fixed amount of time.

Loans are not considered distributions and are not subject to taxes and early distribution penalties. If you fail to pay the loan back, it will be considered a distribution and will be subject to taxes and penalties. Most 401(k) loans must be paid within five years.

Not all 401(k) plans allow loans. You will have to confirm availability with your plan manager or your employer’s HR department. Payments on the loan will be deducted from your paycheck.

When you take out a 401(k) loan, you are borrowing from yourself. There is no credit check or minimum credit score. Approval is usually quick. You will pay interest, but the rate is typically low, and you will pay the interest into your retirement account.

401(k) Loan vs. Personal Loan: Which Is Better?

Both of these loan types have advantages and disadvantages. Your choice will depend on your specific situation and needs.

Take these steps to determine which loan is best for you.

1. Know What You Need

Before you set out to borrow, you need to be clear on the purpose of the loan, what you want to accomplish, and how much you will need to achieve that goal.

401(k) Loan vs. Personal Loan: Which is Best for You?

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You may also have specific requirements. For example, if you plan to use a loan to consolidate credit card debt, you will need a loan at an interest rate significantly lower than the rates on your existing debts to make it worthwhile.

It’s important to know what you need and how badly you need it. There are times when it makes good sense to borrow, but if you plan to use a loan to fund a vacation or wedding, we’d suggest thinking twice. You’ll be paying that loan long after the experience is over.

2. Check Your Eligibility

Almost anyone is eligible for a personal loan, though you’ll need decent credit to get the best interest rates. Eligibility for a 401(k) loan is something you’ll have to establish. Ask these questions.

1. Do you have a 401(k)? You won’t be able to get a 401(k) loan if you don’t have a 401(k). IRA loans are not permitted.
2. Does your 401(k) plan offer loans? Ask your employer or plan administrator.
3. Do you have enough in your 401(k)? Loans are limited to 50% of your vested balance or $50,000, whichever is smaller.

If you answered “yes” to all three questions, you’re eligible for a 401(k) loan. You’ll still have to decide whether a 401(k) loan is a better choice than a personal loan.

Consider these factors.

3. Check Your Credit

Your credit score has an immediate impact on your choice between a personal loan and a 401(k) loan.

If you have very good or excellent credit, you will be offered low interest rates on personal loans. You’ll also have many options for loan providers, which means you can choose the loan that best suits you. In this case, a personal loan is probably a better choice than a 401(k) loan.

If your credit is in bad shape, a personal loan will carry a very high interest rate, and you’ll have a limited selection of lenders. If you really need a loan, a 401(k) loan will probably be a cheaper option if you are sure that you can pay the loan back.

Remember that your credit score is designed to rate your ability to pay. If your credit score is very low, there’s a good chance that you will not be able to pay another loan.

4. Consider Your Job Stability

If you take out a 401(k) loan and leave your job before it’s paid back, you will have to pay the loan in full before the tax filing deadline for the year in which you lose your job.

If you can’t, the amount you borrowed will be considered an early distribution. It will be taxed as income, and you may face a 10% penalty.

This can be a considerable burden, especially if the loan is large. If you are not sure whether you’ll remain with your current employer, a personal loan could be a better choice.

5. Consider a Hardship Distribution

The IRS allows withdrawals from a 401(k) without penalty if you are facing “an immediate and heavy need.” The withdrawal is limited to the amount required to meet the need.

The following situations are considered “immediate and heavy needs.”

• Medical expenses.
• Costs related to the purchase of a primary residence (but not mortgage payments)
• Tuition or other postsecondary education costs for you, your spouse, your children, or other dependents.
• Payments are needed to prevent eviction or foreclosure on a primary residence.
• Funeral expenses for the employee, spouse, dependents, or beneficiaries.
• Some repair costs for a primary residence.

 Other expenses may be eligible. Your employer will be responsible for determining whether the need meets the standard.

Hardship distributions are taxed unless you have a Roth 401(k). There will be no penalty assessment.

If you qualify for a hardship distribution, you may not need to take a loan at all. The rules on hardship distributions are detailed (it’s the IRS), so you should read them carefully and discuss your eligibility with your employer.

6. Consider The State of Investment Markets

The biggest cost of a 401(k) loan is the investment gains you forego by not having that money in your 401(k) plan. If markets are flat or falling, you won’t be foregoing gains, and you may even be avoiding losses.

On the other hand, you want to avoid using a 401(k) loan during a bull market when asset values are rising because the foregone gains are greater.

Nobody knows for sure where markets will go in the future, but it’s worth considering their current state before pulling money from your 401(k).

