Prevent These 4 Money Fears from Crippling Your Financial Future

by Ashley Chorpenning, January 25, 2018 in Saving Money

Is there anything keeping you up at night? Are you worrying about your children’s safety or maybe your long to-do list? Some Americans toss and turn during the night due to feeling financially unsettled. Northwest Mutual found that 85% of the population has some sort of financial anxiety. Any type of unrest can be bad for your health.

The good news is you can take control of your financial situation, confront these money fears head-on and get in the driver’s seat of your financial future.

So, how do you address these fears? Here are some common financial concerns many Americans have and the proper steps to take to tackle them while preparing for your financial future.

Not Being Able to Retire

The sky is falling! The sky is falling! No matter what you read, you see doom and gloom about the financial state of your fellow Americans. How many times have you heard that Social Security is going bankrupt and there will be nothing left for the people that are currently working? Most likely, plenty.

Many people feel as though they won’t have enough to retire no matter how much they save. With the descent of Social Security and the extraordinary increase to health care costs, it seems impossible for anyone to even consider retiring. No wonder everyone is freaking out.

What to Do

First of all, know that the Social Security trust fund may run out by 2034; however, you will still receive benefits, just maybe not as much. But in order to really combat this fear, you must develop a personalized financial plan to reach your goals. Meeting and partnering with a financial planner and tax professional could be the best solution for tackling this fear. They can help you navigate the twists and turns that your financial journey can produce.

A financial plan can also help you prepare for unexpected situations. What if you need a new roof? What if you have a car accident? There are plenty of factors that could play a role in creating a strong financial future. Having a financial plan may help you sleep at night.

Living Paycheck to Paycheck

Some Americans are spending every dime of their paycheck. It’s a never-ending cycle and they can’t seem to get ahead or save for the future. It can seem almost paralyzing.

What to Do

Develop a budget you can stick to. Whether your focus is to pay down debt or work on increasing your contributions to your retirement accounts, decide how you can put it in the budget. A budget shows you what is coming in and going out. It will help you evaluate areas where you could cut back on your spending and what habits are keeping you living paycheck to paycheck.

For example, try canceling your cable bill and only using a subscription service. This may save you hundreds of dollars depending on your plan. Try focusing on one area of your budget every month. This way you will not feel overwhelmed. This process will slowly help you cut back your spending little by little.

By cutting back your spending, you will be able to shift your focus to some of your financial goals. Maybe your dream is to own a home. By evaluating your budget and finding ways to save, you could achieve this goal in no time.

Losing Your Job

At 4.1%, the unemployment rate is the lowest it has been in years, but this doesn’t mean that every job is secure. For example, if you work in the retail sector, layoffs happen every day. Or, your company might want to replace you with different talent. You never know what could happen.

What to Do

Build an emergency fund of 3 – 6 months of your expenses. You could either use those funds for an emergency or if you get laid off. Your emergency fund will give you a little bit of a cushion so you can get back on your feet and not stress about going further into debt.

Also, always look for ways to increase your skill set. This will make you more marketable if, in fact, you do lose your job.

Living in Debt for Eternity

The American debt crisis is real. Recently, the average American household credit card debt increased to $16,000 per NerdWallet data. With interest rates on the rise, this could cripple some Americans’ finances. We live in a society where we want to keep up with the Joneses, even if it’s financially out of our reach. It’s easy to get in the habit of living in debt. Or, maybe unexpected expenses left you buried in debt, and it can be hard to find a way out.

What to Do

Did your New Year’s resolution consist of tackling debt? If so, you have taken the first step toward debt recovery: recognizing there is a problem. You can pay off any amount of debt if you create a strategy to do so. No matter how much debt you have, develop a strategy for repayment.

One option would be to pay off your debt with the highest interest rate first. Some credit cards can charge upward of 20% annually.

You can also pay off the smallest debt first. This will make you feel as though you are crushing your debt that much faster. It will leave you feeling accomplished and motivated to continue and do more.

