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June 1, 2020

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Luis Puente

Luis Puente

Financial Education

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Farmers Branch, TX 75234

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May 18, 2020

Old Money

Old Money

What do you see when you think of a rich person?

Probably a big house with huge glass windows, a fancy electric sports car, and a latest-fashion outfit. But wealth doesn’t always look the same. Folks from families that have been rich for generations tend to act and present in different ways than an entrepreneur who stumbled on a billion dollar idea. But there’s more to it than wearing a suit or turtleneck. Let’s start by focusing on old money.

Old money, then and now
The concept of old money vs. new money originated in the early 20th-century as a way of discussing moguls like J.D. Rockefeller and Andrew Carnegie. These were men from poor backgrounds who essentially invested their way to the top, much to the chagrin of wealthy elites who could trace their fortunes to before the American Revolution. But most of us today would consider the Rockefellers and Carnegies to be textbook old money. So why have these families been assimilated into the upper upper class?

The old money mindset
Not every family that makes a fortune is able to keep it. Old money is built on careful planning, self-discipline, and intentional parenting with the goal of preserving a legacy and passing wealth from generation to generation. It’s a long-term approach with a conservative set of values. Plenty of people have built massive fortunes overnight throughout history. But not everyone is able to adopt a new set of values and blend in with the upper class of their time

Old money enclaves
Old money exists in a very specific world. It tends to vacation in specific places, live in specific neighborhoods, and send its children to specific schools in the Northeast. The world of old money is governed, and in many ways preserved, by rules and expectations designed to keep wealth inside the family. These aren’t people you’ll see flashing watches and cars on YouTube videos!

But what about new money? Check out my article on Wednesday to learn more about what sets these two classes apart.

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May 15, 2020

Questions To Ask When Buying In Bulk

Questions To Ask When Buying In Bulk

Buying in bulk is a no-brainer, right?

It seems cheaper and you can (hopefully) get all your shopping done for the family in one trip. What’s not to love?

But there are certain things to consider when shopping wholesale. Here are some questions you should ask yourself before buying in bulk

Can you afford the upfront cost?
Overall, buying in bulk at a big box store can be cheaper than normal shopping at your local supermarket. But it may not feel that way at the register. The upfront cost can be higher than you’re used to, so just make sure that you’ve budgeted that in. Remember, this is a long-term game where the savings can show up further down the line.

Will this product expire?
As a general rule of thumb, you want to avoid perishable items when buying in bulk. Let’s say you go to the wholesaler and notice that you can get a bargain on chicken. Sounds awesome! Should you buy 45 pounds of chicken and slam it in your fridge? Probably not. You’ll have about a week to get through that amount of poultry. Whatever is leftover will have to go into the freezer (more on that later).

But that still means that non-perishable paper items and personal care essentials are fair game. Buying razors in bulk? Go for it. Party cups? Fire away. Canned foods, beans, rice, and spices are also excellent to buy in bulk. But there’s another factor to consider…

Do you have enough space?
Getting a good deal is amazing. But stuffing your house to the brim isn’t. Make sure you have enough storage space before you decide to buy something in bulk. That deal on toothpaste might be a once in a lifetime opportunity, but will you have enough room to store it? You might be able to get away with buying perishable items and jamming them in a freezer, but how much freezer space do you have? Will you need to purchase an additional freezer? Just because you can afford a deal doesn’t mean you can afford to store it.

Buying in bulk can be a great way to save money. Just make sure you prepare and do your research before you start purchasing huge quantities of items!

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May 6, 2020

How Much Should You Save Each Month?

How Much Should You Save Each Month?

How much are you saving?

That might be an uncomfortable question to answer. 45% of Americans have $0 saved. Almost 70% have under $1,000 saved (1). That means most Americans don’t have enough to replace the transmission in their car, much less retire (2)!

But how much of your income should you send towards your savings account? And how do you even start? Keep reading for some useful strategies on saving!

10 percent rule
A common strategy for saving is the 50/30/20 method. It calls for 50% of your budget to go towards essentials like food and rent, 30% toward fun and entertainment, and the final 20% is saved. That’s a good standard, but it can seem like a faraway fantasy if you’re weighed down by bills or debt. A more achievable goal might be to save around 10% of your income and start working up from there. For reference, that means a family making $60,000 a year should try to stash away around $6,000 annually.

A budget is your friend
But where do you find the money to save? The easiest way is with a budget. It’s the best method to keep track of where your money is going and see where you need to cut back. It’s not always fun. It can be difficult or even embarrassing to see how you’ve been spending. But it’s a powerful reality check that can motivate you to change your habits and take control of your finances.

Save for more than your retirement
Something else to consider is that you need to save for more than just your retirement. Maintaining an emergency fund for unexpected expenses can provide a cushion (and some peace of mind) in case you need to replace your washing machine or if your kid needs stitches. And it’s always better to save up for big purchases like a vacation or Christmas gifts than it is to use credit.

Saving isn’t always easy. Quitting your spending habit cold turkey can be overwhelming and make you feel like you’re missing out. However, getting your finances under control so you can begin a savings strategy is one of the best long-term decisions you can make. Start budgeting, find out how much you spend, and start making a plan to save. And don’t hesitate to reach out to a financial professional if you feel stuck or need help!

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April 15, 2020

Are Hybrids Cost Effective?

Are Hybrids Cost Effective?

