Matters of Age

November 18, 2019

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Luis Puente

Luis Puente

Financial Education

2711 LBJ Freeway Suite 300

Farmers Branch, TX 75234

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October 30, 2019

Handling Debt Efficiently – Until It’s Gone

Handling Debt Efficiently – Until It’s Gone

It’s no secret that making purchases on credit cards will result in paying more for those items over time if you’re paying interest charges from month-to-month.

Despite this well-known fact, credit card debt is at an all-time high, rising another 3% per household. Add in an average mortgage of over $200,000, plus nearly $25,000 of non-mortgage debt (car loans, college loans, or other loans) and the molehill really is starting to look like a mountain.

The good news? You have the potential to handle your debt efficiently and deal with a molehill-sized molehill instead of a mountain-sized one.

Focus on the easiest target first.
Some types of debt don’t have an easy solution. While it’s possible to sell your home and find more affordable housing, actually following through with this might not be a great option. Selling your home is a huge decision and one that comes with expenses associated with the sale – it’s possible to lose money. Unless you find yourself with a job loss or similar long-term setback, often the best solution to paying down debt is to go after higher interest debt first. Then examine ways to cut your housing costs last.

Freeze your spending (literally, if it helps).
Due to its higher interest rate, credit card debt is usually the first thing to tackle when you decide to start eliminating debt. Let’s be honest, most of us might not even know where that money goes, but our credit card statement is a monthly reminder that it went somewhere. If credit card balances are a problem in your household, the first step is to cut back on your purchases made with credit, or stop paying with credit altogether. Some people cut up their cards to enforce discipline. Ever heard the recommendation to freeze your cards in a block of ice as a visual reminder of your commitment to quit credit? Another thing to do is to remove your card information from online shopping sites to help ensure you don’t make mindless purchases.

Set payment goals.
Paying the minimum amount on your credit card keeps the credit card company happy for 2 reasons. First, they’re happy that you made a payment on time. Second, they’re happy if you’re only paying the minimum because you might never pay off the balance, so they can keep collecting interest indefinitely. Reducing or stopping your spending with credit was the first step. The second step is to pay more than the minimum so that those balances start going down. Examine your budget to see where there’s room to reduce spending further, which will allow you to make higher payments on your credit cards and other types of debt. In most households, an honest look at the bank statement will reveal at least a few ways you might free up some money each month.

Have a sale. To get a jump-start if money is still tight, you might want to turn some unused household items into cash. Having a community yard sale or selling your items online through eBay or Offerup can turn your dust collectors into cash that you can then use toward reducing your balances.

Transfer balances prudently.
Consider balance transfers for small balances with high interest rates that you think you’ll be able to pay off quickly. Transferring that balance to a lower interest or no interest card can save on interest costs, freeing up more money to pay down the balances. The interest rates on balance transfers don’t stay low forever, however – typically for a year or less – so it’s important to make sure you can pay transferred balances off quickly. Also, check if there’s a balance transfer fee. Depending on the fee, moving those funds might not make sense.

Don’t punish yourself.
Getting serious about paying down debt may seem to require draconian measures. But there likely isn’t a need to just stay home eating tuna fish sandwiches with all the lights turned off. Often, all that’s required is an adjustment of old spending habits. If your drive home takes you past a mall where it would be too tempting to “just pick a little something up”, take a different route home. But it’s important to have a small treat occasionally as well. If you’re making progress on your debt, you deserve to reward yourself sometimes. All within your budget, of course!

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October 2, 2019

3 Easy Ways To Save For Retirement (Without Investing)

3 Easy Ways To Save For Retirement (Without Investing)

Our retirement years will be here sooner than we think.

Ideally, you’ve been putting away money in your IRA, 401k, or other savings accounts. But are you overlooking ways to save money now so you can free up more for your financial strategy or help build your cash stash for a rainy day?

1. Pay Yourself First.
If you’re making contributions to your 401k plan at work, you’re already paying yourself first. But you can also apply the same principle to saving. (If you open a separate account just for this, it’s easier to do.) If you prefer, you can accomplish the same thing on paper by keeping a ledger. Just be aware that paper makes it easier to cheat (yourself). With a separate account, you can schedule an automatic transfer to make the process painless and fuhgettaboutit.

Here’s how it works. Whenever you get paid, transfer a fixed dollar amount into your special account – before you do anything else. If you don’t pay yourself first, you might guess what will happen. (Be honest.) If you’re like most people, you’ll probably spend it, and if you’re like most people, you might not really know where it went. It’s just gone, like magic.

Paying yourself first helps to avoid the “disappearing money” trick. Hang in there! After a while, as the money starts adding up, you’ll impress yourself with your savings prowess.

2. Got A Bonus From Work? Great! Keep it.
What do you think most people are tempted to do if they get a bonus or a raise? What are YOU most tempted to do if you get a bonus or a raise? Probably spend it. Why? It’s easy to think of 100 things you could use that extra cash for right now. Home repairs or upgrades, a night out on the town, that new handbag you’ve been coveting for months… Maybe your bonus is enough for you to consider trading in your car for a nicer one, or getting that new addition to your house.

Receiving an unexpected windfall is fun. It’s exciting! But here is where some caution is wise. Pause for a moment. If you had everything you needed on Friday and then get a raise on Monday, you’ll still have everything you need, right? Nothing has changed but the calendar. If you hadn’t gotten that bonus, would your life and your current financial strategy still be the same as it was last week? Consider putting (most of) that extra money away for later, and using some of it for fun!

3. Pay Down That Debt.
By now you’ve probably heard a financial guru or two talking about “good” debt and “bad” debt. Debt IS debt, but some types of debt really are worse than others.

Credit cards and any high-interest loans are the first priority when retiring debt – so that you can retire too, someday. Do you really know how much you’re paying in interest each month? Go ahead and look. I’ll wait… Once you know this number, you can’t “unknow” it. But take heart! Use this as a powerful incentive to pay those balances off as fast as you can.

The cost of credit isn’t just the interest. That part is spelled out in black and white on your credit card statement (which you just looked at, right)? The other costs of credit are less obvious. Did you know your credit score affects your insurance rates? Keeping those cards maxed out can cost more than just the interest charges.

Every month you chip away at the balances, you’ll owe less and pay less in interest. (You’ll feel better, too.) And you know what to do with the leftover money since you knocked out that debt. Hint: Save it.

But keep this in mind – life is about balance. It’s okay to treat yourself once in awhile. Just make sure to pay yourself first now, so you can treat yourself later in retirement.

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September 30, 2019

So You Want to Buy Life Insurance for Your Parents...

So You Want to Buy Life Insurance for Your Parents...

Playing Monopoly as a young kid might have given you some strange ideas about money.

Take the life insurance card in the Community Chest for instance. That might give the impression that life insurance is free money to burn on whatever the next roll of the dice calls for.

In grown-up reality, life insurance proceeds are often committed long before a policy holder or beneficiary receives the check they’re waiting for. Final expenses, estate taxes, loan balances, and medical bills all compete for whatever money is paid out on the policy.