Once you have paid off your debt, keep it that way. Create positive spending habits. This could include waiting 48 hours to make a purchase. If you give yourself time to think about buying an item you may not need, you’ll most likely forgo the purchase.

Financial fears are real, but with a little time and effort you can combat them. If you have financial fears that keep you up at night, create different ways you can help prevent them from happening. How can you plan now to put your mind at ease? It may not happen overnight, but you can work toward relieving your financial stress one day at a time and enjoy sweet dreams.

5 Actionable Steps to Reduce Debt and Get a Mortgage

by Kevin Graham, January 12, 2018 in Home Buying/Selling

Have you been thinking about getting a mortgage but need to reduce your debt and get your financial life in order first? You’re not alone.

According to the latest numbers from the Federal Reserve, in 2017 alone, Americans have taken on $246.2 billion of credit card debt and other revolving debt and $99.6 billion of non-revolving debt like car payments, personal loans and student loans. If you take a look at the numbers, they seem to grow every year.

There’s nothing wrong with applying for credit and taking on debt. In fact, with the rising costs of higher education as just one factor, it may well be necessary. The key is to just keep making the monthly payments.

This is easier said than done when the realities of life get in the way. Whether through youthful indiscretion or perhaps a financial hardship due to a lost job or high medical bill, it’s understandable that you might sometimes get off track.

You don’t have to get stuck with that debt forever, though. This post aims to give you five actionable steps you can take to bring your debt down to a more manageable level so you can get yourself a home sooner rather than later. Let’s get started.

Budget

Before you work to pay down any debt, it may be helpful to really take a look at where you stand financially. That starts with really keeping track of your budget. If you want to do a color-coded Excel doc, that’s great. It doesn’t have to be anything that complex, though.

One budgeting strategy you might find effective is to take one week and write down everything you spend money on (e.g., $200 on groceries, $100 gas bill, $20 at the movies, $50 eating out, etc.).

Merely the act of writing things down creates awareness. If you’re not aware, it’s easy to spend $5 here or $20 there. It doesn’t seem like much at the time, but after a while, it all begins to add up. The increased attention to it may in and of itself help your budget.

Do Some Trimming

It’s close to the holidays, and many of us have recently done some tree trimming. We’ve all heard money doesn’t grow on trees, but it’s definitely made from trees. If we find ways to prune the rotting parts of our budget tree (areas in which we might be overspending), we can pay down debt so that our money tree gets healthier and grows to new heights.

A few obvious places to trim the budget include eating out and other public entertainment. You don’t have to serve mac ’n’ cheese and make shadow puppets every night, but cutting your spending in half could go a long way.

Another place to look at cutting back is unnecessary subscriptions. I finally canceled a subscription for a meditation service just recently. I have a subscription to a magazine that I never have time to read and another to a digital comic book service. It’s been long enough that I couldn’t tell you the last comic book I read.

Cable subscriptions are another big one. In my home, we pay around $200 per month for 500 channels. Of those 500, I probably watch 10. Breaking it down even further, five of those 10 channels are broadcast TV that I could get for free in high definition with a digital antenna.

If you have a set-top box like the Apple TV, Roku, Amazon Fire TV or Google Chromecast, you can combine that with your internet connection and a Sling, YouTube TV or Sony PlayStation TV subscription to get access to a bunch of entertainment options in the form of Hulu, Netflix and Amazon. High-speed internet isn’t cheap by any means, but using it in combination with one or two of these services is likely to be less than your cable bill in a lot of cases.

Dealing with Negative Credit Items

Now that you’ve gone over your budget and determined areas where you can tighten your belt in order to make your money go further in paying off your debt, what do you pay off first?

In order to answer that question, you first need to determine what you’re up against. I highly recommend checking out a site like QLCredit where you can get your credit report and score for free without impacting your score. This and other sites like it will let you see your credit report, but they’ll also give you tips on how to increase your score and your creditworthiness.

