Buying a Home
Interest Rates Aren’t Everything
Most people shop for a home mortgage based primarily on interest rates, and that is a great place to start. After all, the higher the interest rate, the higher the monthly payments and the more you will pay in total interest. However, when you compare two loans, don’t just compare interest rates. Fees can vary greatly from lender to lender and dramatically impact the total cost of a loan.
Ask for a Good Faith Estimate (GFE) from a lender; it breaks down the different fees associated with a loan. Look for application fees, points, processing fees, and any other charges.
Also make sure you understand all the terms and conditions. For example, some mortgages come with prepayment penalties if you pay off the loan early you could be charged a percentage of the loan amount. (If at all possible avoid loans with prepayment penalties.)
When you shop for a mortgage, don’t just focus on interest rates check out the total package.
Refinancing a Home
Consider the PMI Impact
Lenders require Private Mortgage Insurance (PMI) when a borrower puts down less than 20% on a home loan. If your principal balance is relatively low, you are thinking about refinancing your mortgage, and plan to take cash out, think about whether the new loan will require PMI. (On a $200,000 mortgage, PMI will cost approximately $140 a month.) If that is the case, consider a home equity loan instead. Second mortgages do not impact PMI calculations; as long as the balance of your first mortgage is less than 80% of the appraised value of your home, you won’t have to pay PMI.
Even if you don’t plan to refinance, keep in mind you can petition your lender to cancel PMI when your mortgage balance is less than 80% of the appraisal value; if that is the case, contact your lender today.
Saving for College
“Early Decision” Could Backfire
Accepting an early decision offer sounds attractive: You apply early, and if accepted, you promise to attend. In some cases applying as an early decision candidate makes the odds of being accepted somewhat better, since the college or university can count on the student enrolling. (Colleges accept more students than they can actually handle, since they know some students who are accepted will choose to attend another school instead.)
Early decision can sometimes backfire if your child applies for financial aid, though. Once enrolled the school naturally has less incentive to put together an attractive aid package. If your child has excellent grades and a solid SAT score, and is likely to be accepted during the normal application process, consider not applying as an early acceptance candidate. That decision could result in a better financial aid package.
Saving for Retirement
Your Home May Not be the Asset You Think
For most people, their home is their biggest investment. When housing prices are rising, that’s great but if your retirement plan includes money you can draw from your home, falling prices can dramatically impact your retirement.
Most experts recommend that home equity not be considered an asset for retirement. One reason is the volatility of the real estate market, but there is another, more practical reason: We all need to live somewhere. If you sell your home to tap the equity, you will still have to find other accommodations, even if they are cheaper. (Although if you downsize you should be able to reduce your monthly utility and maintenance expenses.) If at all possible, create a plan that allows your home to be the icing on your retirement cake.
Preparing for Taxes
Reduce Last Year’s Taxes - This Year!
In most cases tax planning involves actions you take during a tax year. For example, if you sold a stock in December 2010 and made a profit, those profits were considered to be part of the 2010 tax year. That’s not the case where IRA contributions are concerned. As long as you contribute to a qualifying IRA by April 15, you can count that contribution in last year’s taxes and potentially reduce the total amount of tax you pay.
If you are in the 15% tax bracket, a $1,000 contribution will reduce the tax you owe by $150 and will grow, tax-free, until you start to withdraw funds when you retire.
Starting a Family & Teaching Kids to Save
Who Do They Learn From? You!
According to the American Psychological Association, 80% of kids say they learn their money habits from their parents. The study shows you have a great opportunity to teach your kids the basics of financial literacy.
Kids learn not just from what you say but also from what you do. Key behaviors include comparison shopping while at the store with your kids, not spending money you don’t have (the average college student graduates with over $4,000 in credit card debt), and giving money with “no strings attached.” Experts recommend allowances based on chores and responsibilities, especially since 40% of parents surveyed say they have bailed out their adult children, providing money for living expenses.
Your kids learn many habits from you make sure those habits are good ones!
Building Good Credit
Back to Basics
Want to improve your credit score? If you have missed payments in the past, work hard to get all accounts current and keep them current. The longer you pay your bills on time the better your credit score. (In fact, one of the biggest factors in credit scoring is payment history.)
Keep in mind that older credit problems have less impact on your score over time. The key is to build a consistent, long-term record of on-time payments.
If despite your best efforts you still struggle to make payments on time, consider a reputable credit counselor. Getting back on track will improve your credit score, and getting assistance from a credit counseling firm will not lower your credit score.
Buying Gold Without Worrying about Storage
The price of gold has skyrocketed in recent years. If you are considering purchasing gold as an investment, you don’t have to buy gold coins or gold bullion. You can also buy shares in an Exchange Traded Fund (ETF) that purchases gold. An ETF trades like a stock, is very liquid, and typically has low commission rates. Also, unlike many mutual funds, some gold ETFs have expense ratios as low as .25%, which means a higher percentage of any gains stay in your pocket. If you enjoy owning gold, you can buy coins or you can let someone else take care of storing your gold.
Auto - Buying and Insurance
Look for Profession Discounts
Auto insurance companies evaluate a variety of factors in order to determine risk and set premiums. For some auto insurers, one of those factors is your profession. People in some professions are considered to be higher risk while others are considered to be lower risk. For example, engineers and teachers are considered to be lower risk and people in those professions may qualify for lower rates.
How? Ask! Talk to your insurance company and see if you qualify for a “profession discount.” If you don’t, check out other insurance companies to see if you can get a better deal on your car insurance based on your profession. If you don’t ask… you often don’t receive.
When Not to Replace a Whole Life Policy
If you have owned a whole life insurance policy for at least a few years and you need more insurance, try not to replace your current policy. Add additional insurance instead. For one, you may lose all the premiums you made, and you may have to pay new fees as well. Plus some clauses in the policy may reset. If your personal or family situation has changed and you need more insurance, get another policy, preferably a term policy, since rates are cheaper. After a few years a whole life policy starts to gain in value, so don’t throw that money away.
Safeguarding Your Financial Information and Identity
Things You Should Never Share
Millions of Americans use social media to share their lives with others but there are some things you should never share. Some information you share could put you at risk, so never share:
- Home address
- Birthday and place of birth
- Addresses and personal phone numbers
- Vacation plans
- Clues about passwords (many passwords come with security questions that help identify you, like your mother’s maiden name, your first pet, the street you grew up on, etc. If that same information is available on a social media site, it could provide clues to identity thieves)
Think carefully about what you share; connecting with friends and family is great, but not with criminals and identity thieves.
Internet and Mobile Banking
Helping Could Hurt
The average American has at one time or another lent their cell phone to another person who needed to make a call usually friends or relatives, but sometimes strangers.
Think twice before you lend your smart phone to strangers. With moments they could access personal or financial information without you noticing, especially since smart phones have become easier and more convenient to use than ever. If you do lend your phone to another person, pay attention to what they do, or consider asking for the phone number so you can dial it yourself. Limit access to your phone so you can limit unauthorized access to your online banking services.
Financial Organization, Planning, Budgeting
Save With Cash-Back Cards
Buying items simply to get a cash rebate from a credit card doesn’t make sense but what if you must pay a certain expense? Take care insurance, for example: If you pay your premiums using a cash-back credit card, you could save 1 to 5% on your insurance payments.
The key is to use a cash-back card or any credit card, as a matter of fact to make purchases you need to make. Buying items to qualify for rewards is rarely a good financial decision, but if your insurance, utilities, or other recurring and essential bills can be paid with a credit card, a cash-back card can provide an immediate discount on those costs.