If your parents don’t have a policy or if you think their coverage won’t be enough, you can plan ahead and buy a life insurance policy for them. Your parents would be the insured, but you would be the policy owner and beneficiary.

A few extra considerations when buying a life insurance policy for your parents:

  • Insurable interest still applies. If your parents already have a significant amount of life insurance coverage, you may find that some insurers are reluctant to issue more coverage. Insurable interest requires that the amount of coverage doesn’t exceed the potential financial loss. (In other words, if your parents already have enough coverage, a company may not want to insure them for more.)
  • Age can limit coverage amounts. Assuming that your parents are older and no longer generating income, coverage amounts will be limited. If your parents are younger and still have 20 or more years ahead of them before they retire, they can qualify for a higher amount of coverage.
  • Age can limit policy types. Certain types of life insurance aren’t available when we get older, or will be limited in regard to length of coverage. Term life insurance is a good example. Your options for term life insurance will be fewer once your parents are into their sixties. The available term lengths will also be shorter. Policies with a 30-year term aren’t commonly available over the age of 50.

How Can I Use The Life Insurance For My Parents?
Depending on the amount of coverage you buy – or can buy (remember, it may be limited), you could use the policy to plan for any of the following:

  • Final expenses: You can expect funeral costs to run from $10,000 to $15,000, maybe more.
  • Estate taxes: Estate taxes and so-called death taxes can be an unpleasant surprise in many states. A life insurance policy can help you plan for this expense which could come at a time when you’re not flush with cash.

Can Life Insurance Pay The Mortgage Or Car Loans?
It isn’t uncommon for parents to pass away with some remaining debt. This might be in the form of a mortgage, car loans, or even credit card debt. These loan balances can be covered in whole or in part with a life insurance policy.

In fact, outstanding loan balances are a very big consideration. Often, people who inherit a house or a car may also inherit an additional mortgage payment or car payment. It might be wonderful to receive such a generous and sentimental gift, but if you’re like many families, you might not have the extra money for the payments in your budget.

Even if the policy doesn’t provide sufficient coverage to retire the debt completely, a life insurance policy can give you some breathing room until you can make other arrangements – like selling your parents’ house, for example.

You Control The Premium Payments.
If you buy a life insurance policy for your parents, you’ll know if the premiums are being paid because you’re the one paying them. You probably wouldn’t want your parents to be burdened with a life insurance premium obligation if they’re living on a fixed income.

Buying insurance for your parents is a great idea, but many people don’t consider it until it’s too late. That’s when you might wish you’d had the idea years ago. It’s one of the wisest things you can do, particularly if your parents are underinsured or have no life insurance at all.

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August 28, 2019

Why You Should Care About Insurable Interest

Why You Should Care About Insurable Interest

First of all, what is insurable interest?

It’s simply the stake you have in something that is being insured – and that the amount of insurance coverage for whatever is being insured is not more than your potential loss.

To say things could become a bit awkward might be an understatement if your insurable interest isn’t considered before you’re deep into the planning phase of a project or before you’ve signed some papers, like a title or a loan.

It’s better for your sanity to understand insurable interest beforehand. Where the issue of insurable interest often arises is in auto insurance. Let’s look at an example.

Let’s say you have a car that’s worth $5,000. $5,000 is the maximum amount of money you would lose if the car is stolen or damaged – and $5,000 would be the most you could insure the car for. $5,000 is your insurable interest.

In the above example, you own the car, so you have an insurable interest in it. By the same token, you can’t insure your neighbor’s car. If your neighbor’s car was stolen or damaged, you wouldn’t suffer any financial loss because it wasn’t your car.

Here’s where it might get a little tricky and why it’s important to understand insurable interest. Let’s say you have a young driver in the house, a teenager, and it’s time for him to get mobile. He’s been saving up his lawn-mowing money for two years and finally bought the (used) car of his dreams.

You might have considered adding your son’s car to your auto policy to save money – you’ve heard how much it can cost for a teen driver to buy their own policy. Sounds like a good plan, right? However, the problem with this strategy is that you don’t have an insurable interest in your son’s car. He bought it, and it’s registered to him.

You might find an insurance sales rep who will write the policy. But there’s a risk the policy won’t make it through underwriting and – more importantly – if there’s a claim with that car, the claim might not be covered because you didn’t have an insurable interest in it. If you want to put that car on your auto insurance policy, the car needs to be registered to the named insured on the policy – you.

Insurable Interest And Lenders
If you have a mortgage or an auto loan, your lender is probably listed on your policy. Both you and the lender have an insurable interest in the house or the car. Over time, as the loan is paid down, you’ll have a greater insurable interest and the lender’s insurable interest will become smaller. (Hint: When your loan is paid off, ask your agent to remove the lender from the policy to avoid any confusion or delays if you have a claim someday.)

Does Ownership Create Insurable Interest?
Good question. It might seem like ownership and insurable interest are equivalent – they often occur simultaneously. But there are times when you can have an insurable interest in something without being an owner.

Life insurance is a great example of having an insurable interest without ownership. You can’t own a person – but if a person dies, you may experience a financial loss. However, just as you can’t insure your neighbor’s car, you can’t purchase a life insurance policy on your neighbor, either. You’d have to be able to demonstrate your potential loss if your neighbor passed away. And no it doesn’t count if they never returned those hedge clippers they borrowed from you last spring.

So now you know all about insurable interest. While insurable interest requirements may seem inconvenient at times, the rules are there to protect you and to help keep rates lower for everyone. Without insurable interest requirements, the door is open to fraud, speculation, or even malicious behavior. A little inconvenience seems like a much better option.

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July 10, 2019

You'll Still Need This After Retirement

You'll Still Need This After Retirement

Ask anyone who’s had a flat tire, a leaky roof, or an unexpected medical bill – having enough money tucked away in an emergency fund can prevent a lot of headaches.

It may seem obvious to create a cushion for unexpected expenses while you’re saving up for retirement, especially if you have kids that need to get to their soccer games on time, a new-to-you home that’s really a fixer-upper, or an injury that catches you off guard. But an emergency fund is still important to keep after you retire!

Does your current retirement plan include an emergency fund for unexpected expenses like car trouble, home or appliance repair, or illness? Only 41% of Americans surveyed said they could turn to their savings to cover the cost of the unexpected. That means nearly 60% of Americans may need to turn to other methods of coverage like taking loans from family or friends or accruing credit card debt.

After you retire and no longer have a steady stream of income, covering unexpected expenses in full (without interest or potentially burdening loved ones) can become more difficult. And when you’re older, it might be more challenging to deal with some of the minor problems yourself if you’re trying to save some money! You’re probably going to need to keep the phone number for a good handyman, handy.

Don’t let an unexpected expense after retirement cut into your savings. A solid financial strategy has the potential to make a huge difference for you – both now and during your retirement.

Contact me today, and together we can put together a strategy that’s tailored to you and your needs.

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June 24, 2019

The Shelf Life of Financial Records

The Shelf Life of Financial Records

When you finally make the commitment to organize that pile of financial documents, where are you supposed to start?

Maybe you’ve tried sorting your documents into this infamous trio: the Coffee Stains Assortment, the Crumpled-Up Masses, and the Definitely Missing a Page or Two Crew.

