Category Archives: Financial Health

Ask Yourself Questions Before You Buy A Home

Don’t buy too much house.

You’ve saved enough for a 20% (or more) down payment on a home.  You’ve been scanning mortgage lender sites and interest rates along with neighborhoods you’d like to live in, real estate lawyers etc.  So much to do….but first…. check with lenders and get your best rate (which is tied into your credit score, along with your income to debt ratio).

The mortgage lender will let you know, by crunching numbers and information you have provided, and come up with a figure which they say you can afford to pay for a home…a monthly payment including principal, interest, taxes and insurance (PITI). The thing is, it is at the high end of the spectrum, and if you buy a home at that price, you may find yourself in financial trouble….meaning you are buying too much house, thus you will be house poor.

Think ahead.  Are you single? Staying single? Married? Children? No children? Maybe children? Will the answers be the same in 5-7 years? Questions like these and answers for them need to be considered in the size and cost equation of the house you’re thinking of buying.  You want to stay at the very least 7-10 years in a home…maybe more. Maybe it will be the one and only house you ever buy.

Say you’re single, and may find the perfect little house for yourself, or a really nice one bedroom condo, but if you get married, and expect a baby, ohhh, twins… will there be enough room for them and all the stuff they need? Would it be better to buy a home with 2 bedrooms to carry you along so you can stay and grow equity in the house? If you have two bedrooms, while single you can use one as an office/study/den…then should you marry and have even two children, even a boy and girl can share a room while young.

On the other hand, if your family is complete, and say you have 4 children, 2 girls, 2 boys, but ages spaced far apart, if you purchase a 5 bedroom home, before you know it, the kids will be off to college or on their own, and you have a huge house to rattle around in, along with the upkeep of it.  Yes, you can sell it, but some of the ‘McMansions” are hard to sell.

So, think ahead. Go over your budget thoroughly, and only buy a house at the figure you are financially comfortable with paying each month for the next 30 years. And, yes, it can be lower than what the lender says ‘you can afford’.

Remember, you will want to redecorate, paint, maybe a new piece of furniture.  A hammock, picnic table, grill etc. And the cost of yard upkeep of a house means lawnmower, snowblower etc, or landscaper, called HOA fees if you buy a condo.

Get a pre-approval letter from the lender, and bring it along to open houses….do not give it to the realtor there, you keep it, but show it to them to let them know you are a serious buyer who has also gone that one step further to get approval from your lender.  It may be the clincher that gets you ‘the home of your dreams’.

The idea is to buy the nicest house you can, in or near the neighborhood you like, and make it your own…. without using a bigger portion of your monthly budget than ‘you’ can comfortably afford.  You don’t want to have sleepless nights worrying about the large mortgage payment, when a smaller, still perfect house, will serve you just the same.

 

 

Teens and Credit Cards

Learn to be Credit Card Savvy Before You Sign On

When teens are in their Senior year of high school, along with all the college info coming their way, companies are handing out credit card applications.  Whoa……learn the rules first.

  • Know that when you sign the dotted line, you are held legally responsible for the debt.
  • Know that along with carrying the card in your pocket, there are large fees if you don’t pay up in full and do so on time.
  • Know that there is something called a Credit Score, which will follow you, and if it’s not in the good to excellent range, you can be turned down for a loan (college and car), job, home.
  • Know that when your name is on the card, the bill for any purchases made belongs to you.
  • Know that it’s wise to keep your sales slips, and match them to the charges on the bill when you receive it.  Scrutinize it.  Any discrepancies, call Customer Service on the back of your card.
  • Know that you don’t let anyone else, not even your BFF, use it.
  • Know that if you don’t think you can handle the above, don’t fill out the application.

However, if you’re sure you are mature and responsible enough to handle it, then okay.  A suggestion would be to get no more than a $500. limit.  Remember, don’t purchase what you can’t pay for in full, when the bill comes due.  Pay in full, and make sure it’s received by the company before the due date.  Otherwise, you will have interest fees tacked on to the unpaid balance, as well as a hefty late fee.  Even if it arrives in their afternoon mail, some companies post payment the next day.  Late is late.  Then next month you’ll be paying the interest and late fees….a total waste of money…. as well as purchases made.  Doing this gets you into a financial hole.  It will be tough to dig out.  Along with that your Credit Score takes hits.

Learn early.  Buy only what you know you can pay for when the bill comes in.