Do hybrids save you money? It’s an age-old question that’s generated substantial controversy.

Fortunately, the years have produced a lot of research on the issue. The results are clear; hybrids almost never break even with their gas-powered equivalents.

Upfront Cost
Hybrids almost always start off at a savings disadvantage when compared to gas cars. They can cost you on average thousands of dollars more upfront than a gas-powered car. For instance, a hybrid Toyota Corolla costs about $23,100,¹ while a gas version costs about $19,600.² So hybrids start you off quite a chunk of money in the hole. How can they make up for the initial disadvantage?

Gas mileage
Hybrids, unfortunately, don’t really pay for themselves at the pump, at least not quickly. Most hybrids will take years to pay for themselves, with some taking over a decade.³ You might want to do your research to compare hybrid and gas-powered models of the same car and see when the hybrids will recoup their higher costs!

Repairs, warranty, and incentives
Hybrids and gas powered vehicles are pretty similar in terms of reliability, but with one exception. Hybrid car batteries are incredibly durable and can sometimes last for the lifespan of the car. They’re pricey if they do fail (up to a few grand) but that’s often covered by warranties. Unfortunately, that’s really their only advantage. In absence of government incentives, hybrids are overall comparable maintenance-wise to gas cars.

Conclusion
That’s not to say that there aren’t reasons for driving a hybrid. Hybrids are awesome if you hate the experience of refueling a car. They’re also great if you’re environmentally conscious and don’t want to shell out for an electric car. Just know that you won’t start saving money until a few years have gone by!

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March 4, 2020

A Brief History of Credit Cards

A Brief History of Credit Cards

We’re all familiar with credit cards.

You probably have a few in your wallet! But did you know that they’re actually fairly modern inventions with an interesting, and surprisingly controversial, backstory. This is a brief history of credit cards!

Credit before cards
The concept of credit is actually thousands of years old. It dates back to the time of the first recorded laws, if not further. But the practice of credit fell on hard times following the fall of the Roman Empire; the Church opposed lending someone money and then adding on interest when they pay it back. But the Renaissance, coupled with the discovery of a huge resource filled continent, saw a revolution in Western banking and investing. Businesses started collaborating to find out which borrowers were reliable and which ones couldn’t pay their debts.

The birth of charge cards
It wasn’t uncommon for businesses to loan money to customers. General Motors, for instance, started offering credit in 1919 to car buyers who couldn’t pay up front with cash (1). Merchants with more regular customers, like department stores, started handing out credit tokens that would allow purchases to be made on credit.

But things changed in 1949 when New York businessman Frank McNamara realized he didn’t have his wallet at a restaurant when it came time to pay the check. Luckily his wife was there to rescue him. He and his business partner, Ralph Schneider, then came up with the idea of a card that would allow users to dine around New York on credit. It wasn’t a full-blown credit card; it had to be paid off in full at the end of each month, making it a “charge” card. But it was a hit. By 1951, the Diners Club Card was being used by 10,000 people (2)!

“Giving sugar to diabetics”
Big banks were quick to realize that they could make a pretty penny if they started offering easily accessible credit to the masses. In 1958, Bank of America released its own credit cards. Debt from one month was carried over to the next month, meaning consumers could carry revolving credit card debt for as long as they pleased. Magnetic strips—invented in the early 60s—were added to the plastic cards and used to store transaction information at special payment terminals.

But banks had a problem; they had to make sure that the cards were actually accepted by stores. Otherwise, why bother using your brand new credit card? But stores would only accept the cards if enough people actually had them. A mass mailing campaign began, with banks sending out millions of cards to families across the nation. It worked, and soon credit cards became increasingly normalized.

Not everyone was pleased. There were huge issues with cards being stolen out of mailboxes and used to rack up debt. Furthermore, some were uncomfortable with popular access to massive amounts of credit. The President’s assistant at the time described it as “giving sugar to diabetics (3).” Regulations were introduced throughout the 70s to reduce some of the excesses of credit card distribution and protect consumers.

Conclusion
But despite the backlash, credit cards had arrived on the scene for good. Banks united to strengthen their network in 1970, forming the group that would eventually become Visa. Interbank Card Association (i.e., MasterCard) formed in 1966 and then introduced a vast computer network in 1973, connecting consumers with merchants in unprecedented ways.

Today, credit cards are everywhere. In 2017, 40.8 billion credit transactions were made, totalling 3.6 trillion dollars (4). The technology of consumer credit has continued to evolve too. The magnetic strips of the 60s and 70s have given way to chips, and now cards are slowly being replaced by phones and digital watches. What started as a way of paying for dinner if you forgot your wallet has become an international and digital phenomenon that’s changed the lives of millions of consumers.

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February 12, 2020

What's a Recession?

What's a Recession?

Most of us would probably be apprehensive about another recession.

The Great Recession caused financial devastation for millions of people across the globe. But what exactly is a recession? How do we know if we’re in one? How could it affect you and your family? Here’s a quick rundown.

So what exactly is a recession?
The quick answer is that a recession is a negative GDP growth rate for two back-to-back quarters or longer (1). But reality can be a bit more complicated than that. There’s actually an organization that decides when the country is in a recession. The National Bureau of Economic Research (NBER) is composed of commissioners who dig through monthly data and officially declare when a downturn begins.