How has this system been working for you? Is that same stack of disorganized paper just getting shuffled from one corner of your desk to the top of your filing cabinet and back again? Why not give the following method a try instead? Based on the Financial Industry Regulatory Authority (FINRA)’s “Save or Shred” ideas, here’s a list of the shelf life of some key financial records to help you begin whittling that stack down to just what you need to keep. (And remember, when disposing of any financial records, shred them – don’t just toss them into the trash.)

1. Keep These Until They Die: Mortgages, Student Loans, Car Loans, Etc.
These records are the ones to hang on to until you’ve completely paid them off. However, keeping these records indefinitely (to be on the safe side) is a good idea. If any questions or disputes relating to the loan or payment of the loan come up, you’re covered. Label the records clearly, then feel free to put them at the back of your file cabinet. They can be out of sight, but make sure they’re still in your possession if that info needs to come to mind.

2. Seven Years in the Cabinet: Tax-Related Records.
These records include your tax returns and receipts/proof of anything you might claim as a deduction. You’ll need to keep your tax documents – including proof of deductions – for 7 years. Period. Why? In the US, if the IRS thinks you may have underreported your gross income by 25%, they have 6 whole years to challenge your return. Not to mention, they have 3 years to audit you if they think there might be any good faith errors on past returns. (Note: Check with your state tax office to learn how long you should keep your state tax records.) Also important to keep in mind: Some of the items included in your tax returns may also pull from other categories in this list, so be sure to examine your records carefully and hang on to anything you think you might need.

3. The Sixers: Property Records.
This one goes out to you homeowners. While you’re living in your home, keep any and all documents from the purchase of the home to remodeling or additions you make. After you sell the home, keep those documents for at least 6 more years.

4. The Annually Tossed: Brokerage Statements, Paycheck Stubs, Bank Records.
“Annually tossed” is used a bit lightly here, so please proceed with caution. What can be disposed of after an annual review are brokerage statements, paycheck stubs (if not enrolled in direct deposit), and bank records. Hoarding these types of documents may lead to a “keep it all” or “trash it all” attitude. Neither is beneficial. What should be kept is anything of long-term importance (see #2).

5. The Easy One: Rental Documents.
If you rent a property, keep all financial documents and rental agreements until you’ve moved out and gotten your security deposit back from the landlord. Use your deposit to buy a shredder and have at it – it’s easy and fun!

6. The Check-‘Em Againsts: Credit Card Receipts/Statements and Bills.
Check your credit card statement against your physical receipts and bank records from that month. Ideally, this should be done online daily, or at least weekly, to catch anything suspicious as quickly as possible. If everything checks out and there are no red flags, shred away! (Note: Planning to claim anything on your statement as a tax deduction? See #2.) As for bills, you’re in the clear to shred them as soon as your payment clears – with one caveat: Bills for any big-ticket items that you might need to make an insurance claim on later (think expensive sound system, diamond bracelet, all-leather sofa with built-in recliners) should be held on to indefinitely (or at least as long as you own the item).

So even if your kids released their inner Michelangelo on the shoebox of financial papers under your bed, some of them need to be kept – for more than just sentimental value. And it’s vital to keep the above information in mind when you’re considering what to keep and for how long.

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June 19, 2019

Making Money Goals That Get You There

Making Money Goals That Get You There

Setting financial goals is like hanging a map on your wall to inspire and motivate you to accomplish your travel bucket list.

Your map might have your future adventures outlined with tacks and twine. It may be patched with pictures snipped from travel magazines. You would know every twist and turn by heart. But to get where you want to go, you still have to make a few real-life moves toward your destination.

Here are 5 tips for making money goals that may help you get closer to your financial goals:

1. Figure out what’s motivating your financial decisions. Deciding on your “why” is a great way to start moving in the right direction. Goals like saving for an early retirement, paying off your house or car, or even taking a second honeymoon in Hawaii may leap to mind. Take some time to evaluate your priorities and how they relate to each other. This may help you focus on your financial destination.

2. Control Your Money. This doesn’t mean you need to get an MBA in finance. Controlling your money may be as simple as dividing your money into designated accounts, and organizing the documents and details related to your money. Account statements, insurance policies, tax returns, wills – important papers like these need to be as well-managed as your incoming paycheck. A large part of working towards your financial destination is knowing where to find a document when you need it.

3. Track Your Money. After your money comes in, where does it go out? Track your spending habits for a month and the answer may surprise you. There are a plethora of apps to link to your bank account to see where things are actually going. Some questions to ask yourself: Are you a stress buyer, usually good with your money until it’s the only thing within your control? Or do you spend, spend, spend as soon as your paycheck hits, then transform into the most frugal individual on the planet… until the next direct deposit? Monitor your spending for a few weeks, and you may find a pattern that will be good to keep in mind (or avoid) as you trek toward your financial destination.

4. Keep an Eye on Your Credit. Building a strong credit report may assist in reaching some of your future financial goals. You can help build your good credit rating by making loan payments on time and reducing debt. If you neglect either of those, you could be denied for mortgages or loans, endure higher interest rates, and potentially difficulty getting approved for things like cell phone contracts or rental agreements which all hold you back from your financial destination. There are multiple programs that can let you know where you stand and help to keep track of your credit score.

5. Know Your Number. This is the ultimate financial destination – the amount of money you are trying to save. Retiring at age 65 is a great goal. But without an actual number to work towards, you might hit 65 and find you need to stay in the workforce to cover bills, mortgage payments, or provide help supporting your family. Paying off your car or your student loans has to happen, but if you’d like to do it on time – or maybe even pay them off sooner – you need to know a specific amount to set aside each month. And that second honeymoon to Hawaii? Even this one needs a number attached to it!

What plans do you already have for your journey to your financial destination? Do you know how much you can set aside for retirement and still have something left over for that Hawaii trip? And do you have any ideas about how to raise that credit score? Looking at where you are and figuring out what you need to do to get where you want to go can be easier with help. Plus, what’s a road trip without a buddy? Call me anytime!

… All right, all right. You can pick the travel tunes first.

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June 12, 2019

Headed in the Right Direction: Managing Debt for Millennials

Headed in the Right Direction: Managing Debt for Millennials

Three simple words can strike fear into the heart of any millennial:

Student.

Loan.

Debt.

The anxiety is not surprising: Members of the Class of 2017 had an average of $39,400 in student loan debt.

Nearly $40 grand? For that you could travel the world. Put a down payment on a house. Buy a car. Even start a new business! But instead of having the freedom to pursue their dreams, there’s a hefty financial ball and chain around millennials’ feet.

That many young people owing that much money before they even enter the workforce? It’s unbelievable!

Now just imagine adding car payments, house payments, insurance premiums, and more on top of that student debt. No wonder millennials are feeling so terrible: studies show that graduates with debt experience feelings of shame, panic, and anxiety. Now is the time to get ahead of your debt. Not later. Not when it’s more convenient or feels less shameful. You have the potential right now to manage that debt and get out from under it.

So how do you get out from under your debt? Sometimes improving your current situation involves more than making smarter choices with the money you earn now. Getting out of that debt ditch means finding a way to make more.

