3 Ways to Shift from Indulgence to Independence

August 19, 2019

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Luis Puente

Luis Puente

Financial Education

2711 LBJ Freeway Suite 300

Farmers Branch, TX 75234

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August 14, 2019

The Black Hole of Checking (Part 3)

The Black Hole of Checking (Part 3)

Are you feeling the gravity of this checking account situation yet?

All of the money lessons from Parts 1 and 2 dealt heavily with the importance of helping you make sure that all of your money isn’t just sitting in your checking account where it’s neither growing nor working for your future. However, there are a couple of important money-saving details to consider before emptying your checking account.

To avoid becoming too starry-eyed and moving all of your money without considering potentially pricey consequences, ask yourself these 2 questions:

1. Does your personal bank have any kind of fee attached to the minimum amount of money in your checking account? Staying on course to your financial goals can be tough enough, but when you’re hit with a surprise fee from your bank, can that feel like losing vital g-force in the right direction? Americans paid an average of $53 per person below with your bank’s unique rules to avoid those course-altering fees via your checking account:

  • Have the minimum balance requirement
  • Enroll in direct deposit
  • Open multiple accounts at the same banks
  • Find free checking elsewhere

2. Do you have enough in your checking account to avoid overdraft fees? $15 Billion. That’s how much Americans paid in overdraft fees last year alone. You could probably build your own space station for that kind of money! (A really small one, at least.) Remember the advice in Part 2 to have accounts for differing money occasions like an Emergency Fund or Fun Fund? These separate, deliberate accounts have the potential to help shield against many unexpected and/or large withdrawals from your checking account. Additional ways to protect yourself from overdraft fees are Overdraft Protection through your bank (but watch out for a fee for the service) or having a small cushion in your checking account, just in case.

Moving your money away from the Black Hole of Checking is important. But ignoring the asteroids of unexpected banking fees headed your way could strip away any potential forward momentum you have to make with saving and getting your money to work for you.

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August 12, 2019

The Black Hole of Checking (Part 2)

The Black Hole of Checking (Part 2)

Previously on “The Black Hole of Checking”…

In Part 1, we learned that any object pulled into a black hole will be stretched into the shape of spaghetti through a process called – wait for it – spaghettification. If you threw your shoe into it, the black hole’s gravity would stretch and compress your footwear into an unimaginably thin leather noodle as it was pulled deeper and deeper into the hole. Your shoe would be unrecognizable by the time gravity had its way.

The same thing can happen to the money in your checking account. Having a child, replacing an old automobile with something newer and more reliable, or taking a last-minute trip to see the grandparents in Florida over the holidays, can put a strain on your finances and stretch your reserves farther than you might have anticipated. As new bills create a bigger and bigger hole in your budget, your financial strategy may become something you don’t recognize.

Here in Part 2, let’s talk about how assigning an identity to your money can keep your financial goals on track, and help reduce the stretching of finite resources.

For example, say you keep all of your money in your checking account. Simple is better, right? If you want to go on a family vacation, you’ll just withdraw the funds from your account. Paying in cash to secure a “great” package deal up front? You’re all over that. But what happens if you pick up some souvenirs for Uncle Bob and Aunt Alice? Hmmm…if you get something for them you’ll have to get something for Greg and Susan too. (You’ll never make that mistake again.) And you just have to try that chic little cafe that you read about – you may never pass this way again. (But how can they get away with charging that much for a mimosa?!) Buy One, Get One all day pass at “The Biggest Miniature Museum in the World”? Let’s do it!

When you’re on vacation – having fun and enjoying yourself – it might be hard to resist taking advantage of unique experiences or grabbing those unusual gifts you didn’t account for. On the other hand, you may have no problem being thrifty when travelling, but what if someone gets sick or injured and needs hospital care on the road, or the car breaks down, or there is unexpected bad weather and you have to stay an extra day or two at the hotel?

After it’s all said and done, when you return home from your fun-filled trip, you may find a gaping hole where you had a pile of cash at the beginning of the month. If you had given your money a specific role before you planned your vacation, you may not have had such a shock when you got home – and you can enjoy your memories knowing you stayed on track with your financial goals.