There’s also a difference between a recession and a depression. A recession typically lasts between 6 to 16 months (the Great Recession was an exception and pushed 18 months). The Great Depression, by contrast, lasted a solid decade and witnessed unemployment rates above 25% (2). Fortunately, depressions are rare: there’s only been one since 1854, while there have been 33 recessions during the same time (3).

What happens during a recession
The NBER monitors five recession indicators. The first and most important is inflation-adjusted GDP. A consistent quarterly decline in GDP growth is a good sign that a recession has started or is on the horizon. Then this gets supplemented by other numbers. A falling monthly GDP, declining real income, increasing unemployment, weak manufacturing and retail sales all point to a recession.

How could a recession affect you?
The bottom line is that a weak economy affects everyone. Business slows down and layoffs can occur. People who keep their jobs may get spooked by seeing coworkers and friends lose their jobs, and then they may start cutting back on spending. This can start a vicious cycle which can lead to lower profits for businesses and possibly more layoffs. The government may increase spending and lower interest rates in order to help stop the cycle and stabilize the economy.

In the short term, that means it might be harder to find a job if you’re unemployed or just out of school and that your cost of living skyrockets. But it can also affect your major investments; the value of your home or your retirement savings could all face major setbacks.

Recessions can be distressing. They’re hard to see coming and they can potentially impact your financial future. That’s why it’s so important to start preparing for any downturns today. Schedule a call with a financial professional to discuss strategies to help protect your future!

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February 10, 2020

Is Your Employer-Provided Life Insurance Enough?

Is Your Employer-Provided Life Insurance Enough?

Just because your company provides you with free life insurance coverage doesn’t mean you’re fully protected.

While it certainly doesn’t hurt to have, it may not be enough to provide for your family in the event of a tragedy.

For the first time ever, more Americans have employer-provided life insurance (108 million) than have individual life insurance coverage (102 million), according to a new LIMRA study. This is important especially during Life Insurance Awareness month to make sure you’re aware that typically life insurance through your job is not portable. Which means you can’t take it with you. Everyone should make sure they have individually owned insurance to protect their family just in case they switch jobs or lose their job or potentially start your own company.

How employer-provided life insurance works.
A life insurance policy from your employer is typically a group plan that’s offered to you and your co-workers. Your policy is held by the company, and they’ll often pay most if not all the premium costs. The amount of insurance you’ll receive varies, but it’s normally one to two times your annual salary.

Problems with employer-provided life insurance.
A $50,000 payout, for example, may seem like a lot. But you may notice a problem when you stop thinking in terms of numbers on paper and look at how long the insurance money would last. You go from $50,000 per year to just $50,000, period! A life insurance benefit is essentially buying your family time to grieve and plan for their future in your absence. That might mean looking for new jobs, adjusting to a single-income lifestyle, taking out student loans, and so on.

If your employer-provided policy just matches your annual salary, your loved ones would only be covered for a single year as they go through the process of readjustment (assuming their spending habits don’t change and they don’t encounter any emergencies). In fact, 5 to 10 times your annual income is considered a reasonable amount of insurance for just this reason; it gives your loved ones plenty of time to figure things out.

Another problem with an employer-provided life insurance policy is that it depends on your employment status. If you leave that job (voluntarily or involuntarily), what might happen to your family if they are left unprotected? While employer-provided life insurance is definitely a perk, it often might not be enough.

Alternatives to employer-provided life insurance.
That’s why considering an individual plan is so important. It may not be provided by your employer, but you’ll get what you pay for – a safety net for the ones you love and the time they’ll need to recover… regardless of where you’re working.

Have questions? Feel free to contact me! I would love to help you prepare your insurance strategy and help protect your family’s future.

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January 22, 2020

Why Financial Literacy is Important

Why Financial Literacy is Important

There’s a good chance that you’re facing a financial obstacle right now.

Maybe you’re trying to pay down some credit card debt, facing a meager retirement fund, or just struggling day-to-day to make ends meet.

It’s easy to feel overwhelmed and helpless in those situations, so much so that you might think learning a little more about how to manage your money wouldn’t make much difference right now.

But adopting a few key financial tips is often the best and simplest step towards taking control of your paycheck and finding some peace of mind. Here are some reasons why financial literacy is an essential skill for everyone to master, and a few tips to help you get started!

It helps you overcome fear
Let’s face it; money can seem scary. Mounting loans, debt, interest, investing—it can all be confusing and overwhelming. It may feel easier to ignore your finances and live paycheck to paycheck, never owning up to not-so-great decisions. But financial literacy gets right to the root of that fear by making things clear and simple. It empowers you to identify your mistakes and shows options to fix them.

Facing a problem is much easier once you understand it and know how to beat it. That’s why learning about money is so important if you want to start healing your financial woes.

It lets you take control of your finances
Financial literacy does more than just help you address problems or overcome obstacles. It gives you the power to stop being a victim and take control. You can start investing in your future with confidence instead of reacting to emergencies or going into deeper debt. That means building wealth and living life on your terms instead of someone else’s. In other words…

It helps you realize your dreams
Managing money isn’t about immediately seeing a bigger number in your bank account. It’s about having the resources and freedom to do the things you care about. Maybe that means taking your significant other on a dream vacation, giving more to a cause you care about, or providing your kids with a debt-free education.