There are 2 things you can monetize right now:

  • Your education
  • Your experience

Both have their own challenges. You may not have spent much time in a particular field yet, so not a lot of experience. And what if you’re working a job that has nothing to do with your major? There goes education.

Two speed bumps. One right after the other. But you can still gain momentum in the direction you want your life to go!

How? A solid financial strategy. A goal you can see. A destination for financial independence.

Debts can become overwhelming – remember that stat up there? But with a strategy in mind for the quick and consistent repaying of your loans, so much of that stress and burden could be lifted.

Contact me today. A quick phone call is all we need to help get you rolling in the direction YOU want to go.

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May 13, 2019

6 Financial Commitments EVERY Parent Should Educate Their Kids About

6 Financial Commitments EVERY Parent Should Educate Their Kids About

Your first lesson isn’t actually one of the six.

It can be found in the title of this article. The best time to start teaching your children about financial decisions is when they’re children! Adults don’t typically take advice well from other adults (especially when they’re your parents and you’re trying to prove to them how smart and independent you are).

Heed this advice: Involve your kids in your family’s financial decisions and challenge them with game-like scenarios from as early as their grade school years.

Starting your kids’ education young can help give them a respect for money, remove financial mysteries, and establish deep-rooted beliefs about saving money, being cautious regarding risk, and avoiding debt.

Here are 6 critical financially-related lessons EVERY parent should foster in the minds of their kids:

1. Co-signing a loan

The Mistake: ‘I’m in a good financial position now. I want to be helpful. They said they’ll get me off the loan in 6 months or so.’

The Realities: If the person you’re co-signing for defaults on their payments, you’re required to make their payments, which can turn a good financial situation bad, fast. Also, lenders are not incentivized to remove co-signers – they’re motivated to lower risk (hence having a co-signer in the first place). This can make it hard to get your name off a loan, regardless of promises or good intentions. Keep in mind that if a family member or friend has a rough credit history – or no credit history – that requires them to have a co-signer, what might that tell you about the wisdom of being their co-signer? And finally, a co-signing situation that goes bad may ruin your credit reputation, and more tragically, may ruin your relationship.

The Lesson: ‘Never, ever, EVER, co-sign a loan.’

2. Taking on a mortgage payment that pushes the budget

The Mistake: ‘It’s our dream house. If we really budget tight and cut back here and there, we can afford it. The bank said we’re pre-approved…We’ll be sooo happy!’

The Realities: A house is one of the biggest purchases couples will ever make. Though emotion and excitement are impossible to remove from the decision, they should not be the driving forces. Just because you can afford the mortgage at the moment, doesn’t mean you’ll be able to in 5 or 10 years. Situations can change. What would happen if either partner lost their job for any length of time? Would you have to tap into savings? Also, many buyers dramatically underestimate the ongoing expenses tied to maintenance and additional services needed when owning a home. It’s a general rule of thumb that home owners will have to spend about 1% of the total cost of the home every year in upkeep. That means a $250,000 home would require an annual maintenance investment of $2,500 in the property. Will you resent the budgetary restrictions of the monthly mortgage payments once the novelty of your new house wears off?

The Lesson: ‘Never take on a mortgage payment that’s more than 25% of your income. Some say 30%, but 25% or less may be a safer financial position.’

3. Financing for a new car loan

The Mistake: ‘Used cars are unreliable. A new car will work great for a long time. I need a car to get to work and the bank was willing to work with me to lower the payments. After test driving it, I just have to have it.’

The Realities: First of all, no one ‘has to have’ a new car they need to finance. You’ve probably heard the expression, ‘a new car starts losing its value the moment you drive it off the lot.’ Well, it’s true. According to CARFAX, a car loses 10% of its value the moment you drive away from the dealership and another 10% by the end of the first year. That’s 20% of value lost in 12 months. After 5 years, that new car will have lost 60% of its value. Poof! The value that remains constant is your monthly payment, which can feel like a ball and chain once that new car smell fades.

The Lesson: ‘Buy a used car you can easily afford and get excited about. Then one day when you have saved enough money, you might be able to buy your dream car with cash.’

4. Financial retail purchases

The Mistake: ‘Our refrigerator is old and gross – we need a new one with a touch screen – the guy at the store said it will save us hundreds every year. It’s zero down – ZERO DOWN!’

The Realities: Many of these ‘buy on credit, zero down’ offers from appliance stores and other retail outlets count on naive shoppers fueled by the need for instant gratification. ‘Zero down, no payments until after the first year’ sounds good, but accrued or waived interest may often bite back in the end. Credit agreements can include stipulations that if a single payment is missed, the card holder can be required to pay interest dating back to the original purchase date! Shoppers who fall for these deals don’t always read the fine print before signing. Retail store credit cards may be enticing to shoppers who are offered an immediate 10% off their first purchase when they sign up. They might think, ‘I’ll use it to establish credit.’ But that store card can have a high interest rate. Best to think of these cards as putting a tiny little ticking time bomb in your wallet or purse.

The Lesson: ‘Don’t buy on credit what you think you can afford. If you want a ‘smart fridge,’ consider saving up and paying for it in cash. Make your mortgage and car payments on time, every time, if you want to help build your credit.’

5. Going into business with a friend

The Mistake: ‘Why work for a paycheck with people I don’t know? Why not start a business with a friend so I can have fun every day with people I like building something meaningful?’

The Realities: “This trap actually can sound really good at first glance. The truth is, starting a business with a friend can work. Many great companies have been started by two or more chums with a shared vision and an effective combination of skills. If either of the partners isn’t prepared to handle the challenges of entrepreneurship, the outcome might be disastrous, both from a personal and professional standpoint. It can help if inexperienced entrepreneurs are prepared to:

  • Lose whatever money is contributed as start-up capital
  • Agree at the outset how conflicts will be resolved
  • Avoid talking about business while in the company of family and friends
  • Clearly define roles and responsibilities
  • Develop a well-thought out operating agreement

The Lesson: ‘Understand that the money, pressures, successes, and failures of business have ruined many great friendships. Consider going into business individually and working together as partners, rather than co-owners.’

6. Signing up for a credit card

The Mistake: ‘I need to build credit and this particular card offers great points and a low annual fee! It will only be used in case of emergency.’

The Reality: There are other ways to establish credit, like paying your rent and car loan payments on time. The average American household carries a credit card balance averaging over $16,000. Credit cards can lead to debt that may take years (or decades) to pay off, especially for young people who are inexperienced with budgeting and managing money. The point programs of credit cards are enticing – kind of like when your grocer congratulates you for saving five bucks for using your VIP shopper card. So how exactly did you save money by spending money?

The Lesson: ‘Learn to discipline yourself to save for things you want to buy and then pay for them with cash. Focus on paying off debt – like student loans and car loans – not going further into the hole. And when you have to get a credit card, make sure to pay it off every month, and look for cards with rewards points. They are, in essence, paying you! But be sure to keep Lesson 5 in mind!’

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April 17, 2019

Handling your car loan like a boss

Handling your car loan like a boss

Cars may be necessary to get around, but they can be expensive.