The effects of a bankruptcy vary depending on the type of loan you’re trying to get, but in most cases, there’s a waiting period after the bankruptcy is discharged or dismissed. It’s possible to get a loan in as little as a year after dismissal or discharge, but you’ll have more options after two or three years.

The good news is you can take care of other negative credit items over a shorter period of time with a little advance planning.

Judgments and Liens

If you have judgments or liens on your credit report, it’s important to work toward paying these off. In many cases, they’ll need to be paid off before you can close on your loan.

The FHA and USDA will allow you to have judgments and tax liens remain open in certain cases. You should talk to a lender about requirements.

Collections and Charge-Offs

Another item that should be dealt with are collections and charge-offs. Before we get into why, let’s talk about what these things are.

If you get behind on your payments by more than a few months, a creditor may choose to sell your debt to a collection agency. Once your debt goes into collections, it can remain on your credit report for seven years.

In some cases, a creditor may simply give up on trying to collect the debt. Unfortunately, this doesn’t mean you’re out of the woods. It goes on your credit report and stays there for seven years as well.

Both collections and charge-offs have a major negative effect on your credit score. So you want to make sure you take care of them.

One thing to note about paying off collections and charge-offs is that they don’t disappear just because you paid them off. When you call the creditor to pay off the account, you want to make the full payment as they’ll be more open to negotiation. Tell them you’ll make the payment and you’d like them to remove any record of the collection or charge-off. Some may not be willing to do this, but if you’re making the payment, most should be willing to work with you. This will have a big boosting effect on your score.

Get Current

Depending on the type of loan you get, it may be required that you have no late payments or a limited number in the last year or two. So it’s very important to keep up with your payments.

Not only will it help your eligibility, but the more on-time payments you make, the better your credit score will get over time. You’ll also save money in late fees.

When talking about this, it’s worth noting that your late payments typically aren’t reported to the credit bureaus until you’re 30 days late. If you make a payment after the due date and any applicable grace period but before 30 days late, you may be charged a late fee, but it won’t count as a late payment in the eyes of the credit bureaus.

Deciding Which Balances to Pay Off First

The next important thing to do when deciding which debts to pay down or pay off and in what order is to come up with your criteria.

Some people recommend paying off the highest balance, while others suggest paying off the loan with the highest interest so you’re not throwing as much money away. If you’re looking to get a mortgage (or really any other kind of loan) soon, you should pay off the loan with the highest monthly payment.

The reason for this is that approvals for a mortgage or any other type of loan have a lot to do with your debt-to-income (DTI) ratio. This ratio is what lenders use to determine how much of your monthly income goes toward debt payments. The lower the number the better, but for the best chance of mortgage approval, you can qualify for most mortgage options with a DTI under 45% depending on other qualification factors.

7 Places Your 2018 Down Payment Might be Hiding

If buying a home is on your New Year’s Resolution list for 2018, know this: your biggest challenge will almost certainly be coming up with your down payment and closing costs. 

 

Whether you’re trying to scrape by with 3.5 percent for an FHA loan or you’re planning to put down a full 20 percent, saving for a down payment might be the largest savings endeavor you ever undertake, after retirement planning.

But don’t let that daunt you. Look at it as more of a challenge or a game than a slow-slogging deprivation-driven chore. In fact, I suggest that you add something to your scrounging and saving: scavenging. Finding your down payment money hidden in resources that are right in front of you can be a fruitful and fun angle to take on an otherwise overwhelming goal.

Use this short list of oft-untapped down payment treasure troves to open your eyes to funds that might be hidden in plain sight:

1.  Your budget’s biggest line items. I like to get maximum bang for my buck. And I like to enjoy my life, too, so depriving myself of little luxuries without getting much mileage toward my goal is definitely low on my savings strategies list. But I’ve often found that if you take your top 10 or so monthly expenses, there are almost always at least one or two that you could slash significantly or totally do without, push come to shove: all without feeling as deprived as you would if you cut your daily coffee.