Give your money identity, purpose, and the potential to grow by separating it into designated accounts. Try these 3 for starters:

1. Emergency Fund. Leaky roof? Flat tire? Trip to the emergency room? Maybe you’re great at resisting impulse buys (like those fabulous shoes you spied the other day), but sometimes things happen that are out of your control. Your emergency fund is for situations like these. Unexpected, unplanned-for expenses can derail a financial strategy very quickly if you’re not prepared.

The most important thing to keep in mind about this account? Do. Not. Touch. It. Unless there’s an emergency, of course. Then replace the money in the account as quickly as possible until it’s fully funded again.

How much should you keep in your emergency fund? A good rule of thumb is to shoot for at least $1,000, then build it to 3-6 months of your annual income. However much you decide suits your financial goals, just make sure you aren’t dipping into it when you don’t have an emergency. (Note: Grabbing a great pair of heels on sale is not an emergency.)

2. Retirement Fund. If you want to retire at some point (and most of us do), this one is a no-brainer. Odds are you’ve already begun to set aside a little something for the day you can trade in your suit and tie for a Hawaiian shirt and a pair of flip-flops, but is your retirement fund in the right place now? Unlike a day-to-day checking account with a very low or non-existent interest rate, your retirement fund should be in a separate account that has some power behind it. You’re taking the initiative to put away money for your future – get it working for you! Your goal should be to grow your retirement fund in an account with as high of an interest rate as you can find.

3. Fun Fund. This category may seem frivolous if you’re trying to stick to a well-structured financial plan, but it’s actually an important piece that can help make your budget “work”! Depending on your priorities, you might contribute a little or a lot to this account, but making some room for fun might make it more palatable to save long-term.

You might try setting aside 10% of your paycheck for fun and entertainment and see how that works – is that too much or not enough? Bonus: this is easy to calculate each month. If you’re bringing in $2,000 per month, put no more than $200 in your Fun Fund.

What you do with your Fun Fund is your choice. Will it be more of a vacation fund or a concert fund? A wardrobe fund or a theme park fund? It’s all up to you. And when the rest of your money has a purpose and is growing for your future, you might feel less guilty about snagging those hot shoes you’ve had your eye on when they finally do get marked down.

Don’t let your goals and your money get lost in a black hole of coulda, woulda, shoulda. What kind of purpose do you want to give your money? I can help!

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August 7, 2019

The Black Hole of Checking (Part 1)

The Black Hole of Checking (Part 1)

What’s the difference between a black hole and a checking account?

One is a massive void with a force so strong that anything that enters it is stretched and stretched, then disappears with a finality that not even NASA scientists fully understand.

… And the other is a black hole.

Joking aside, did you know that a black hole and your checking account actually have a lot in common? Spaghettification is the technical term for what would happen to an object in space if it happens to find itself too close to a black hole. The intense gravity would stretch the object into a thin noodle, past the point of no return.

If you don’t have a solid financial strategy, the money in your checking account may be stretched past the point of no return, too. Why? If your money is sitting in “The Black Hole of Checking” for years on end, you may find that as you get closer to retirement, each dollar is spread thinner and thinner (until it disappears).

Where are you storing your retirement fund? If you’re keeping it in your checking account, instead of growing your money, you might just be stretching it impossibly, uncomfortably thin.

Say you already have $10,000 saved for your retirement. A checking account comes with a 0% interest rate. That means a $0 rate of return. Even if you managed to not touch that money for 10 years, you’d still only have your starting amount of $10,000. With inflation, you’d really have less value at the end of the 10 years than you had to start with.

But if you took that $10,000 and put it into an account with a 3% compounding interest rate, after 10 years, your money will have grown to $13,439. And that’s without adding another penny! Can you imagine what kind of growth is possible if you start saving now and contribute regularly to an account with a compounding interest rate?

This is the power of compounding interest – interest paid on interest plus the initial amount. (This is also a huge reason why getting as high of an interest rate as you can is important!)