At some point, many of us will need to finance a car. Coming up with enough cash to buy a car outright – even a used car – can be difficult. Enter the auto loan.

Financing a car isn’t all bad, especially if you follow a few best practices that can help keep your car loan in good shape. Avoiding the dreaded upside down car loan – owing more on your car than it’s worth – is the name of the game when it comes to a good automobile loan.

Why do car loans go upside down?
Being upside down on your car loan is surprisingly common. It happens to many of us, and the root cause is depreciation. Depreciation is the decline in value of a good or product over time. Many physical goods depreciate – furniture, electronics, clothing, and cars.

There is a saying that a car begins depreciating as soon as you drive it off the lot. Unlike a good such as fine art or precious stones that you would expect to appreciate over time, a car usually will lose its value over time.

For example, say you buy a new car for $25,000. After three months your car depreciates by $3,000, so it’s now worth $22,000. If your down payment was less than $3,000 or you didn’t use a down payment at all, you are now upside down – owing more money on your car than it’s actually worth.

Some cars, however, hold their value better than others. Luxury cars have a slower depreciation rate than an inexpensive compact car. The popularity of a vehicle can also affect depreciation rates.

What happens when you’re upside down on a car loan?
Being upside down on your car loan may actually not mean much unless you’re involved in a loss and your car gets totaled. Assuming you have proper auto insurance, your policy should pay out the actual cash value of your totaled vehicle, which may not be enough to pay off the remaining balance of your auto loan. Then you’re stuck paying the balance on a loan for a car that you don’t have anymore. That is why it’s essential to avoid being upside down in your car loan.

Strategies to keep your car loan healthy
Keeping your car loan right side up starts with putting a healthy down payment on your car. Typically, a 20 percent down payment may give you enough equity right off the bat to keep your car loan from going upside down when the vehicle begins depreciating. So, if you’re purchasing a $25,000 car, aim to put at least $6,000 down.

Another way to avoid being upside down on your car loan is to select the shortest repayment term possible. If you can afford it, consider a 36-month repayment plan. Your monthly payments may be a bit higher, but the chances of your loan going upside down may be less.

Choose carefully
Keeping your car loan from going upside down is important. Make sure you have a healthy down payment, shop for vehicles within your budget, and stick to the shortest repayment term you can afford. Simple strategies can help make sure your car loan stays in the black.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan or enacting a funding strategy, seek the advice of a licensed financial professional, accountant, and/or tax expert to discuss your options.

April 10, 2019

When should you see a financial professional?

When should you see a financial professional?

Just about anyone may benefit from seeing a financial professional, but how do you know when it’s time to get some professional guidance?

Many people work through much of their financial life without needing to talk to a financial professional, but then something may change. Maybe you are approaching retirement and want to make sure you have your bases covered. Perhaps you just received an inheritance and aren’t quite sure what to do with it, or maybe you received a big promotion with a substantial raise and want a little help with your existing financial strategy.

Whatever the case may be, here are a few signposts that indicate it may be time to see a financial professional.

You are unsure about your financial future
If when thinking about your financial future, and you keep coming up with a blank slate, a financial professional may help you formulate a solid savings strategy. If you’re feeling overwhelmed by differing financial responsibilities, a conversation with a financial professional may help you sort it all out and develop a roadmap. If you’re juggling a lot of financial balls, such as student loan debt, retirement savings, credit card debt, building an emergency fund, trying to buy a house, etc., you may benefit from some professional financial input.

You have inherited a large sum of money
Coming in to an inheritance is a key signal to seek out a financial professional. A financial professional may be able to help you determine the options you have to manage the money that you may not be aware of. The important thing with an inheritance is to take your time when making decisions and consider any long term implications for your family.

You want a professional opinion
Say you like managing your own money, and you’ve been doing a pretty good job of it. You read the financial news and keep up with the latest from Wall Street. You may feel you’re doing just fine without the help of a financial professional, and that’s great. But, getting a second opinion on your finances from a qualified financial professional may go a long way.

Sometimes with our finances we may have a blind spot – a risk we may not see, or an opportunity to do something better that we haven’t noticed. A financial professional may help you find those opportunities and help eliminate those risks. Even if your finance game is on a roll, a little professional guidance may help make it even better.

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March 4, 2019

Tackling long term financial goals

Tackling long term financial goals

Many of us have probably had some trouble meeting a long-term goal from time to time.

Health, career, and personal enrichment goals are often abandoned or relegated to some other time after the initial excitement wears away. So how can you keep yourself committed to important long term goals – especially financial ones? Let’s look at a few strategies to help you stay committed and hang in there for the long haul.

Start small when building the big financial picture
Most financial goals require sustained commitment over time. Whether you’re working on paying off credit card debt, knocking out your student loans, or saving for retirement, financial heavyweight goals can make even the most determined among us feel like Sisyphus – doomed for eternity to push a rock up a mountain only to have it roll back down.

The good news is that there is a strategy to put down the rock and reach those big financial goals. To achieve a big financial goal, it must be broken down into small pieces. For example, let’s say you want to get your student loan debt paid off once and for all, but when you look at the balance you think, “This is never going to happen. Where do I even start?” Cue despair.

But let’s say you took a different approach and focused on what you can do – something small. You’ve scoured your budget and decided you can cut back on some incidentals. This gives you an extra $75 a month to add to your regular student loan payment. So now each month you can make a principal-only payment of $75. This feels great. You’re starting to get somewhere. You took the huge financial objective – paying off your student loan – and broke it down into a manageable, sustainable goal – making an extra payment every month. That’s what it takes.

Use the power of automation
It seems there has been a lot of talk lately in pop psychology circles about the force of habit. The theory is if you create a practice of something, you are more likely to do it consistently.

The power of habit can work wonders for financial health, and with most financial goals, we can use automation tools to help build our habits. For example, let’s say you want to save for retirement – a great financial goal – but it may seem abstract, far away, and overwhelming.

Instead of quitting before you even begin, or succumbing to confusion about how to start, harness the power of automation. Start with your 401(k) plan – an automated savings tool by nature. Money comes out of your paycheck directly into the account. But did you know you can set your plan to increase every year by a certain percentage? So if this year you’re putting in three percent, next year you might try five percent, and so on. In this way, you’re steadily increasing your retirement savings every year – automatically without even having to think about it.

Find support when working on financial goals
Long term goals are more comfortable to meet with the proper support – it’s also a lot more fun. Help yourself get to your goals by making sure you have friends and allies to help you along the way. Don’t be afraid to talk about your financial goals and challenges.

Finding support for financial goals has never been easier – there are social media groups as well as many other blogs and websites devoted to personal financial health. Join in and begin sharing. Another benefit of having a support network is that it seems like when we announce our goals to the world (or even just our corner of it), we’re more likely to stick to them.

Reaching large financial goals
Big, dreamy financial goals are great – we should have those – but to help make them attainable, we must recast them into smaller manageable actions. Focus on small goals, find support, and harness the power of habit and automation.

Remember, it’s a marathon – you finish the race by running one mile at a time.

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February 25, 2019

The dangers of payday loans and cash advances

The dangers of payday loans and cash advances

If you’ve ever been in a pinch and needed cash fast, you may have considered taking out a payday loan.