Where to start
Acknowledging that you need to learn more can be the hardest step. That’s why meeting with a financial advisor is something you may consider. Calculate how much you spend versus how much you make and write down some financial goals. Then find a time to discuss your next steps. You may also want to sign up for a personal finance class that will cover things like budgeting and saving.

Financial literacy is one of the most important skills you can develop. Improving your financial education takes some time but it doesn’t have to be difficult. Give me a call. I’d love to sit down and help you learn more about ways you can take control of your future!

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January 20, 2020

Tips for Getting Out of Debt

Tips for Getting Out of Debt

Americans owe a whopping amount of debt.

Total consumer debt, for example, tops $4 trillion (1), and the average household owes $6,829 on credit cards alone (2).

Debt can cause a serious drain on your financial life, not to mention increase your stress levels. You may be parting with a big slice of your income just to service the debt—money that could be put to better use to fund things like a home, your own business, or a healthy retirement account.

Fortunately, there are lots of ways to get out of debt. Here are 3 of them…

Create a budget
Before you can start digging yourself out of debt, you need to know how you stand with your income versus your outgo every month. Otherwise, you may be sliding deeper into debt as each week passes.

The solution? Create a budget.

First, start tracking your expenses—there are apps you can get on your phone, or even just a notebook and pencil will do. Divide your expenses into categories. This doesn’t have to be complicated. Food, utilities, rent, entertainment, misc. Add them together every week and then every month.

Then, review your spending and compare it with your income. Spending more than you make? That has to be reversed before you’ll ever be able to get out of debt. Make a plan to either reduce your expenses or find a way to raise your income.

If debt payments are driving your expenses above your income, call your lender to see if you can get a plan with lower monthly payments.

Seek out lower interest rates
If you’re paying a high interest rate on credit card debt, a good portion of your monthly payment may be going towards interest alone. That means you may not be reducing the principal—the amount you originally borrowed—as much as you could with a lower interest rate. The lower your interest rate, the more your monthly payments can lower your debt—and eventually help you get out of it.

Find out the annual percentage rate (APR) on your current credit card debt by looking at the monthly statements. Then shop around to find any lower interest rates that might be out there. The next step would be to transfer your credit card debt to that new account with the lower rate. The caveat, however, is if any fees you may be charged now or after an introductory period would nullify the savings in interest. Always make sure you understand the terms on a new card before you transfer a balance.

Another option is to apply to a lender for a personal loan to consolidate your high interest rate debt. Personal loans can have interest rates significantly below those on credit cards. Again, make sure you understand any fees, penalties, and terms before you sign up.

Increase your monthly debt payments
Now that you’ve got your spending under control, it’s time to see if you can raise your debt payments every month. There are two primary methods to do this.

First, review your expenses to see if you can cut back in some categories. Can you spend a little time each week clipping coupons to reduce your grocery bill? Can you make coffee at home rather than purchasing it at the coffee shop every day? These changes can add up! Review entertainment costs, too. Can you cut out one or more streaming or cable services? It might be a good idea to find introductory offers that can reduce your monthly payments. Check into introductory cell phone offers, too, but always read the fine print so you don’t have any surprise fees or costs down the road.

Second, make a plan to increase your income. Can you ask for a raise at work, make a case for a promotion, or find a higher paying job? If that’s not in the cards, consider working a side gig. A few extra hours a week may increase your monthly income significantly—and help get you out of debt a little faster.

Are you struggling with debt? Get in touch with me and we can work on a strategy for a debt-free future.

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January 6, 2020

Are You Unwinding Yourself Into Debt in 2020?

Are You Unwinding Yourself Into Debt in 2020?

Americans owe more than $800 Billion in credit card debt.

You read that right: more than $800 billion.

It seems like more and more people are going to end up being owned by a tiny piece of plastic rather than the other way around.

How much have you or a loved one contributed to that number? Whether it’s $10 or $10,000, there are a couple simple tricks to get and keep yourself out of credit card debt.

The first step is to be aware of how and when you’re using your credit card. It’s so easy – especially on a night out when you’re trying to unwind – to mindlessly hand over your card to pay the bill. And for most people, paying with credit has become their preferred, if not exclusive, payment option. Dinner, drinks, Ubers, a concert, a movie, a sporting event – it’s going to add up.

And when that credit card bill comes, you could end up feeling more wound up than you did before you tried to unwind.

Paying attention to when, what for, and how often you hand over your credit card is crucial to getting out from under credit card debt.

Here are 2 tips to keep yourself on track on a night out.

1. Consider your budget. You might cringe at the word “budget”, but it’s not an enemy who never wants you to have any fun. Considering your budget doesn’t mean you can never enjoy a night out with friends or coworkers. It simply means that an evening of great food, fun activities, and making memories must be considered in the context of your long-term goals. Start thinking of your budget as a tough-loving friend who’ll be there for you for the long haul.

Before you plan a night out:

  • Know exactly how much you can spend before you leave the house or your office, and keep track of your spending as your evening progresses.
  • Try using an app on your phone or even write your expenses on a napkin or the back of your hand – whatever it takes to keep your spending in check.
  • Once you have reached your limit for the evening – stop.

2. Cash, not plastic (wherever possible). Once you know what your budget for a night out is, get it in cash or use a debit card. When you pay your bill with cash, it’s a concrete transaction. You’re directly involved in the physical exchange of your money for goods and services. In the case that an establishment or service will only take credit, just keep track of it (app, napkin, back of your hand, etc.), and leave the cash equivalent in your wallet.