Home buying is one of those push-meet-shove-type situations. If you’re serious about coming up with your down payment funds, sit down during your holiday off-days, and backtrack over your monthly budget (if you have one) or your last month’s checking account statements. Isolate your top 10 budgetary line items and do an internal gut check on whether there is anything on this list that you can slash or eliminate. 

If this seems obvious or silly to you, don’t scoff before you give it a chance. I have seen buyers do this exercise and decide to:

• move home or to a cheaper place to eliminate rent
• go from two cars to one to eliminate a car payment
• cancel cable or switch cell phone service providers to get rid of a hundred bucks or more every month,

pressing fast-forward on their down payment savings and home buying plans by many months, even years.

2.  Your bad habits. Have you heard yourself say - out loud or internally - I’ve got to stop:

• smoking
• drinking so much
• eating out so much
• eating so much junk
• watching so much TV
• drinking so many sugary coffee drinks
• impulse shopping
• OSUI:  Online Shopping Under the Influence (it’s a real thing - I promise!)

- or anything in that vein? Well, each of these are bad habits that cost. And because they are  often engaged in compulsively, they can cost much, much more over time than you have any idea you’re actually spending.  

Again, far be it from me to suggest that someone who works hard every day shouldn’t treat themselves to a coffee or lunch here or there. The fact is, if you deprive yourself too severely, there’s a good chance your efforts to cut back and save will be very short-lived, and possibly even backlash into binging behavior.  But if there’s a habit you’ve been wanting to change for health or other reasons that also costs you a pretty penny, you might find it easier to make those changes when you know you’re doing it in service of your vision of owning a home.

So, make a project of it. Figure out roughly what you’re spending on your bad habit, and set up an automatic saving transfer from your checking account into your down payment savings account. Then, get and leverage some habit-changing resources, like those at ChangeAnything.com or in one of my favorite books this year, The Power of Habit: Why We Do What We Do in Life and Business. Then, when you feel the compulsion to engage in your bad habit, come to Trulia instead and peruse new listings in the price range and neighborhood of your own target dream home - that will help you stay on track by staying mindful of what’s really important.

3.  Your stuff.  When you need to save money, there are really only two levers you can pull: you can spend less, or you can make more. Selling stuff you have and don’t use or need is a relatively painless way to make more money to go toward your down payment.  If you’re really serious about home buying, put everything on the table. 

I’ve known buyers-to-be who sold any and everything, including:

• cars and motorcycles
• clothes, costumes, shoes and handbags
• hobby-related gear (bikes, tools and even costumes)
• furniture and antiques
• and electronics, CDs and even books (think: TVs, computers, old smart phones, etc.)

to fund their down payment and home buying-related debt elimination plans.

Don’t underestimate the amount of cash you can bring in from the stuff you already own. Millions of home owners worldwide are now renting out rooms or floors of their current homes for short periods of time on sites like Airbnb and VRBO. Sites like Getaround and Zimride allow you to rent out the extra seats in your car - or the whole vehicle, if you’re not too faint of heart!  

4.  Your skills and time.  One way to make more money, as discussed above, is to liquidate the things you have lying around. Another way is to get to work! Spend your off-time, your evenings and weekends leveraging your professional skills or personal hobbies to bring in some extra cash. A friend of mine recently had a savings target she was trying to reach and actually sent her whole circle of friends an email detailing (a) what she was selling and (b) what sorts of projects she was willing to do to get there - she earned well into the four figures, in less than a month.

Maybe you can sew or knit stuff to sell on Etsy, grow things in your backyard to sell at the farmer’s market or, like one enterprising Mom I know, use your baking and cake decorating skills to monetize your kids’ classmates’ birthday parties. Or maybe you’re more interested in cooking, house cleaning, babysitting or dog walking - in fact, another acquaintance of mine has earned thousands of “extra” dollars dog sitting while she works at home. If that sort of thing is not up your alley, think about whether you can help people you know with their small business projects, like research, bookkeeping or office organizing projects.