7. Assess Your Financial Situation Realistically

Many people are looking to borrow money because their financial position is bad. If you’re desperate and your credit is shot, a 401(k) loan might seem like your only option.

If you’re in deep debt trouble, borrowing your way out of it is rarely a viable auction. You also have to consider one of the key attributes of 401(k) savings: they are protected in any bankruptcy proceeding.

If you feel like a loan from your 401(k) might be the only way to prevent bankruptcy, you might be better off leaving that money protected.

Filing for bankruptcy isn’t the end of the world. You can wipe out your unsecured debts, and you can start over with your retirement savings intact.

Making Your Choice

If you’ve considered all of the points above, you should be in a good position to choose the loan that best suits your needs and situation. If you’re still not sure, it’s a good idea to consult a professional financial advisor for an impartial opinion.

A 401(k) loan can look like a quick, easy, low-cost way to solve a financial problem. They still involve tapping your retirement savings, and you always want to think closely before doing that!

Both of these loans can be useful, and there are times when each is the best choice. Your job is to select the one that’s right for you at any given time. Understanding and considering the pros and cons of each is the best place to start!

The post 401(k) Loan vs. Personal Loan: Which Is Best for You? appeared first on FinMasters.

Debt settlement is heavily promoted – often by people who are in the debt settlement business – but if you qualify for Chapter 7 bankruptcy, it is almost always the better option if you truly have no way to pay your debts.

Let’s examine these two options, their pros and cons, and the reasons for that conclusion.

Debt Settlement vs. Bankruptcy: What’s the Difference?

Both debt settlement and bankruptcy can reduce the amount you owe. That places them among the top options for people who owe more than they can possibly pay.

Debt settlement and bankruptcy accomplish that goal in very different ways. Before we start looking at the advantages and disadvantages, let’s look at how the two methods work.

Both bankruptcy and debt settlement address unsecured debts, like credit card debt, medical debt, personal loans and payday loans. Secured debts, like mortgages and car loans, will not be included, but resolving your unsecured debts can make it easier to pay your secured debts.

How Debt Settlement Works

Debt Settlement involves negotiating with creditors to accept less than what you owe as full payment of a debt. You will typically offer a single lump-sum payment to resolve the debt.

Of course, they won’t just roll over and accept any settlement you offer. They want to get paid in full. You will have to negotiate effectively. There is no guarantee that a creditor will be willing to negotiate.

The Obstacle

Debt settlement typically requires a lump sum payment. Creditors may accept much less than what you owe, but it can still be a substantial amount of money, especially if you have multiple creditors. Most people with serious debt problems don’t have that kind of cash available.

Debt settlement companies will typically ask you to stop making debt payments and pay into a  debt settlement account instead. When you have accumulated enough money, they will commence negotiations.

Many debt settlement companies are sketchy, and some operate illegally (by charging upfront fees, for example). If you decide on debt settlement, choose a reputable debt settlement company.

Debt Settlement by the Numbers

The American Fair Credit Council, the trade association for debt settlement companies, offers these facts and figures to help us understand the industry better.

• Debt settlement companies cannot charge up-front fees. They charge a percentage of the amount of your debt that is forgiven.
• The typical client owes over $25,000 in unsecured debt.
• Debt settlement saves an average of $2.64 for every dollar paid in fees.
• The average consumer who completes a debt settlement program reduces their original debt loan by 30% after fees.
• Fees typically range from 15% to 25% of the amount forgiven.
• Customers typically see initial settlements within four to six months.

The National Foundation for Credit Counseling (NFCC) states that it typically takes two to four years to complete a debt settlement program, largely because of the time it takes to save enough money to offer credible settlements^[1].

The Federal Trade Commission (FTC) states that the average completion rate for debt settlement programs is 45% to 50%^[2].

How Bankruptcy Works

Bankruptcy is very different. It is a legal procedure carried out by federal bankruptcy courts. Courts follow the same rules nationwide, and their decisions are legally enforceable.

Bankruptcy is designed to give people who can’t pay their debts a fresh start, which can include the complete discharge, or elimination, of unsecured debts. 

There are many types of bankruptcy, but almost all individual bankruptcies fall into these two:

• Chapter 7 bankruptcy is designed for lower-income people who have no way to pay debts. The court can seize personal assets and use the proceeds to pay creditors, but in practice, this is rare. 
• Chapter 13 bankruptcy is for people who have enough income to pay some or all of their debts. Your assets will not be seized, but the court will order a payment plan which may take several years to complete. At the end of the plan, the remaining debts may be discharged.