Is Your Paycheck Consistent, Sporadic, or Seasonal

Frequency of income, and how you budget it goes hand in hand.

Most workers are paid on a set schedule….weekly, bi weekly, or monthly.  Per-diem  workers are paid sporadically, and depending on their hours worked.  Those who are self employed have busy and slower times, so uneven months. And most teachers  receive an annual salary paid evenly throughout the school season., but not Summers. Seasonal workers, landscapers, snowplow drivers, etc, are paid when they work.

When the paycheck is always the same, and you receive it on a set schedule, it’s easier to budget – because you receive it evenly throughout the year.

Teachers have to budget differently, figuring the annual total income into 12 months, and as each pay period arises, part of it should be set aside immediately so in the Summer months when they don’t receive a paycheck,….there is a ‘paycheck’ set aside. Some work a side job in the Summer to add to their income during those months.

Those who are self employed should, in their busy months, set aside some of the extra money earned for when any slower months arrives… in other words, be prepared….the money you’ve set aside is there as ‘fill-in’ to add in when you have a month that is a little slower – evening it out.

Seasonal workers may, and may not, have a regular income from another job.  If they do have a regular job,  the seasonal job is ‘gravy’.  Either way, seasonal is not always definite,

No matter how your income is received……be budget savvy.  Be disciplined. Don’t let yourself get short of cash.

Growth Spurts For Your Savings

Easy Ways To Take Advantage Of Helping Your Savings Grow

  1. Create a budget and stick to it…..it is possible and profitable.
  2. Pay yourself first…. a priority.
  3. Start early… adding as much as you can to your accounts each paycheck.
  4. Become frugal, put into your savings what you have been spending frivolously.
  5. Pay off outstanding debt…..stop using the credit cards,
  6. Make annual contributions – aiming for the maximum allowed to your Retirement Accounts.
  7. In your two Emergency Accounts, find the highest interest rate available.
  8. Interest compounded daily is the best…adding more to your account growth.
  9. Pay on time and in full – saving mounting interest charges and or late fees.
  10. Find a banking institution that has free accounts.

Retirement Accounts….How To Start

Time flies….your financial future comes along fast

You’ve heard over and over about Retirement Accounts.  IRA, Roth, 401K, 403B, etc. Although your retirement years may seem aeons away, don’t neglect to open it as early as you can. And if you’re older, still open it.  Speak to someone in the HR department of your company to see if the company is set up for you to withdraw money automatically from your paycheck.  This is the best way to do this.  The money you don’t see, you won’t miss. Or if you work in a smaller business with no Retirement Plans available, you, yourself, set money aside each paycheck, putting it in a savings account until you can speak to a Financial Adviser.

Interview some reputable Financial Advisers.  Ask if they’re a Fiduciary (a person who acts in your best interest)… some are not a Fiduciary but rather an Adviser who gets a commission for a product (usually insurance) they sell to you.  Ask questions, understand answers, be informed before you make a final choice.  Your Adviser can be changed, and certainly if you find they aren’t working with your money the way you think they should or are comfortable with.  You want to know where your money is allocated and why it is allocated there.  Ask questions.  It’s your money.  You’re the boss, and if you don’t get or don’t understand the answers, change your Adviser.

People usually retire in mid to late 60’s.  So starting to save for it in your 20’s gives you 40 or so years for growth in your account(s).  You want to diversify your money.  The market can be very volatile, and if you have not spread out your money, and the market goes down in the area where your money is allocated, you now have less money in it.  No one has a crystal ball.  That’s why it’s best to diversify.  A good Adviser will guide you and will recalculate your investments accordingly to re-balance your account(s).  This is imperative.

As you get older, you may want to be a little more conservative.  You should meet with your Adviser at least annually, and speak with him/her with any questions or concerns in between.

Social Security has been around now for decades.  A deduction is taken from your paycheck, is put in the Social Security System Account. People retire and are eligible to receive Social Security Benefits each month, although it was never meant as an income that would sustain you fully.  Over the decades, the money there was allocated differently, and although millions receive benefits, the Social Security System will become insolvent in about 15 years, unless Congress fixes it.  In other words, don’t depend on it as an income for your retirement years.  Depend on only yourself.  So save, save, save now.

Whichever type of Retirement Account vehicle you choose, always try to put the maximum allowable amount in each year.  You will not regret it.

