Buying a Home
What If Your Home Doesn't Appreciate in Value?
Most people see their homes as a place to live and as an investment, but the real estate market is volatile and in some areas home prices may not rise for some time. While that could make home ownership less attractive, there are still benefits. While any increase in value may be offset by inflation, your mortgage payments do create a form of “forced savings.” In addition, home mortgage interest is tax deductible, reducing your tax liability.
In some cases, renting is a better financial move than buying, but make sure you evaluate all the pros and cons both financial and non-financial so you make the right decision for you and your family. You may not make huge profits through home ownership, but at least your payments will go towards your equity, not your landlord's.
Refinancing a Home
Saving Without Refinancing
Refinancing your mortgage can save you money, but paying one extra mortgage payment every year can, too. By applying the extra payment to principal, the balance of your mortgage drops and future interest is calculated on the lower amount every month for the remainder of your loan.
Say you have a 30-year, 6%, fixed rate mortgage of $200,000. Your payment is approximately $1,200 a month. If you make one extra payment every year, you could save more than $47,000 a year in interest payments and reduce the term of your mortgage by five years.
If you can't come up with an extra payment all at once, remember you can also make additional principal payments of whatever amount you can afford whenever you like.
Saving for College
Scholarships May Not Reduce Costs
“Outside” scholarships scholarships awarded by organizations not affiliated with a particular school can lower total college costs, but in some cases outside scholarships may not result in a lower total cost. Under federal guidelines, outside scholarship funds can be considered as a family resource when financial aid needs are calculated. In that case scholarship funds do not get applied to your expected family contribution, meaning the grant from the school could be reduced.
Of course, if you didn't expect to qualify for financial aid there is no impact (other than on how much you will have to pay), and if you plan to take loans, scholarships can reduce the amount you have to borrow.
Saving for Retirement
The 4% Rule
Deciding how much you need to save for retirement can be tricky. Sure, you can estimate how much you will spend each month by using what you currently spend as a guide, but there are other variables to consider: Inflation, how much you will receive from Social Security, your health, etc.
One way to decide how much you need to save is using the 4% rule. Assume you can draw approximately 4% of your funds each year to live on. That should ensure you would not run out of money during your retirement. So, if you decide you need to draw $30,000 a year from your investments (assuming Social Security and a pension covers the rest of your needs), you will need $750,000 in savings. ($30,000 divided by .04 = $750,000.)
Keep in mind the 4% rule is just a rule of thumb, but it is a handy way to estimate your retirement savings needs. See a financial professional for specific advice regarding your individual circumstances.
Preparing for Taxes
Adjust Withholding Based on This Year's Refund
Do you like receiving a large refund check? If so, you could be losing money. Getting a large refund check means, in effect, that the government had use of your money for a long period of time. Shouldn't you earn interest on your own money?
The smaller your refund, the more money you have available to use throughout the year: To invest or to pay off debt. Check out your refund if you get thousands back, adjust your withholding amount so you can put more of your hard-earned money to work today.
Starting a Family & Teaching Kids to Save
Plan for Adoption Costs
Adopting a child and bringing them into your family is a huge decision with an overwhelmingly positive impact. It's a decision with a major financial impact too, so make sure you plan ahead for the expense.
The least expensive way to adopt a child is through a foster care organization in your area. Many states subsidize foster care programs to make it easier for children to be adopted in some cases there will be no cost at all. At the other end of the scale are agency adoptions. Costs can range from $4,000 to $50,000 or more depending on agency fees, attorney fees, state requirements, travel, etc. Adopting a child from another country is typically the most expensive method, since different countries have different requirements and fees. Plus the cost of travel is high, and some countries require prospective parents to reside in the country for weeks or months prior to the actual adoption.