If your income is below the median income for your state, you qualify for Chapter 7 bankruptcy. Above the median, you can qualify by passing a means test. If the means test determines that you have the capacity to pay some debt, you will have to use Chapter 13.

Learn more: Chapter 7 vs. Chapter 13 Bankruptcy: 12 Differences You Need to Know.

The Obstacle

Bankruptcy is a complex process that involves significant effort and costs. The required forms are complex. The filing fees are significant, and the prospect of going to court can be intimidating.

Most people who file for bankruptcy will hire an attorney. A lawyer will greatly increase your chances of a successful filing but will also add substantial costs.

If you’re filing a simple Chapter 7 bankruptcy, you have a cheaper option. Upsolve, an app billed as “TurboTax for bankruptcy”, will generate all of your bankruptcy forms and walk you through the process for free.

Bankruptcy by the Numbers

• Around 60% of personal bankruptcy filings are under Chapter 7, with around 40% under Chapter 13.
• 96% of Chapter 7 bankruptcies close with no assets being liquidated^[3].
• Only around 1% of Chapter 7 bankruptcy petitions are dismissed. 99% of Chapter 7 filings get a discharge of all or some unsecured debt.
• A Chapter 7 bankruptcy typically takes four to six months to complete.
• The court filing fee for a Chapter 7 bankruptcy is $338. Credit counseling courses, printing, and other costs will add to that.
• Attorney’s fees for a typical Chapter 7 bankruptcy average around $1500. This may vary with your location, the complexity of your case, and other factors.

Most individual bankruptcies are Chapter 7 since most people with serious debt problems have incomes below their state’s median.

Debt Settlement vs. Chapter 7 Bankruptcy

If you have debts that you can’t possibly pay, which of these methods is best for you? Let’s do a head-to-head comparison and find out. We’ll stick to comparing debt settlement using a debt settlement company to Chapter 7 bankruptcy.

What Type of Process is Used?

Debt settlement involves a purely voluntary arrangement between a debtor and a creditor. The creditor has no obligation to negotiate or to agree to a settlement.

Bankruptcy is a legal process. A creditor can challenge a discharge in court (this rarely happens), but the judge’s decision is final. If a bankruptcy court discharges a debt, it’s gone. You have no further obligation to pay it.

How Long Does It Take?

Debt settlement requires cash settlements. If you have the cash, you can offer these immediately, but if you have the cash, you won’t need to settle. Most debt settlement company customers take two to four years to complete the program.

Chapter 7 bankruptcy typically takes four to six months to complete, from filing to discharge. 

What is the Minimum Amount of Debt?

Debt settlement companies have a minimum amount of unsecured debt that they require. This is often $10,000, but some companies have a $7500 minimum. 

Chapter 7 bankruptcy has no minimum debt requirement for filing.

How Much Debt Will Be Eliminated?

Debt settlement companies report that customers typically reduce their debt load by 30% once company fees are factored in. If you enter the program with $10,000 in unsecured debt, you will still pay $7000.

Chapter 7 bankruptcy typically discharges 100% of the outstanding unsecured debts.

Can Your Creditors Still Pursue You?

Debt settlement companies typically ask you to stop paying creditors and pay into a debt settlement account instead. When you stop making payments, your creditors will come after you. Accounts may be charged off and sent to collectors, who will contact you.

The Federal Trade Commission (FTC) reports that an average of 7% of debt settlement customers are sued by a creditor during the process^[3].

Bankruptcy courts issue a stay on collection efforts as soon as a filing is made. Creditors are not allowed to contact you, and all foreclosure or repossession proceedings stop.

How Much Does it Cost?

Debt settlement companies typically charge 15% to 25% of the debt forgiveness they negotiate. So if you have $10,000 in unsecured debts and the company negotiates them down to $5000, your fee will be between $750 and $1250, and you will still have $5000 to pay.

Chapter 7 bankruptcy fees for filing, debtor education classes, copying and other costs will usually be under $500. Fees may be waived if you are under high financial stress. The average attorney fee is around $1500. 

Your cost will be around $2000 if you use an attorney, regardless of the amount of debt involved. If you have a simple case and you choose to use Upsolve instead of hiring a lawyer, your costs could be under $500 or lower if you can get a fee waiver.

How Much of That Cost Is Upfront?

Debt settlement companies are not allowed to charge upfront fees. They can only charge when settlements are successfully negotiated.

Bankruptcy fees and legal costs are typically paid upfront, though you may be able to negotiate an installment plan.

What is the Success Rate?