It may make sense on some level. Payday loans can be readily accessible, usually have minimal requirements[i], and put money in your hand fast.

But before you sign on the dotted line at your corner payday lender, read on for some of the downsides and dangers that may come along with a payday loan.

What is a payday loan?
Let’s start with a clear definition of what a payday loan actually is. A payday loan is an advance against your paycheck. Typically, you show the payday loan clerk your work pay stub, and they extend a loan based on your pay. The repayment terms are calculated based on when you receive your next paycheck. At the agreed repayment date, you pay back what you borrowed as well as any fees due.

Usually all you need is a job and a bank account to deposit the borrowed money. So it may seem like a payday loan is an easy way to get some quick cash.

Why a payday loan can be a problem
Payday loans can quickly become a problem. If on the date you’re scheduled to repay, and you’re coming up short, you can extend the payday loan – but will incur more fees. This cycle of extending the loan means you are now living on borrowed money from the payday lender. Meanwhile, the costs keep adding up.

Defaulting on the loan may land you in some trouble as well. A payday loan company may file charges and begin other collection proceedings if you don’t pay the loan back at the agreed upon time.

Easy money isn’t easy
While a payday loan can be a fast and convenient way to make ends meet when you’re short on a paycheck, the consequences can be dangerous. Remember, easy money isn’t always easy. Payday loan companies charge very high fees. You could end up with fees ranging from 15 percent or more than 30 percent on what you borrow. Those fees could be much higher than any interest rate you may see on a credit card.

Alternatives to payday loans
As stated, payday loans may seem like quick and easy money, but in the long run, they may do significant damage. If you end up short and need some quick cash, try these alternatives:

Ask a friend: Asking a friend or relative for a loan isn’t easy, but if they are willing to help you out it may save you from getting stuck in a payday loan cycle and paying exorbitant fees.
Use a credit card: Putting ordinary expenses on a credit card may not be something you want to get in the habit of doing, but if given a choice between using credit and securing a payday loan, a credit card may be a better option. Payday loan fees can translate into much higher interest rates than you might see on a credit card.
Talk to your employer: Talk to your employer about a pay advance. This may be uncomfortable, but many employers might be sympathetic. A pay advance form an employer may save you from payday loan fees and falling into a debt cycle.

If possible, a payday loan should probably be avoided. If you absolutely must secure a payday loan, be prepared to pay it back – along with the fees – at the agreed upon date. If not, you may end up stuck in a payday loan cycle where you are always living on borrowed money, and the fees are adding up.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan or enacting a funding strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

[i] https://www.speedycash.com/faqs/payday-loans/requirements/

February 18, 2019

Do you use the 20/4/10 rule?

Do you use the 20/4/10 rule?

If you’re in the market for a new car, you may already be aware that the average cost of a new car is about $35,000.

This pricetag has been increasing steadily in recent decades.[i] As a result, there are some “new” loan options that allow you to spread out your payments for up to 7 years.

Having a longer time to pay back your auto loan may seem like a great idea – stretching out the loan period may lower the payments month-to-month, and help squeeze a new car purchase into your family budget without too much financial juggling.

Reality check
One thing to keep in mind is that cars depreciate faster than you might imagine. Within the first 30 days, your new car’s value will have dropped by 10%. A year later, the car will have lost 20% of its value. Fast forward to 5 years after your purchase and your car is now worth less than 40% of its initial cost.[ii]

If you go with a longer loan term, it will take that much more time to build equity in the vehicle. A forced sale due to an emergency or an accident that totals your vehicle may mean you’ll still owe money on a car you no longer have. (This is what’s meant by being “upside down” in a loan: you owe more than the item is worth.)

If you’re not sure what to do, consider the 20/4/10 rule.

1. Try to put down 20% or more. Whether using cash or a trade-in that has equity, put down at least 20% of the new vehicle’s purchase price. This builds instant equity and may help you stay ahead of depreciation. Also add the cost for tax and tags to your down payment. You won’t want to pay interest on these expenses.

2. Take a loan of no longer than 4 years. Longer term loans may lower the monthly payments, but feeling like you need a loan term of more than 4 years may be a red flag that you’re buying more car than you can comfortably afford. With a shorter term loan, you may get a better interest rate and pay less interest overall because of the shorter term. This may make quite a difference in savings for you.

3. Commit no more than 10% of your gross annual income to primary car expenses. Your primary expenses would include the car payment (principal and interest), as well as your insurance payment. Other expenses, like fuel and maintenance, aren’t considered in this figure. The 10% part of the 20/4/10 rule may be the most difficult part to follow for many households considering purchasing a new car. Feeling pinched if you go with a new car could suggest that a reliable used car may be a better financial fit.

Cars are often symbolic of freedom, so it’s no wonder that we sometimes get emotional about car-buying decisions. It’s often best – as with any major purchase – to take a step back and look at the numbers and how they would affect your overall financial strategy, budget, emergency fund, etc. The money you save if you need to go with a used car could be used to build your savings or treat your family to something special now and then – and you’ll enjoy the real freedom of not being a slave to your monthly auto payment.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

[i] https://www.prnewswire.com/news-releases/average-new-car-prices-jump-2-percent-for-march-2018-on-suv-sales-strength-according-to-kelley-blue-book-300623110.html
[ii] https://www.carfax.com/blog/car-depreciation

February 4, 2019

When is it OK to use a credit card?

When is it OK to use a credit card?

Even though your budget might be 100% on point, your retirement accounts well-funded, and you’ve got something stashed away for the kids’ college tuition, sometimes an emergency rears its ugly head.

And despite your best efforts, your only option to cover it might be to use a credit card.

Let’s face it. Once in a blue moon there may not be enough emergency fund to go around. Sometimes the water heater needs replacing right before the in-laws arrive for Thanksgiving. Doesn’t this kind of thing seem to always happen the same week your child falls off the swingset and needs an ER visit?

What is the best way to handle using your credit card for an emergency? Here are a few tips that may help you get out of a jam if you choose to use your credit card.

Take out a loan
If you’re planning on putting an emergency expense on a credit card, make sure it’s truly a last resort. If possible, try to find other ways to cover the expense first. Can you ask a friend or family member for a loan? You may consider other loan options such as a personal bank loan or a home equity loan. These options do carry interest, but the rate may be lower than the one for your credit card.

Use a low interest card
Find and keep the lowest interest rate card you can. Many credit cards may come with an introductory zero percent interest rate for a specified period. But pay attention to the interest rate that applies after the initial period. This is what you’ll be obligated to pay after the introductory period expires.

Keep a healthy credit score
If you have good to excellent credit, you may be able to secure a zero percent interest card to use specifically for the emergency. The idea is that you would plan to pay off the balance during the introductory period.

If your credit score isn’t high, work on it. Make your payments on time and strive to keep a low credit card balance.

Build your emergency fund
At one time or another, many of us have been caught off guard with an emergency. A well-stocked emergency fund is the first line of defense when those unplanned expenses come up.