So what are you waiting for? If all of your money is disappearing into that Black Hole of Checking, maybe this is the exploding star “sign” you’ve been looking for! Don’t “spaghettify” your money. Do the opposite and give it the chance to grow with the power of compound interest.

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July 8, 2019

How to Avoid Financial Infidelity

How to Avoid Financial Infidelity

If you or your partner have ever spent (a lot of) money without telling the other, you’re not alone.

This has become such a widespread problem for couples that there’s even a term for it: Financial Infidelity.

Calling it infidelity might seem a bit dramatic, but it makes sense when you consider that finances are the leading cause of relationship stress. Each couple has their own definition of “a lot of money,” but as you can imagine, or may have even experienced yourself, making assumptions or hiding purchases from your partner can be damaging to both your finances AND your relationship.

Here’s a strategy to help avoid financial infidelity, and hopefully lessen some stress in your household:

Set up “Fun Funds” accounts.

A “Fun Fund” is a personal bank account for each partner which is separate from your main savings or checking account (which may be shared).

Here’s how it works: Each time you pay your bills or review your whole budget together, set aside an equal amount of any leftover money for each partner. That goes in your Fun Fund.

The agreement is that the money in this account can be spent on anything without having to consult your significant other. For instance, you may immediately take some of your Fun Funds and buy that low-budget, made-for-tv movie that you love but your partner hates. And they can’t be upset that you spent the money! It was yours to spend! (They might be a little upset when you suggest watching that movie they hate on a quiet night at home, but you’re on your own for that one!)

Your partner on the other hand may wait and save up the money in their Fun Fund to buy $1,000 worth of those “Add water and watch them grow to 400x their size!” dinosaurs. You may see it as a total waste, but it was their money to spend! Plus, this isn’t $1,000 taken away from paying your bills, buying food, or putting your kids through school. (And it’ll give them something to do while you’re watching your movie.)

It might be a little easier to set up Fun Funds for the both of you when you have a strategy for financial independence. Contact me today, and we can work together to get you and your loved one closer to those beloved B movies and magic growing dinosaurs.

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April 29, 2019

What Happens If a Life Insurance Policy Lapses?

What Happens If a Life Insurance Policy Lapses?

The dollar amount of death benefit payouts that seniors 65 and older forfeit annually through lapsed or surrendered life insurance policies is more than the net worth

That’s $112 billion worth of death benefits, inheritance, donations to charities, and cash value down the drain. Or, more specifically, that’s $112 billion that goes right back to insurance companies – all because policyholders surrendered their policies or allowed them to lapse.

A lapse in a life insurance policy occurs when a premium isn’t paid. There is a brief grace period in which a premium payment for a life insurance policy can still be made. But if the payment is not made during the grace period, the life insurance policy will lapse. At this point, all benefits are lost.

There are circumstances in which the life insurance policy can be recovered. It could be as simple as resuming premium payments… or it could involve a lengthy process that includes a new medical exam, repaying all premium payments from the lapsed period, and possibly the services of an attorney.

The best practice to avoid a policy lapse is to make premium payments on time. To help out their customers, many insurance companies can automatically withdraw the monthly payment from a checking account, and some companies may take missed premium payments out of the policy’s cash value – but please note: term life insurance has no cash value. In this case, missed premium payments won’t have the cash value failsafe.

If you’re in danger of a lapse, contact me today. Together we can review your financial strategy to help you and your loved ones stay covered.

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February 27, 2019

Why do banks pay interest?

Why do banks pay interest?

When you deposit money into certain bank accounts, they’ll pay you interest.

Have you ever wondered why they do this? Banks perform lots of services. They’re holding your money for you, making it accessible at tens of thousands of points across the globe, facilitating purchases from e-commerce sites, processing automatic payments, etc. Oftentimes this is done for free or for a small fee. So why would they pay interest on top of all this?

Let’s find out.

Banks play both sides
We need a place to store our money. Some people might not like the idea of handing over their hard-earned cash to a financial institution, but storing their savings under the mattress might make it difficult to perform many transactions, especially online. Banks perform the essential service of giving much of the population a place to store their money while simultaneously facilitating payments between different participants.