You can still enjoy a night on the town, get out from under credit card debt, and be better prepared for the future with a carefully planned financial strategy. Contact me today, and together we’ll assess where you are on your financial journey and what steps you can take to get where you want to go – hopefully by happy hour!

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December 18, 2019

The Breakdown: Term vs. Perm

The Breakdown: Term vs. Perm

Navigating the world of life insurance can be a daunting task.

Even more daunting can be figuring out what policy is best for you. Let’s break down the differences between a couple of the more common life insurance policies, so you can focus on an even more daunting task – what your family’s going to have for dinner tonight!

Term Life Insurance
A Term life insurance policy covers an individual for a specific period of time – the most common term lengths being 10, 20, or 30 years. The main advantage of this type of policy is that it generally can cost the consumer less than a permanent insurance plan, because it might be shorter than a permanent policy.

The goal of a term policy is to pay the lowest premiums possible, because by the time the term expires, your family will no longer need the insurance. The primary thing to keep in mind is to choose a term length that covers the years you plan to work prior to retirement. This way, your family members (or beneficiaries) would be taken care of financially if something were to happen to you.

Permanent Life Insurance
Contrary to term life insurance, permanent life insurance provides lifelong coverage, as long as you pay your premiums. This insurance policy – which also can be known as “universal” or “whole” – provides coverage for ongoing needs such as caring for family members, a spouse that needs coverage after retirement, or paying off any debts of the deceased.

Another great benefit a perm policy offers is cash accumulation. As premiums are paid over time, the money is allocated to an investment account from which the individual can borrow or withdraw the funds for emergencies, illness, retirement, or other unexpected needs. Because this policy provides lifelong coverage and access to cash in emergencies, most permanent policies are more expensive than term policies.

How Much Does the Average Consumer Need?
Unless you have millions of dollars in assets and make over $250,000 a year, most of your insurance coverage needs may be met through a simple term policy. However, if you have a child that needs ongoing care due to illness or disability, if you need coverage for your retirement, or if you anticipate needing to cover emergency expenses, it may be in your best interest to purchase a permanent life insurance policy.

No matter where you are in life, you should consider purchasing some life insurance coverage. Many employers will actually offer this policy as part of their benefits package. If you are lucky enough to work for an employer who does this, take advantage of it, but be sure to examine the policy closely to make sure you’re getting the right amount of coverage. If you don’t work for a company that offers life insurance, don’t worry, you still may be able to get great coverage at a relatively inexpensive rate. Just make sure to do your research, consider your options, and make an informed decision for you and your family.

Now, what’s it going to be? Order a pizza or make breakfast for dinner? Choices, choices…

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December 11, 2019

Party of Two?

Party of Two?

Life insurance is the most personal type of insurance you can have in today’s world.

But there seems to be a lot of confusion about it. Every consumer has different priorities and feelings. Add to that the fact that life insurance can be used for a variety of financial goals and needs, and you have a recipe for befuddlement.

When it comes to life insurance, most agree that if you have children, you should probably have it. There is no question. But what if you don’t have children? Do you need to purchase life insurance? Here’s why it may still be important, even if you don’t have kids now (or don’t plan to):

Many households need a dual income to survive.
Since women began entering the workforce en masse in 1960, household incomes have been on the rise. Many households have now adopted a lifestyle that depends on a dual income to maintain itself. If you’re in this situation, there might be some consequences of your life insurance decisions.

If something happened to you or your spouse, would the survivor still earn enough money to maintain their lifestyle? If the answer is no, consider how a life insurance policy might help.

Mortgage debt is big debt.
Mortgage debt in the United States is big – bigger than credit card or student loan debt. Still, mortgage debt is “healthy” debt assuming the growing equity in a home makes it worthwhile.

But mortgage debt can become a problem if a household’s income takes a hit. Life insurance can protect families from this risk by helping to pay off a mortgage, should something happen to you or your spouse. Either a term life policy or a special mortgage life policy can be used to pay off a mortgage.

Mortgage life insurance can be a nice layer of protection for couples that don’t have children but do have a mortgage.

Life insurance can be used as a savings tool.
Many life insurance policies offer a cash value. This means that certain policies can be cashed in whether or not a death has occurred. In this way, a life insurance policy can act as a savings tool.

Couples without children can pay into their policy in the form of the premiums, and then cash it out for a retirement dream: a new home, a hobby business, or an extended vacation. Using life insurance as a savings tool can offer tax benefits, a guaranteed savings method for the “savings challenged”, and a creative way to finance a dream. In short, it’s a savvy use of life insurance for couples who don’t have kids.

Funeral expenses can wipe out an emergency fund.
A life insurance policy can help cover funeral expenses for you or your spouse. This is one of the most common uses of life insurance. The average funeral today can cost between $7,000 and $10,000. That’s enough to wipe out an emergency fund, or seriously deplete it.

Having a life insurance policy in place can help cover expenses if you or your spouse were to pass away unexpectedly, so you can leave your fund for the day-to-day difficulties intact.

Whether you have children or not, a sudden illness or loss of a breadwinner can have lasting consequences for the loved ones you leave behind. Taking advantage of a well-tailored life insurance policy to shield them from an unnecessary financial burden if something were to happen is one of the best gifts you can give.