Once you get serious about coming up with your down payment cash and decide to be creative about where to find that money, using your skills and your time creatively is a power-packed way to open the financial floodgates. Consider starting out with a simple email to your circle of acquaintances or by listing your services on a site like TaskRabbit.

5.  Your loved ones.  Some folks are fortunate enough to have cash-flush loved ones who would love nothing more than to help you have a home of your own. The best case scenario is to have some idea of what sort of gift money you can count on as far in advance as possible, as it will impact your own savings targets and your lender’s documentation requirements. If you have a parent, sibling or auntie who has mentioned their interest in giving you this sort of gift, it’s not bizarre to bring the subject up, express your gratitude and let them know that you’re planning to buy in 2018 so you can have a detailed conversation about logistics - including their financial, tax or estate planning pros, if it makes sense.

Alternatively, if your home buying plans are timed alongside your wedding plans, graduation plans or new baby due date, consider opening a down payment registry, so well-wishers can funnel their gift funds right into your real estate savings. For example, the federal Dpeartment of Housing and Urban Development (HUD) allows small gifts to be combined in a single savings account and eliminates otherwise onerous gift money documentation requirements with the FHA Bridal Registry program, which is available around weddings and “other legitimate occasions where substantial gifts are typically received by an individual or individuals.”

Touch base with your lender and agent to see whether there are any registry programs that might make sense for your situation. 

Finally, buyers who decide to team up with their BFFs, siblings, parents or other loved ones to buy a place they can jointly own and/or live in might be able to structure things so that they have to come up with less down payment money than they would otherwise - the co-buyer comes up with the rest!  Think about whether this sort of arrangement might help you and your loved one accomplish your respective financial and real estate goals, in one fell swoop.

6.  Your employer. Believe it or not, some employers actually offer down payment and other forms of mortgage assistance to employees. In particular, universities and governmental agencies that employ first responders who are required to live locally for their jobs (e.g., police, fire and other emergency personnel) often have housing assistance programs that can include down payment funds or access to mortgage programs with lower down payment requirements.

  
Even if you don’t work for one of these sorts of agencies, if you are relocating for work, touch base with your HR department to find out whether there are any relocation benefits that can help you make up the difference between the cash you have and the down payment you need to make your move.

7.  Your city, county or state.  What you’ve heard is true: there are few, if any, down payment assistance programs still available on a national level. But many states, counties and cities offer their own down payment assistance programs, which are generally available to folks falling into one or more of the following categories:

• first-time buyers (people who haven’t owned a home in the area in the last 3 years)
• buyers in low- or moderate-income brackets
• or those buying homes in a particular part of town.

Your mortgage pro and real estate agent should be able to help you track down any such local programs applicable to you. In fact, this is one great reason to touch base with them at the beginning of your down payment savings adventure versus waiting until the end. But make sure you read up on the programs extensively before you decide to opt into one. Many of them run out of cash over the course of the year, so shouldn’t be counted on; others may require you to repay any assistance received if and when you sell or move - things you should keep in mind at the outset.

Splitting the Bills

by Bridget Hillyer, December 28, 2017 in Saving Money

Many people who cohabitate, be they roommates or in a relationship, have trouble deciding the best way to split household bills. Should bills be split equally? According to income? Can some portion be traded for housework? Different methods work for different situations and different people.

What Does It Mean to Split the Bills?

This is the big question here, and it can’t really be answered with one quick sentence. At its most basic level, splitting the bills is about dividing the joint expenses of a living situation between those who live there. This could be roommates sharing an apartment and splitting the rent and utilities, or it could be a couple splitting groceries, the mortgage and other household expenses.

What it means exactly to split your bills with the person or people you live with will be different, so here are some different strategies divided by situation that could work for you. Take a look!