 

Nuts and Bolts….A Financial Guideline

Some wise tips to learn early…. but it’s never too late

  1. Start saving early….. every cent counts.

2. Do not amass credit card debt… what you purchase with a credit card, you pay for in full               and before the due date.

3. Begin a retirement account(s) as soon as you can. Add the maximum allowable.

4. Don’t try to keep up with the crowd.  Their ‘norm’ for spending might be more than you can         handle.  Don’t pretend you have money.

5. Live within your income.  Pay yourself first and save it.  Be disciplined with budgeting.

6. Scrutinize your bills…. know what you’re paying for.

7. Keep a paper check register, and balance it yourself…..to the penny….. continually.

8. Set realistic financial goals, and save consistently to make them happen.

9. When you get a pay raise, save it…. you got along without it before you got it.

10. Keep your life simple.  Your finances will fall into place in that way too.

A Penny Saved

Every cent counts…..it’s common sense

Have you ever taken change out of your pocket or purse and set it aside in a jar?  Most have.  They’d do this each day or so without a thought, and then find a bigger jar as it was filling up, setting it aside in the corner, tossing change in it on a regular basis.

Then, they’d lug it to the bank or roll the coins themselves….and were pleasantly surprised at the total there. The same holds true with a savings account.  It starts small, but when added to on a continual basis….as much as you can comfortably put aside, it will become second nature….a very good habit.  Remember, every penny counts.

Pay yourself first…. Even when reducing your outstanding debt, add a few dollars to your savings.  You will not only be getting into the habit of doing it, but when your debt is paid off, you should now put the amount you had been using to pay off the debt and add it into your already opened savings account….as though you were still paying the debt.

Now, watch it grow (in your savings account).  And remember, the figure each month you see in the savings, is yours…not the creditors.  It also shows you how much you wasted over time, paying late fees and or interest fees.  Lesson learned.

Savings takes discipline then becomes second nature.  Do this for yourself, you deserve it.

 

Intersections Of Life

There was you, and now there’s…almost…two

You are single….moving through life.  You are making a good income, and are financially savvy.  You have no outstanding debt,  no credit card debt, no outstanding loans, and you have your essential savings accounts set up and consistently and faithfully add to them.  You’ve done all the right things.  Great job! Congrats and kudos to you!  Keep up the good work!

Now you meet ‘someone special’.  You date, you are compatible in many ways, you become serious and start talking about a future together.  All very nice, very sweet, but slow down a bit.  Almost all the boxes are checked off in the ‘these are things I’d like in a lifelong mate’ column. ‘Almost’… being the key word.  The  box regarding finances isn’t checked off.  You’ve found out that he/she has a lot of outstanding debt.  It’s time to step back…. put the brakes on.

Your intended might be perfect in every way…. except…. you’re not on the same page handling finances.  He/she has outstanding debt, lots.  Mounting credit card debt, a college loan, a car loan…and they pay only the minimum each month.  They have a closet full of clothes and shoes, but think they still need more, they enjoy eating out more often than not, and think its necessary to have a drink or a few in order to have a good time.  These are red flags.  Every single one of them.

Even though a wonderful person, there is a problem. This is and will continue to be a major problem — for you — moving forward.  Their debt becomes your debt if you marry.  Their debt will bring your credit score down, because you would now be sharing the credit score number too.

Don’t make set future plans unless and until this debt is gone, and ways of saving and spending is on the same page as you. A financial plan is needed…now.  One that will eliminate their outstanding debt.

If you go forward with the relationship, you’re not only working on eliminating their debt, but should the ‘two become three’, (surprises do happen), then there are child care costs added to the bills, and you will wonder how someone so tiny needs so much and costs so much, maybe while all done on a single income because the other parent is the stay at home parent now.  So think hard….now.

Don’t be to quick to jump into a lifelong commitment.  Hold off, postpone the marriage vows, You can still stay involved, while showing him/her how to budget and stay within the perimeters of their income, all while they pay off their debt, and starting a savings plan that will continue on. If that’s not acceptable to the other, then it’s probably time to end the relationship and move on.

Starting out already in a financial hole is not a good idea.  Right from the beginning, being on the same page regarding finances is imperative in a relationship.

Once the debts are paid, exchange vows, and moving forward work together on the finances.  Having the same financial goals, and working together keeping and staying within a budget is imperative.