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November 20, 2019

Which Debt Should You Pay Off First?

Which Debt Should You Pay Off First?

American combined consumer debt now exceeds $13 trillion. That’s a stack of dollar bills nearly 900,000 miles high.

Here’s the breakdown:

  • Credit cards: $931 billion
  • Auto loans: $1.22 trillion
  • Student loans: $1.38 trillion
  • Mortgages: $8.88 trillion
  • Any type of debt: $13.15 trillion

Nearly every type of debt can interfere with your financial goals, making you feel like a hamster on a wheel – constantly running but never actually getting anywhere. If you’ve been trying to dig yourself out of a debt hole, it’s time to take a break and look at the bigger picture.

Did you know there are often advantages to paying off certain types of debt before other types? What the simple list above doesn’t include is the average interest rates or any tax benefits to a given type of debt, which can change your priorities. Let’s check them out!

Credit Cards
Credit card interest rates now average over 15%, and interest rates are on the rise. For most households, credit card debt is the place to start – stop spending on credit and start making extra payments whenever possible. Think of it as an investment in your future, one that pays a 15% guaranteed return – the equivalent of a 20% return in the stock market or other taxable investment.

Auto Loans
Interest rates for auto loans are usually much lower than credit card debt, often under 5% on newer loans. Interest rates aren’t the only consideration for auto loans though. New cars depreciate nearly 20% in the first year. In years 2 and 3, you can expect the value to drop another 15% each year. The moral of the story is that cars are a terrible investment but offer great utility. There’s also no tax benefit for auto loan interest. Eliminating debt as fast as possible on a rapidly depreciating asset is a sound decision.

Student Loans
Like auto loans, student loans are usually in the range of 5% to 10% interest. While interest rates are similar to car loans, student loan interest is often tax deductible, which can lower your effective rate. Auto loans can usually be paid off faster than student loan debt, allowing more cash flow to apply to student debt, emergency funds, or other needs.

Mortgage Debt
In most cases, mortgage debt is the last type of debt to pay down. Mortgage rates are usually lower than the interest rates for credit card debt, auto loans, or student loans, and the interest is usually tax deductible. If mortgage debt keeps you awake at night, paying off other types of debt first will give you greater cash flow each month so you can begin paying down your mortgage.

When you’ve paid off your other debt and are ready to start tackling your mortgage, try paying bi-monthly (every two weeks). This simple strategy has the effect of adding one extra mortgage payment each year, reducing a 30-year loan term by several years. Because the payments are spread out instead of making one (large) 13th payment, it’s likely you won’t even notice the extra expense.

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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% this past year. The average American now owes over $6,300 in credit card debt. For households, the number is much higher, at nearly $16,000 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 23, 2019

Top Reasons Why People Buy Term Life Insurance

Top Reasons Why People Buy Term Life Insurance

These days, most families are two-income households.

That describes 61.9% of U.S. families as of 2017. If that describes your family (and the odds are good), do you have a strategy in place to cover your financial obligations with just one income if you or your spouse were to unexpectedly pass away?

Wow. That’s a real conversation-opener, isn’t it? It’s not easy to think about what might happen if one income suddenly disappeared. (It might seem like more fun to have a root canal than to think about that.) But having the right coverage “just in case” is worth considering. It’ll give you some reassurance and let you get back to the fun stuff… like not thinking about having a root canal.

If you’re interested in finding out more about Term insurance and how it may help with your family’s financial obligations, read on…

Some Basics about Term Insurance
Many of life’s financial commitments have a set end date. Mortgages are 15 to 30 years. Kids grow up and (eventually) start providing for themselves. Term life insurance may be a great option since you can choose a coverage length that lines up with the length of your ongoing financial commitments. Ideally, the term of the policy will end around the same time those large financial obligations are paid off. Term policies also may be a good choice because in many cases, they may be the most economical solution for getting the protection a family needs.

As great as term policies can be, here are a couple of things to keep in mind: a term policy won’t help cover financial commitments if you or your spouse simply lose your job. And term policies have a set (level) premium during the length of the initial period. Generally, term policies can be continued after the term expires, but at a much higher rate.

The following are some situations where a Term policy may help.

Pay Final Expenses
Funeral and burial costs can be upwards of $10,000. However, many families might not have that amount handy in available cash. Covering basic final expenses can be a real burden, especially if the death of a spouse comes out of the blue. If one income is suddenly gone, it could mean the surviving spouse would need to use credit or liquidate assets to cover final expenses. As you would probably agree, neither of these are attractive options. A term life insurance policy can cover final expenses, leaving one less worry for your family.

Pay Off Debt
The average household in the U.S. is carrying nearly $140,000 in debt. For households with a large mortgage balance, the debt figures could be much higher. Couple that with a median household income of under $60,000, and it’s clear that many families would be in trouble if one income is lost.

Term life insurance can be closely matched to the length of your mortgage, which helps to ensure that your family won’t lose their home at an already difficult time.

But what about car payments, credit card balances, and other debt? These other debt obligations that your family is currently meeting with either one or two incomes can be put to bed with a well-planned term life policy.

Income Protection
Even if you’ve planned for final expenses and purchased enough life insurance coverage to pay off your household debt, life can present many other costs of just… living. If you pass unexpectedly, the bills will keep rolling in for anyone you leave behind – especially if you have young children. Those day-to-day living costs and unexpected expenses can seem to multiply in ways that defy mathematical concepts. (You know – like that school field trip to the aquarium that no one mentioned until the night before.)