Debt settlement companies report completion rates of 35% to 60%, according to the FTC, with the average around 45% to 50%. Failures are usually because the debtor is unable to save enough to offer settlements.

Chapter 7 bankruptcy sees around 1% of filings dismissed. 99% of filings result in the discharge of some or all unsecured debts.

What Will Happen to My Credit?

Debt settlement will damage your credit. When you stop making payments to save for a settlement, late payments will be recorded. Accounts may be charged off and sent to collections. All of these will become derogatory records on your credit report.

If your creditors accept settlements, the debts will be marked as settled for less than the amount owed, which will also damage your credit. All of these records will remain on your credit report for seven years from the date of the original delinquency.

Bankruptcy will do severe damage to your credit score. A Chapter 7 bankruptcy can remain on your credit score for ten years.

What Are the Risks?

Debt settlement has several risks to consider. Some creditors may not be willing to accept a settlement, leaving you with damaged credit and no debt reduction. You may not be able to save enough to offer settlements.

It’s important to be very careful when selecting a debt settlement company. Not all players in the industry are reputable.

Bankruptcy also has risks. A bankruptcy court can seize your assets and sell them to pay creditors. This is rare in practice – only 4% of Chapter 7 bankruptcies involve asset seizures – but it happens.

If your paperwork is flawed, your case may be dismissed, and you’ll forfeit your deposit. You must be absolutely accurate when reporting your income and assets. Some creditors could challenge the discharge of their debts.

So What’s Better?

Here’s an opinion: for most people who qualify for a simple Chapter 7 bankruptcy with no assets at risk, bankruptcy is a better choice than debt settlement. That may be a controversial opinion – bankruptcy is usually considered a last resort – but there are reasons.

You’ll Lose More Debt

Debt settlement will typically reduce your debt load by 30%, including debt settlement company fees. That leaves you with 70% to pay. Bankruptcy can and often does discharge 100% of your unsecured debts.

No More Harassment

When you file for bankruptcy, a stay is issued on all collection efforts. This is not optional: collectors must stop contacting you, and foreclosure or repossession efforts must stop.

Debt settlement usually involves stopping all payments while you save enough to offer lump-sum settlements. You can expect to face accelerated collection efforts when you stop payments. Accounts may go to collection agencies, and you could even be sued.

It’s Over Faster

A bankruptcy court isn’t fun, but neither is dodging creditors while you try to funnel money into a debt settlement account. Completing a debt settlement program takes two to four years. A Chapter 7 bankruptcy takes four to six months.

You’re More Likely to Succeed

45% to 50% of the people who start debt settlement programs fail to complete them. 99% of Chapter 7 bankruptcies end with the discharge of debts.

It’s Cheaper

When you combine the company fees with the remaining debt you’ll need to pay, debt settlement will almost always leave you putting out more money than a Chapter 7 bankruptcy, especially if you use Upsolve to generate your bankruptcy forms.

One plus point for debt settlement is that the cost is typically spread out over more time.

It’s Legal

Debt is a legal contract. When you stop making payments to put money into a settlement fund, you are violating that contract, which can have legal consequences. Bankruptcy is a legal process from the start.

When you deal with a debt settlement company, you are dealing with a for-profit company that has a vested interest in selling its services. A bankruptcy court may be complex and bureaucratic, but they won’t try to sell you on bankruptcy.

But What About My Credit?

A Chapter 7 bankruptcy will remain on your credit report for ten years. This is often seen as a downside of bankruptcy, and it is something to consider. It is also often overrated as a factor. Here are some points to consider.

• Your starting point. Most people who are choosing between debt settlement and bankruptcy have badly damaged credit already. If your credit score is already shot, there’s less damage that either can do.
• Both options will hurt. Both bankruptcy and debt settlement will hammer your credit.
• Recovery matters. What you do after your recovery from a debt crisis has more impact on your creditworthiness than what you do during it. Discharging all of your unsecured debt will allow you to recover faster than settling 30% of it.

Remember that the impact of a negative record on your credit report – no matter what that record is – declines with time. Creditors and scoring models want to know how you’re handling money now, not how you handled it five years ago.

If you pay all your bills on time, keep your credit utilization down, and generally handle your money well, your credit will recover long before the negative records from either bankruptcy or debt settlement drop off your record.

It’s Up To You

Debt settlement and bankruptcy are both valid methods of resolving debts. Both have been used by millions of people with severe debt problems.

As with any financial decision, the best choice for you is the one that best suits your unique needs and situation. To decide what that is, you’ll need to block out promotional efforts from people who are trying to sell you their services and focus on the pros and cons of the options in front of you.

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