You worked hard to get where you are financially, if you go into a commitment with a messy financial history that has no end in sight, that’s not fair to you.  Don’t do that to yourself.

 

Keeping Bill Paying Organized

Setting up separate checking accounts

Think about it.  In your home you have cabinets and drawers to separate things.  You can go to a particular drawer or cabinet to get specific item to do a specific job. Having separate checking accounts for particular bills is just like that.  It keeps things organized.  You always know at a glance what you have, and what needs to be added.  That said….

A checking account for rent/mortgage with auto  deposits by you and auto withdrawals by the landlord/lender, is a good idea.  Another is to have an excess in the amount of 1-4 months of what the rent/mortgage is.  With your diligence of auto deposits, the auto withdrawal part is there so you don’t have to think about the payment date.  The 1-4 months of excess is there for  rent raises or moving costs, or to make a ‘principal only’ payment on your mortgage.

A checking account for monthly bills with auto deposits by you, and auto withdrawals by the creditor is also a good idea.  Keeping your check register up to date, this too will show you, at a glance, what you have in the account. And if things are getting a bit squeaky, meaning you need more money in it to cover upcoming bills, this is the time to revamp your budget.

A checking account for annual or semi annual bills and gifts.  This is worked in the same way with your deposits and the withdrawals are usually from insurance, taxes, registry fees, etc.

As far as the gift part goes, make a list of those you give gifts to…. write it out on paper.  Don’t leave any out — remember too the gifts you give to the friends of your children, all the birthday parties they go to. Some names will be there 2-4 times,(Birthday, Anniversary, Holidays, Mother’s/Father’s Day, Holiday gifts, etc). There are also Shower, Wedding, Baby gifts to add in.

Now… put a dollar figure next to each name.

Now… add up the dollar figure.

Are you surprised at what you actually spend on gifts?  While gift giving is a very nice gesture, it gets costly, and if you are scrimping somewhere else in your budget (you are on a budget, right?) ….or if you aren’t paying your bills in full and on time each month, …..then you need to cut back your gift list.  Do not let gift giving put you in the poorhouse. And remember, the money in this account is primarily for insurances, taxes etc.  You need the money there for these things.

Over time, you will get into the habit of checking a few times a month each of these accounts, making sure you are ahead of the game on each one.  This also saves any overdraft fees.

Organize your ‘financial cabinet’.  It will make things so much easier for you.  You deserve that.

Reducing or Eliminating Fees

Vigilance in keeping tabs on your accounts

We all have accounts, various bank and credit card, retirement, and they all charge fees.  Some of these can be easily avoided.  If you don’t keep tabs on your accounts, at years end, you will find that you’ve spent a small fortune on…….just fees.  Money that can be put into your savings.

Banks charge fees if you don’t adhere to the accounts’ rules….this is irksome because it’s your money, and they are using it.  But, nevertheless it’s true.  So, be vigilant about checking to make sure you stay within the agreement you signed up for.  That means, keeping at least a minimum balance, no overdrafts, staying within deposit/withdrawal and ATM limits,  If you don’t keep a watchful eye, you are paying them fees to hold your money.  You can find a bank with no fees.

Some credit cards have an annual fee.  Tons do not, choose one of those.  Credit cards are fine if you use them properly…make purchases, pay in full before the due date.  Most cards have reward points, so that’s a bonus for you, but only if they’re useful to you. The fees come in to play when you carry a balance resulting in huge interest charges on the balance carried over until the next bill.  If you only pay the minimum or anything less than the full amount of the bill, interest is added to that remaining balance and carried over again.  Late fees show up if you are even one day late. If they have an ‘afternoon mail delivery’, that delivery is posted the following day.  So it’s late, even though it was physically received on the due date.  Lesson:  Pay in full, before it’s due.

Retirement Accounts are necessary to have for future living.  You can, in some cases, oversee your own accounts, but usually a Financial Adviser has more knowledge and time. And they charge a fee for this service, it is legitimate, and because you want to have a nice nest egg, you need to find the best one.  So in choosing, interview some, find one you trust and feel confident with since they’re handling your future.  Ask if they are a Fiduciary…some are not.  A Fiduciary is one who serves in your best interest.  If they are not, they will usually be receiving a commission to sell you something that may not be the type of account that best serves….you.  So check.

All this is called due diligence.  It’s doing your homework before you decide.