But Wait, There’s More
A well-planned term life insurance policy can provide other benefits as well, including living benefits that can help prevent medical expenses from wreaking havoc on your family’s financial plan if you become critically ill. One note about the living benefits policies, though: If the critical and chronic illness features are used, the face value of the policy is reduced. But which might be more prepared to take a financial hit: the face value of the life insurance policy that just helped you cover your medical expenses… or your child’s college fund?

In some cases, policies with built in living benefits may cost more than a standard term policy, but it may still cost less than permanent insurance policies! And because a term policy is in force only during the years when your family needs the most protection, premiums can be lower than for other types of life insurance.

Term life insurance can provide income protection to help keep your family’s financial situation solid, and help things stay as “normal” as they can be after a loss.

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October 21, 2019

Is Survivorship Life Insurance Right For You?

Is Survivorship Life Insurance Right For You?

A survivorship life insurance policy is a type of joint insurance policy (a policy built for two).

You may not have thought much about that type of insurance before, or even knew it existed. But joint policies, especially survivorship policies, are important to consider because they can provide for heirs, settle estates, and pay for final expenses after both spouses have passed.

Most joint life insurance policies are what’s known as “first to die” policies. As the unambiguous nickname suggests, a first to die policy is designed to provide for the remaining spouse after the first passes.

A joint life insurance policy is a time-tested way of providing for a remaining spouse. But without careful planning, a typical joint life policy might leave a burden for surviving children or other family members.

A survivorship life insurance policy works differently than a first to die policy. Also called a “last to die” policy, a survivorship policy provides a death benefit only when both insured spouses have passed. A survivorship policy doesn’t pay a death benefit to either spouse but rather to a separate named beneficiary.

You’ll find survivorship life insurance referred to as:

  • Joint Survivor Life Insurance
  • Second-to-Die Life Insurance
  • Variable Survivorship Insurance

Survivorship life insurance policies are sometimes referred to by different names, but the structure is the same in that the policy only pays a benefit after both people insured by the policy have died.

Reasons to Buy Survivorship Life Insurance
We all have our reasons for buying a life insurance policy, and often have someone in mind who we want to protect and provide for. Those reasons often dictate the best type of policy – or the best combination of policies – that can meet our goals.

A survivorship policy is well-suited to any of the following considerations, perhaps in combination with other policies:

  • Final expenses
  • Estate taxes
  • Lingering medical expenses
  • Payment of debt
  • Transfer of wealth

It’s also most common for a survivorship life insurance policy to be a permanent life insurance policy. This is because the reasons for using a survivorship policy, including transfer of wealth, are usually better served by a permanent life policy than by a term insurance policy. (A term life insurance policy is only in force for a limited time and doesn’t build any cash value.)

Benefits of Survivorship Life Insurance

  • A survivorship life policy can be an effective way to transfer wealth as part of a financial strategy.
  • Life insurance can be difficult to purchase for individuals with certain health conditions. Because a survivorship life insurance policy is underwriting coverage based on two individuals, it may be possible to purchase coverage for someone who couldn’t easily be insured otherwise.
  • As a permanent life insurance policy, a survivorship life policy builds cash value that can be accessed if needed in certain situations.
  • Costs can be lower for a survivorship life policy than insuring two spouses individually.

The good news is that life insurance rates are more affordable now than in the past. That’s great! But keep in mind, your life insurance policy – of any type – will probably cost less now than if you wait for another birthday to pass for either spouse insured by the policy.

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October 9, 2019

Are You Sitting Down?

Are You Sitting Down?

When things go wrong or we face an unexpected expense, we usually have one of two choices: Use credit to navigate a short-term cash crunch, or dip into savings.

In either case, it’s a good idea to have liquid funds available. Using credit can actually make your money problem worse if you don’t have enough to pay off the balance each month to avoid incurring interest charges. If you use savings but don’t have a comfortable cushion put away, repairing your home’s ancient A/C system may deplete your emergency stores, leaving you with nothing to replace the washer and dryer that decided to break down at the same time.

Ideally, you’ll have enough money saved to cover the unexpected. However, if you’re like many American households, that may not be the case. The U.S. personal savings rate continues to fall.

National Savings Rate
The savings rate is calculated as the ratio of personal savings to disposable personal income. In March 2018, the U.S. personal savings rate was about 3%. So – is that high? Is it low? Get this: The personal savings rate has fallen nearly 50% in the past two years. Tracking the monthly savings rate back to 1959 shows that we’re not as good at saving as we used to be. In the past, the long-term average personal savings rate was over 8%, with some periods of time when it was over 15%. Kind of shames our current 3% savings rate, doesn’t it?

The national personal savings rate is also skewed by higher income savers, with the top 1% saving over 51% and the top 5% saving nearly 40% of their disposable income. Unsurprisingly, lower income families can have more difficulty with saving, as most of their paycheck is often already earmarked for basic bills and normal household expenses.

A recent survey by GOBankingRates found that nearly 70% of Americans have less than $1,000 saved and more than a third have nothing saved at all. Yikes. Age and levels of responsibility can influence savings rates. Anyone with a growing family – particularly a homeowner or a household with children – knows that surprise expenses aren’t all that surprising because the surprises just keep coming. This can put pressure on the best laid plans to try to increase savings.