Modern economies function on debt (so not all debt is necessarily bad). Corporate debt owed to a bank might be used to grow a business quickly by taking advantage of a great business opportunity.

People don’t always have the entire amount of money all at once to buy something very costly like a house, so banks can help out by lending them the money. To collect the money to lend out, banks receive deposits from other customers.

Thus banks play a fundamental role in the economy, but why do they pay interest? They obviously receive interest on loans, but on the other side, they already offer several free services, like facilitating payments and helping to safeguard cash. Why would they pay people to give them money?

Banks need depositors
Similar to other industries, the banking industry needs customers. This is not only true on the lending side, though. Banks also need customers on the depositing side, because they need to get their money for lending from somewhere. The more customers they have, the more money they can lend out, in turn generating more income.

Since banks compete with each other just like members of any industry, they need a way to attract customers. Sometimes they may offer more features for an account or more free services, but the most enticing incentive is usually the interest rate. And that is the simple idea behind why banks pay interest: zero interest in theory would attract zero customers.

Why more interest for longer deposit periods?
It seems like savings accounts usually pay better interest rates than checking accounts. Why is that? A person probably opens a savings account with the intention of storing their money over a relatively long period of time. The expectation is that the money wouldn’t frequently be removed from that account.

So why do banks generally pay more interest if they believe you’ll leave money untouched for longer? Here’s why. The money you deposit with a bank doesn’t sit idle. It’s lent out to other individuals and businesses in the form of loans. But every bank must abide by minimum reserve requirements[i], and if they fall below the threshold, they can face serious consequences. Thus they are motivated to have their customers park their money for longer periods of time, and savings accounts are intended for just that purpose. The longer a customer intends to leave their money untouched at a bank, the more the bank might be willing to pay in interest.

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[i] https://www.investopedia.com/terms/r/requiredreserves.asp

December 10, 2018

Savings accounts vs. CDs – which is better?

Savings accounts vs. CDs – which is better?

Interest rates are on the rise, which might not be great news if you carry revolving debt.

But savings accounts and certificates of deposit (CDs) might start looking more attractive as places to put your money. Currently, both savings accounts and CDs might be good options, so which is better? In large part, whether a savings account or a CD is the better tool for saving depends on your savings goal.

Access to funds
Savings accounts offer more flexibility than CDs if you need to withdraw your money. However, be aware that many banks charge a fee if your balance falls below a certain threshold. Some banks don’t have a minimum balance requirement, and some credit unions have minimum balance requirements as low as a penny. It could be worth it to shop around if you think you might need to draw down the account at any moment.

CDs, on the other hand, have a maturity date. If you need access to your funds before the maturity date, which might range from six months to up to five years depending on which CD you choose, expect to sacrifice some interest or pay a penalty. Accessing funds held in a standard CD before its maturity date is called “breaking the CD”.

“Liquid CDs” allow you to withdraw without penalty, but typically pay a lower interest rate than standard CDs.

Interest rates
CDs are historically known for paying higher interest rates than savings accounts, but this isn’t always the case. Interest rates for both types of accounts are still hovering near their lows. Depending on your situation, it might be better to choose an account type based on convenience. If interest rates continue upward, CDs may become more attractive.

In a higher interest rate environment, CDs might be a great tool for saving if you know when you’ll need the money. Let’s say you have a bill for college that will be due in thirteen months. If you won’t need the money for anything else in the meantime, a twelve-month CD might be a fit because the CD will mature before the bill is due, so the money can be withdrawn without penalty.

If your goal is to establish an emergency fund, however, a CD might not be the best option because you don’t know when you’re going to need the money. If an emergency comes your way, you won’t want to pay a penalty to access your savings. Keep an eye on current rates, and if CD interest rates start to increase, then you might consider them for longer-term savings if you won’t need the funds until a fixed date in the future. For emergency savings, consider a savings account that keeps your money separate from your checking account but still provides easy access if you need it.