Aim for an emergency fund equivalent of 6 to 12 months’ worth of expenses. If that seems overwhelming, focus on smaller goals such as saving $500 and then try hitting $1,000. With time and diligence, your emergency fund will grow, and you may not have to worry so much about needing to put emergency expenses on a credit card.

Getting through a pinch with a credit card
If you are in a pinch and absolutely must put emergency expenses on a credit card, shoot for the lowest interest rate and pay it off as quickly as you can. Meanwhile, continue to build your emergency fund so you can be prepared in the future.

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January 28, 2019

Your credit score – 4 things you need to know

Your credit score – 4 things you need to know

You’re probably aware that your credit score is usually accessed when you apply for new credit, such as a credit card or an auto loan.

But you may not know it might also be requested by landlords, employers, and even romantic partners.[i]

So what are your credit score and report, what are the factors that determine them, and why do so many diverse parties request to see them?

What is a credit score and what is a credit report?
Your credit score is simply a number that encapsulates your ability to repay debt. It isn’t the only way interested parties can assess your creditworthiness, but it’s certainly often used as a preliminary factor. Having a higher score may lead to lower interest rates, more successful credit applications, and possibly more trust in general.

Your credit report is much more comprehensive and shows your outstanding debts, how well you pay them, the age of the accounts, and so forth. A single bad account on your credit report might damage your score, but your counterparty may be willing to work with you if you can show a strong history with your other accounts – and can justify the problem account.

What constitutes your credit score?
Credit reports are maintained by the three main credit reporting agencies: TransUnion, Equifax, and Experian. A credit score is generated by FICO, VantageScore, and some financial institutions may have their own proprietary algorithms to determine their own scores.

In general, scores are determined by the variously-weighted categories of payment history, the amount owed (credit utilization), the age of the accounts, how much new credit you’ve requested recently, and the types of accounts (revolving, mortgage, student loans, etc.).[ii] Of course proprietary scores may take many other factors into consideration.

Who wants to see your credit score?
Lenders may screen you based on your credit score, then use other factors to determine if they’ll give you a loan. Instant-approval lenders, like credit card companies, may just use your credit score to determine your creditworthiness. For large, long-term loans, like mortgages, you can expect to have to turn over your credit report as well.

Landlords may ask for a report, but might also request your credit score as well. They have the obvious financial interest in relying on you to pay your rent from month to month, but they also may have in mind that if you’re responsible with your money, perhaps you’ll also be responsible to take care of your rented living quarters.

Employers may ask to see your credit report. They may make hiring decisions based on the report, but some states have disallowed the practice.[iii] The chance that financial hardship may prompt employee theft is one reason they may ask, as well as wanting to see your consistency in paying debts over time, which may correlate with your punctuality and persistence at work.

How to improve your score
Those with poor credit may want to improve their credit history, which may in turn improve their credit scores. Payment history makes up 35% of the FICO scoring factors, and this will take time to improve. However, 30% of the score is determined by how much you owe, which can quickly be improved by paying down your debt. The 15% determinant that is credit age can, of course, only improve with time, but the 10% of your score attributed to new requests and 10% to types of credit can be managed in a short timeframe, too; try to avoid applying for a lot of new credit and, when you do, try to get different types of credit.[iv]

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[i] https://www.businessinsider.com/good-credit-score-can-help-you-get-a-date-2018-2
[ii] https://www.thebalance.com/fico-credit-score-315552
[iii] https://www.thebalancecareers.com/why-do-employers-check-credit-history-2059598
[iv] http://money.com/money/collection-post/2791957/what-is-my-credit-score/

January 21, 2019

Preparing to buy your first home

Preparing to buy your first home

Home buying can be both very exciting and very stressful.

Picking out your dream home is thrilling, but credit scores, applications, and mortgage underwriting requirements? Well, not so much. Don’t let yourself be deterred. Here are a few moves to make before you amp up your home buying search that will help increase the fun and decrease the stress.

Know what you can afford
One of the first steps to home buying is knowing how much you can afford. Some experts advise that a monthly mortgage payment should be no more than 30% of your monthly take-home pay. Some say no more than 25%. If you stretch past that you could become “mortgage poor”. Consider this carefully. You might not want to be in your dream house and struggling to pay the utility bills, grocery bills, etc., or find yourself in a financial jam if an emergency comes up.

Get your finances ready for home buying
If you’re scouring listings, hunting for your dream home, but you’re not sure what your credit score is – stop. There are few things more disappointing than finally finding your dream home and then not having the financial chops to purchase it. You’ll need to get your finances in order and then start shopping. Focus on these areas:

Credit score: Your credit score is something you should know regardless of whether you’re home shopping. Usually, to get the best mortgage rates, you’ll want a score in the good to excellent range. If you’re not quite there, don’t despair. If you make payments toward your other obligations on time and pay off any debt you’re carrying, your credit score should respond accordingly.

Down payment: A conventional mortgage usually requires a 20 percent down payment. That may seem like a lot of money to come up with, but in turn, you may get the best interest rates, which can save you a significant amount over the life of the mortgage. Also, anything less than 20 percent down and you may have to purchase Private Mortgage Insurance – it’s a type of insurance that protects the lender if you default. Try to avoid it if you can.

Get pre-qualified before you shop for a home
Once you have your credit score and down payment in order, it’s time to get pre-qualified for a mortgage. A prequalification presents you as a serious buyer when you make offers on houses. Mortgage pre-approval doesn’t cost you anything, and it doesn’t make you obligated to any one house or mortgage. It’s just a piece of paper that says a bank trusts you to pay back the loan.

If you go shopping without a pre-approval, expect to get overlooked if there are other bidders. A seller will likely go with the buyer who has been pre-approved for a mortgage.

Prepare your paperwork
Getting approved for a mortgage is going to require you to do a little legwork. The bank will want to see documentation to substantiate your income and lifestyle expenses. Be prepared to cough up income tax documents such as W-2’s, paystubs, and bank statements. The sooner you get the paperwork together, the easier it will be to complete the mortgage application.

Shop for the best mortgage
Mortgage rates differ slightly depending on the lender, so shop for the lowest possible rate you can get. You may wish to use a mortgage broker to help. Also, get familiar with mortgage terms. The most common household mortgages are a 30-year term with a fixed rate, but there are 15-year terms, and mortgages with variable interest rates too.

Do your pre-home-buying homework
With a little legwork early on, home buying can be fun and exciting. Get your finances in order and educate yourself about mortgage options and you’ll be decorating your dream home in no time.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan or enacting a funding strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

January 21, 2019

Do you know your net worth?

Do you know your net worth?

Usually when we think of net worth we imagine all the holdings of a wealthy tycoon who owns several multi-million dollar businesses.

Or a young heiress on the New York social scene, or a successful blockbuster movie actor.

However, you have a net worth too. Essentially, your net worth is a personal balance sheet of your assets and liabilities, not unlike the balance sheets used in business.

Calculating your net worth
First, you’ll want to tally up all your assets. These would include:

  • Personal property and cars
  • Real estate equity
  • Investments
  • Vested retirement plans
  • Cash or savings
  • Amounts owed to you
  • Cash value of life insurance policies

Next, you’ll calculate your liabilities (amounts you owe someone). These would include:

  • Loans
  • Mortgage balance
  • Credit card balances
  • Unpaid obligations

Your total liabilities subtracted from your total assets establishes your net worth.