How to Save More
If you have a 401(k), your contribution to it comes from a payroll deduction, meaning your 401(k) contribution is paid first – before you get the rest of your paycheck. If you have a 401(k) or a similar type of retirement account, there are lessons that can be borrowed from that account structure which can be used to help build your personal savings.

Paying yourself first is a great way to begin building your emergency fund, which can leave you better prepared for the proverbial rainy day. If you look at your monthly expenses, and if your household is like most households, you’re almost certain to find some unnecessary spending.

Start paying yourself first – by putting some money aside in a separate account or a safe place. This can help prevent some of those unnecessary expenditures (because there won’t be money available) while also leaving you better prepared.

The next time the car needs repairs, the A/C stops working, the fridge stops freezing, or the lawnmower breaks down, you’ll be ready – or at least you’ll be in a better position to bail yourself out!

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October 7, 2019

Mortgage Protection: One Less Thing To Worry About

Mortgage Protection: One Less Thing To Worry About

How many things do you worry – er, think – about, each day? 25? 50? 99?

Here’s an opportunity to check at least one of those off your list. Read on…

Think back to when you were involved in the loan process for your home. Chances are good that at some point during those meetings, a smiling salesperson mentioned “mortgage protection”.

With so many other terms flying around during the conversation, like “PMI” and “APRs”, and so much money already committed to the mortgage itself – and the home insurance, and the new furniture you would need – you might have passed on mortgage protection.

You had (and hopefully still have) a steady job and a life insurance policy in place, so why would you need additional protection? What could go wrong?

Before we answer that, let’s clear up some confusion.

Mortgage Protection Insurance is not PMI
These two terms are often used interchangeably, but they are not the same thing.

Both Private Mortgage Insurance (PMI) and Mortgage Protection are insurance, but they do different things. PMI is a requirement for certain loans because it protects the lender if your home is lost to foreclosure.

Essentially, with PMI you’re buying insurance for your lender if they determine your loan is more risky than average (for example, if you put less than 20% down on your home and your credit score is low).

Mortgage protection, on the other hand, is insurance for you and your family – not your lender.

There are several types of mortgage protection, but generally you can count on it to protect you in the following ways:

  • Pay your mortgage if you lose your job
  • Pay your mortgage if you become disabled
  • Pay off your mortgage if you die

Say, That Sounds Like Life Insurance.
Not exactly. Mortgage protection actually can cover more situations than a life policy would cover. Life insurance won’t help if you lose your job and it won’t help if you become disabled. Mortgage protection bundles all these protections into one policy – so you don’t need multiple policies to cover all the problems that could make it difficult to pay your mortgage each month. (Hint: A life insurance policy would be a different part of your overall financial plan and often has its own separate goals.)

How Does Mortgage Protection Work?
A mortgage protection policy is usually a “guaranteed issue” policy, meaning that many of the roadblocks to purchasing a life insurance policy, such as health considerations and exams, wouldn’t be there.

If you lose your job or become disabled, your policy will pay your mortgage for a limited amount of time, giving you the opportunity to find work or to make a backup plan. Again, your house is saved, your family still has a roof over their heads, and you’re a hero for thinking ahead. Accidents happen and people lose their jobs every day. Mortgage protection is there to catch you if you fall.

One More Thing…
A mortgage protection policy is a term policy, so you don’t need to keep paying premiums after your house is paid off.

Now that you know a little bit more about mortgage protection policies, have those 99 worries ticked down to 98? Reaching out to me for guidance on your financial worries could help you make that number smaller and smaller… 97… 96… 95…

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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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September 16, 2019

Your Life Insurance Rate & You: Pre-Existing Conditions

Your Life Insurance Rate & You: Pre-Existing Conditions

What’s a fact that you know is a fact… but you kind of brush aside?

  • That your buddy never ever washes that game jersey?
  • That those crazy-expensive yoga pants aren’t really for yoga?
  • That definitely wasn’t chicken in that road trip hunger-attack pit-stop sandwich?

An interesting thing about all of those uncomfortable facts are the results.

  • That dirty jersey is a good luck charm – it helps the team win every time!
  • Those yoga pants are the best lounging investment ever made.
  • … There’s no way to rescue that last one, sorry!

The idea of brushed aside facts applies to life insurance, too… But perhaps brushing aside the facts feels necessary to many uninsured people in order to get a good night’s sleep.

One fact that may keep people with pre-existing conditions up at night? The younger and healthier a person is, the easier they are to insure. For example, a healthy 30-year-old can get a $250,000 term life insurance policy for less than $14 a month.

Why might this keep people with pre-existing conditions up at night? It can be more difficult to get an affordable rate for a life insurance policy when you have a pre-existing condition. For the 1 in 5 non-elderly Americans affected by a pre-existing health condition, this is troubling news. That’s 25 million Americans without a way to provide for their families if their cancer returns or if a congenital heart defect acts up or a degenerative disease suddenly progresses at a rapid rate.

If you have a pre-existing condition, I’m here to help!

The advantage of working with me? You are not confined to the offerings of one insurance provider. There are multiple possible solutions and multiple companies that you may be able to choose from. This isn’t a guarantee for success, but I’m willing to help and walk down this road with you. Give me a call today, and together we can explore your options – and that’s a fact you don’t need to brush aside.

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