Depending on your situation, a CD or a savings account may be the better fit. Shop around for the best rates you can find, and make sure you understand any penalties or fees you might incur for withdrawing funds.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Market performance is based on many factors and cannot be predicted. Before investing or enacting a savings or retirement strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

November 5, 2018

How to have your dream wedding without nightmare spending

How to have your dream wedding without nightmare spending

Planning a wedding is both exciting and stressful. There are many moving parts to coordinate – guest lists, venues, menus.

Not to mention the fact that you’re making some major financial decisions – maybe your first as a couple. Needless to say, your wedding is a huge milestone. It’s easy to get caught up in the wave of excitement. But it’s also easy to go overboard with spending. One day you get engaged and the next thing you know, you’re looking at your wedding album (along with some potentially major credit card bills).

To keep your wedding costs as reasonable as possible, consider a fresh perspective. Read on for a few pointers to keep in mind as you embark on this new adventure.

Take the time to get your mind in the game
When you first commit to walk down the aisle together, it may be tempting to rush right out and buy your fantasy dress, secure the location where you’ll exchange your vows, and get your order in for your dream wedding cake. But slowing down a little and thinking about what would really make your day special can help corral your wedding costs (so you’ll have that much more for a down payment on your first home, for example).

Set a budget and stick to it
The average cost of a wedding in the United States is more than $33,000.[i] But don’t panic. You don’t have to spend $33,000 to have an unforgettable day. You’ve probably been to wonderful weddings that cost less than $1,000 as well as huge ballroom style weddings that can approach six figures.

Spend as much or as little as you can afford. The important point is to set a budget and stick to it. So sit down with your partner and create a budget you can live with, not just for the day itself, but for your future together. Decide on your most important elements, set the costs for them, and get started checking items off your list!

Spend only on what’s important to you
One thing to keep in mind is that this is your day. Your wedding doesn’t have to be all things to all people. What is most important to you and your fiancé? Love gourmet food? Maybe you splurge a bit on your menu. Into fashion? Maybe your attire is the big ticket item. Don’t care much for alcohol? Skip it and budget more money toward the DJ.

Call in favors and use your friends’ talents
Enlisting help from your friends not only can save money on wedding costs, but it can also make your wedding feel more personal and special. Gather up your talented friends and ask for their help.

Ask close friends to participate in the wedding prep instead of purchasing gifts. Acquaintances? Ask them if they will share their expertise for a minimal fee.

Hint: If your style is more casual, skip the professional photographer and ask your guests to take pictures with their smartphones. You can save a ton of money and end up with great true-to-life photos of your wedding (instead of professional portraits that might look a bit stuffy).

Stay calm and plan on
If you begin planning without a clear vision for how you want your day to unfold, you can quickly get caught up in the frenzy. Vendors and party planners will be happy to sell you lots of extras you may not want or need. So, think carefully about your plan, know it well, and stick to it as execution gets underway.

In short, the best way to save money on your wedding isn’t about cutting corners and limiting your guest list. Like any financial matter, it’s about knowing what’s important to you, setting a budget, and getting creative. Not only can this help save money on your wedding, but it also ensures a wedding that is uniquely yours. And the best news? Having some money left over for the honeymoon!

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[i] https://www.theknot.com/content/average-wedding-cost-2017

October 8, 2018

Personal Finance: Hire a Professional or DIY?

Personal Finance: Hire a Professional or DIY?

Contrary to popular belief, professional financial planning can potentially benefit people of all income levels.

So the question you may want to ask is not if you make enough money to need professional help, but rather, is your money working to create the life you want?

If your answer is “I don’t know” – no worries. There’s help!

A professional financial planner is, well, a professional
It’s true that personal finance is personal, but for many of us, it can be complicated too. Plus, it’s not something we usually learn about in school. So for many – even for those on the lower end of the income scale – a financial planner may have a lot to offer.

Even though there are some people who do just fine with financial planning on their own, many of us need help to connect the dots. Having a solid financial strategy often isn’t just coming up with a monthly budget and sticking to it. Many Americans don’t seem to have a grip on how personal finance intersects with their lives. In fact, about half of Americans don’t have a financial plan at all.[i] (Are you one of them?)