The number could be positive, or it could be negative. Students, for example, often have a negative net worth because they may have student loans but haven’t had much of a chance to build personal assets yet.

It’s also important to realize that net worth isn’t always equal to liquid assets. Your net worth includes non-liquid assets, like the equity in your home.

What should your net worth be?
The notion that you should be at a certain net worth by a certain age is mostly arbitrary; wealth is relative. Having a hundred thousand dollars stashed away might sound like a lot, but if you live in an affluent area or have a large family to provide for, it may not last long if your job disappears suddenly. In other situations, the same hundred thousand dollars might be a fabulous starting point to a growing net worth.

Net worth can be a way of “keeping score”, but it’s important to remember the game is one in which you are the only player and you’re playing to best yourself. What someone else has or doesn’t have isn’t relevant to your needs and your future goals for your family.

Looking ahead
Measuring your net worth can be a strong motivation when saving for the future. Do you want to be a certain net worth by a certain age? Not if the number is pulled out of thin air. If your net worth marks progress toward a well-reasoned goal, however, it’s extremely relevant.

When you’re ready to put together a personalized plan based on your net worth and (more importantly) your future goals, reach out anytime. We can use net worth as a starting point and a measurement tool, while keeping squarely focused on the real target: your long-term financial strategy.

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January 14, 2019

Should I pay off my car or my credit cards?

Should I pay off my car or my credit cards?

Credit card statements and auto loan statements are often among the bigger bills the mail carrier brings.

Wouldn’t it be great to just pay them off and then use those monthly payments for something else, like building your savings and giving yourself a bit of breathing room for a treat now and then?

Paying extra money on your credit card bills and your car loan at the same time may not be an option, so which is better to pay off first?

In most cases, paying down credit cards might be a better strategy. But the reasons for paying off your credit cards first are numerous. Let’s look at why that usually may make more sense.

  • Credit cards have high interest rates. When you look at the balances for your auto loan vs. your credit card, the larger amount may often be the auto loan. Big balances can be unnerving, so your inclination may be to pay that down first. However, auto loans usually have a relatively low interest rate, so if you have an extra $100 or $200 per month to put toward debt, credit cards make a better choice. The average credit card interest rate is about 15%, whereas the average auto loan rate is usually under 7%, if you have good credit.[i]

  • Credit cards charge compound interest. Most auto loans are simple-interest loans, which means you only pay interest on the principal. Credit cards, however, charge compound interest, which means any interest that accrues on your account can generate interest of its own. Yikes!

  • You’ll lower your credit utilization. Part of your credit score is based on your credit utilization, which specifically refers to how much of your revolving credit you use. As you pay down your balance, you’ll not only pay less in interest, you may also give your credit score a boost by reducing your credit utilization.

The numbers don’t lie
Let’s say you have a 5-year auto loan for $30,000 at 7% interest. You also have an extra $100 per month you’d like to use to pay down debt. By adding that 100 bucks to your car payments, over the course of the loan you can cut your loan length by 10 months and save $972.32.[ii] Impressive.

Let’s look at a credit card balance. Maybe the credit card interest rate is higher than the car loan, but hopefully the balance is lower. Let’s assume a balance of only $10,000 and an interest rate of 15%. With your minimum payment, you’d probably pay about $225 monthly. Putting the extra $100 per month toward the credit card balance and paying $325 shortens the payment length for the card balance by 26 months and saves $1,986 in interest expense.[iii] Wow!

The math tells the truth. In the above hypothetical scenarios, even though the balance on the credit card is one-third that of the total owed for the car, you would save more money by paying off the credit card balance first.

Financial strategy isn’t just about paying down debt though. As you go, be sure you’re saving as well. You’ll need an emergency fund and you’ll need to invest for your retirement. Let’s talk. I have some ideas that can help you build toward your goals for your future.

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[i] https://www.valuepenguin.com/auto-loans/average-auto-loan-interest-rates
[ii] https://www.bankrate.com/calculators/auto/early-payment-payoff-calculator.aspx
[iii] https://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx

January 7, 2019

Read this before you walk down the aisle

Read this before you walk down the aisle

Don’t let financial trouble ruin your future wedded bliss.

Most newlyweds have a lot to get used to. You may be living together for the first time, spending a lot of time with your new in-laws, and dealing with dual finances. Financial troubles can plague even the most compatible pairs, so read on for some tips on how to get your newlywed finances off to the best possible start.

Talk it out
If you haven’t done this already, the time is ripe for a heart to heart talk about what your financial picture is going to look like. This is the time to lay it all out. Not only should you and your fiancé discuss your upcoming combined financial situation, but it can be beneficial to take a deep dive into your past too. Our financial histories and backgrounds can influence current spending and saving habits. Take some time to get to know one another’s history and perspective when it comes to how they think about money, debt, budgeting, etc.

Newlyweds need a budget
Everyone needs a budget, but a budget can be particularly helpful for newlyweds. A reasonable, working household budget can go a long way in helping ease financial stress and overcoming challenges. Money differences can be a big cause of marital strife, but a solid, mutually-agreed-upon budget can help avoid potential arguments. A budget will help you manage student loans or new household expenses that must be dealt with. Come up with a budget together and make sure it’s something you both can stick with.

Create financial goals
Financial goal setting can actually be fun. True, some goals may not seem all that exciting – like paying off credit cards or student loans. But formulating financial goals is important.

Financial goal setting should start with a conversation with your new fiancé. This is the time to think about your future as a married couple and work out a financial strategy to help make your financial dreams a reality. For example, if you want to buy a house, you’ll need to prepare for that. A good start is to minimize debt and start saving for a down payment.

Maybe you two want to start a business. In that case, your financial goals may include raising capital, establishing business credit, or qualifying for a small business loan.

Face your debt head on
It’s not unusual for individuals to start married life facing new debt that came along with their partner – possibly student loans or personal credit card debt. You may also have combined debt if you’re planning on financing your wedding. Maybe you’re going to take your dream honeymoon and put it on a credit card.

Create a strategy to pay off your debt and stick to it. There are two common ways to tackle it – begin with the highest interest rate debt, or begin with the smallest balance. There are many good strategies – the key is to develop one and put it into action.

Invest for the future
Part of your financial strategy should include preparing for retirement, even though it might seem light years away now. Make sure you work a retirement strategy into your other financial goals. Take advantage of employer-sponsored retirement accounts and earmark savings for retirement.

Purchase life insurance
Life insurance is essential to help ensure your new spouse will be taken care of should you die prematurely. Even though many married couples today are dual earners, there is still a need for life insurance. Ask yourself if your new spouse could afford to pay their living expenses if something happened to you. Consider purchasing a life insurance policy to help cover things like funeral costs, medical expenses, or replacement income for your spouse.

Newlywed finances can be fun
Newlywed life is fun and exciting, and finances can be too. Talk deeply and often about finances with your fiancé. Share your dreams and goals so you can create financial habits together that will help you realize them. Here’s to you and many years of wedded bliss!

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