Building Good Credit
Remove Inaccurate Information for a Quick Boost
Credit reports contain a lot of information. Sadly, some of the information on your credit report may be inaccurate or outdated. Don't let inaccurate information impact your credit score. By law you have the right to dispute any inaccurate information listed on your credit report. Get a copy of your credit reports and check out the instructions for how to dispute information contained on the report. In some cases you can file a dispute online, but you may need to write letters explaining why the information is inaccurate. The credit bureau is required to investigate the issue and respond within thirty days. If the information is found to be inaccurate it will be removed and as a result should improve your credit history and credit score.
Know Your Limits
If you want to buy a stock at a certain price, or sell a stock at a certain price, it's easy: Just set limits.
A market order is an order to buy or sell a stock at the current price. Limit orders are orders to buy or sell a stock at a specific price during a specific time period (or without a time limit, if you choose.) For example, say you want to buy shares of a particular stock, but only if the price falls to a certain level. Place a limit order to buy at that price, and if the stock hits that price, your order will be executed. If the stock does not hit that price, your order will not be executed.
Limit orders are a great way to protect downside risk. Say you buy at stock at $10 a share and want to reduce your potential for loss if the price falls dramatically. You could place a limit order (in this case, it's called a “stop” or a “stop loss” order) to sell the stock if the price falls below $7 per share. You could also place a sell order if the stock price increases to $14 a share in that case you may not enjoy further gains, but you would lock in your profits.
Auto - Buying and Insurance
One Name is Sufficient
Many married couples own their homes jointly. Many also put vehicles in both names, but that could be a mistake. While owning a car jointly may not affect insurance rates, it could create a huge liability if you are in an accident and sued. If both you and your spouse are listed on the title, you can both be exposed to liability claims.
The same is true if your child drives one of your vehicles. When they turn 18, consider titling the car they drive in their name. If they are in an accident, you can avoid liability. While that might sound harsh, remember that the average 18 year-old likely has a lot less assets than his or her parents. If your child is an accident in a vehicle titled in your name, you may be liable for damages. Protecting yourself from liability is partly based on making smart choices about how assets are titled; take a close look at how your vehicles are titled. Insurance may cover you in the event of a catastrophe but it may not.
Use the Trial Period
Life insurance policies come with a 30-day trial period; by law you have thirty days to inspect the policy and make sure you understand all the terms and conditions. If you decide you don't want the policy during that time period, cancel it and the premium you paid will be refunded. (In some cases fees may not be refundable.) Think of the 30-day period as additional insurance that you have made the right decision.
Safeguarding Your Financial Information and Identity
Opt Out of Offers
The major credit bureaus offer a service that lets you opt out of having pre-approved credit card offers mailed to your home. Simply call each credit bureau (Experian, TransUnion, and Equifax) and ask that you be placed on the opt out list.
You can also take the process a step farther. The Direct Marketing Association provides a Mail Preference Service that should stop unsolicited commercial mail from many national companies for five years. Registering costs $1. (Just keep in mind that some organizations do not use the Direct Marketing Association's Mail Preference Service.)
By limiting the offers you receive you limit an identity thief's chances of responding to a solicitation on your behalf and you save a few trees in the process.
Internet and Mobile Banking
Consolidate Accounts for Convenience
Many financial institutions have developed smart phone, iPod, and iPad applications to make online access easy for their customers. However, if you have a number of different accounts, like checking accounts, savings accounts, credit card accounts, and investment accounts, you may end up with a number of different apps on your device. If that is the case, consider an aggregator app like the one provided by Mint.com. You can input information on a variety of accounts and manage them from one app. Online banking should save you time and effort consider consolidating your accounts on one app to make it easy.
Financial Organization, Planning, Budgeting
To Share or Not to Share
According to an American Express survey, keeping your finances separate from your spouse could lead to problems. Here are a few of the findings:
- Almost twice as many couples who keep finances separate argue over household finances compared to those who merge finances
- Couple with separate finances are 20% more likely to misrepresent the amount of a purchase
- Over two-thirds of couples who keep finances separate say they would have managed their finances differently if given the chance, with most saying they would save more and spend more wisely
While every situation is different, it is likely that keeping finances separate results in fewer opportunities to talk about financial goals. However you handle your finances, make sure you create joint goals and work together to reach them.