Maybe you know exactly what you want – let’s say to retire by 60. But you don’t know how to get there. This is where a financial planner may help.

Maybe you don’t know what you want, even though you’re already a disciplined budgeter. You may still need a good financial planner who can help you imagine and create a strategy for the future of your dreams.

A financial planner can foster accountability
One of the most difficult things about creating and living by a financial strategy is accountability. Let’s be real. It can be difficult to find the discipline to consistently stick to a budget, save for retirement, and live within our means.

If you’re coming up short in the discipline department, hiring a financial planner may help create some accountability for you. This isn’t to say they’re going to wag their finger if you splurge on a spontaneous girls’ weekend in Cozumel, but they may help create a sense of accountability by checking in with you regularly to see if you’re on the right track. You might decide that girls’ weekend could be planned a little closer to home instead…

A financial planner offers expertise at every life stage
A financial strategy isn’t something you create and then forget about. A wise financial strategy changes as your life changes, so it must be revisited. A good time to take a fresh look at your financial strategy is during life events such as:

  • Getting a new job
  • Making a major purchase, such as a home
  • Starting a business
  • Getting married
  • Having a child

Every one of these milestones signals a time to revisit your finances. A professional financial advisor can help ease these transitions by taking the pulse of your financial health at every life change.

What a financial planner can’t do
If you’re not ready to deal with your personal finances, a financial planner won’t be much help to you. In other words, they can’t make you take initiative when it comes to your financial life. But if you’re ready to explore the world of personal finance, they may help make the difference between a dream and a reality!

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[i] https://www.fool.com/investing/2018/06/10/half-of-americans-lack-a-long-term-financial-plan.aspx

September 17, 2018

Getting the Most Bang for Your Savings Buck

Getting the Most Bang for Your Savings Buck

Savvy savers know that if they look after their pennies, the dollars will take care of themselves.

So, if you’re looking for places to gain a few extra pennies, why not start by maximizing your savings account?

Granted, a savings account might not be a flashy investment opportunity with a high return. But most of us use one as a place to park our emergency fund or the dream car fund. So, if you’re going to put your money somewhere other than under your mattress, why not put it in the place that gets the best return? Here are some tips for getting the most out of your savings account.

Try an Online-only Account
Your corner bank branch isn’t the only option for a savings account. Why not try an online account? As of September 2018, several well-known banks are offering online savings accounts with rates of 1.85 (some even higher).[i]

With the help of technology, you can link one of these high-interest savings accounts directly to your checking account, making moving money a breeze. Say goodbye to the brick and mortar bank, and hello to some extra cash in your pocket!

Check Out Your Local Credit Union
A credit union offers savers some unique benefits. They differ from a traditional bank as they are usually not for profit. They function more like a cooperative – even paying dividends back to members periodically.

A credit union can also be beneficial as they typically offer a higher interest rate than your everyday bank. Membership in a credit union may also have other perks, such as low-interest rates on personal loans as well as exceptional customer service.

Money Market Accounts
A money market account is like a savings account except it’s tied to bonds and other low-risk investments. A money market can deliver the goods by giving you more for your savings, but there are often account minimums and fees. Before putting your savings into a money market account, check the fees and account minimums to make sure they’ll coincide with your needs.

Don’t Use a Parking Place When You Need a Garage
A savings account is a like a good parking place for cash. Its usefulness is in its ease of access and flexibility.

This makes it a great place to keep savings that you may need to access in the short term – say, within the next 12 months.

For long-term saving (like for retirement), it’s generally not a good idea to rely on a savings account alone. Retirement savings doesn’t belong in a parking place. For that, you need a garage. Talk to your financial professional today about a savings strategy for retirement, and the options that are available for you.

Shopping for a Savings Account
Just because a savings account doesn’t offer high yields, doesn’t mean you shouldn’t consider it carefully. To get the most bang for your savings buck, search out the highest interest possible (which might be online), be aware of fees and penalties, and remember – any saving is better than not saving at all!

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[i] https://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001/

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