Options for Roommates

How you decide to split the bills as roommates will be different than other situations. Most of the time you likely don’t have joint bank accounts and don’t own the property together. This distinction means that each of you are responsible for your own expenses, without any overlap. The method you choose to divide the bills should reflect that.

50/50

This one is as simple as it sounds. Everything is split right down the middle, or equally between the number of roommates. In an ideal world, the people who opt for this method earn generally equal salaries and use an equal amount of the home’s resources, i.e. groceries, utilities and living space.

Roommates often choose this method in an effort to keep things as uncomplicated as possible. Just make sure each of you are keeping track of what you’re paying for and when, to ensure things don’t get messy later. An online calculator or an app such as Splitwise can help you with this process.

Usage-Based

This is another popular choice for roommates. Sometimes one bedroom is larger, or has an en-suite bathroom or walk-in closet. To some, it seems fairer to have the person who gets to enjoy the extra amenities pay a bit more for them. A person who wants to keep the heat cranked up in the winter and blasts the A/C in the summer would then earn responsibility for that bill.

The important thing is to have a clear conversation about who should cover what under this method, and not to leave it till the bills are due. Each roommate may have a different view on ‘usage,’ so talking early and setting clear standards can help to avoid any clashes later on.

And Remember…

It’s important to be upfront, no matter the method you decide on. Have a sit-down with your roommate or roommates early and discuss how you all want to handle the shared bills. It’s a good idea to write up a “Roommate Agreement” that you can all look back on later to ensure that things are being handled fairly.

There is no perfect method for every situation, so just make sure that you’re all working toward an agreement that makes everyone feel equal.

After you’ve decided on a method, consider putting together a spreadsheet of shared expenses. This will make utilizing either of the two methods much easier and will also allow you to see any change in your bills over time. You may be spending a lot more money on your utilities but not realize it, since changes can happen gradually. A shared Google Sheet could help you see this as it happens.

Options for Spouses/Partners

Being partnered makes most situations a little different, and finding the right way to split the bills is no exception. The main similarity between roommates and spouses is the need for upfront communication, but sharing property and bank accounts can add another layer of complication.

Before you decide on a way to split the bills, you should settle on how you both want to organize your money. Will you keep your own personal bank accounts, move everything to joint accounts or do both?

Different options work better for different people. Some like the freedom and privacy of having their own accounts, and others like the ability to see where all the money is going.  Knowing this upfront will make choosing the right setup easier.

Totally Random

Also called the ‘grab bag method,’ this one involves a lot less structure then the other methods. Whoever has the money to pay the bill at the time, pays it. This can work best for couples who either have shared bank accounts or are at similar income level, but it’s a hard method to keep track of and can create tension later on if anyone feels like they are paying more than their share.

Income-Based

In many relationships, one person earns more than the other. Say Person A makes 60% of the total household income. Under this system, Person A will then pay 60% of the household bills.

How do you calculate the percentage of household income? Add up the incomes of both individuals and then divide the largest income by that number. For simplicity’s sake, let’s say that Person A makes $60,000 and Person B makes $40,000. Together, that adds up to $100,000. $60,000 divided by $100,000 is .60, or 60%. So, Person A makes 60% of the household income, and Person B makes 40% (100%-60%).

If you’re moving into a new home together, it might be tempting to go for a more expensive place if one person makes a much higher salary. Don’t add to the pressures that can already exist when sharing a living space – get a place that both of you can afford, so one person isn’t responsible for the majority of the bills.

And Remember…

An important factor to consider when you decide how to handle your living expenses is that situations change. One of you may have a salary decrease or lose a job altogether. One of you may gain an extra bill outside the current expenses – like a sizable medical bill. Have a plan in place for how you’ll handle these situations if they arise.

Financial discussions can be stressful, but they’re always necessary. Money can really strain a relationship, especially if someone feels they’re being taken advantage of. Make sure all your proverbial cards are on the table, and be open and honest with the other person, whether they’re your roommate or partner. Don’t jeopardize a relationship over a squabble about the utility bill.