Armando R. Gil

Armando R. Gil

(714) 772-5000

Financial Professional

680 Langsdorf Dr
SUITE 204
Fullerton, CA 92831

w(714) 772-5000 w(657) 210-4052 f(714)-766-8442

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The state of financial literacy

August 19, 2019

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The state of financial literacy

August 19, 2019

The state of financial literacy

We learn a lot of things in school.

Some of which are useful later in life, some of which are hurriedly memorized and then promptly forgotten, and some of which barely get a passing glance. In decades past, financial literacy wasn’t an emphasis in school curriculum – unless you include the odd math problem that involved interest rate calculations. For all our years of education, as a nation we were woefully unprepared for one of the largest challenges in adult life: financial survival.

Recently, however, schools have begun to introduce various topics regarding financial literacy to the K-12 curriculum. Some states have fared better than others in this effort, with graded results ranging from A to F, as measured in an analysis done by the Washington Post.[i] Read on for the breakdown.

How we’re doing so far
In its annual Survey of the States, the Council for Economic Education reported that not one state had added personal finance to their K-12 standard curriculum since 2016, and that only 22 states require high school students to take a course in economics. Only 17 of the 50 states require students to take a course in personal finance.[ii]

We can’t count on schools (at least not right now)
While it’s easy to pick on schools and state governments for not including financial literacy education in the past and for only making small strides in curriculums today, that’s not solving the problem that current generations don’t understand how money works. As with many things, the responsibility – at least in the short-term – is falling to parents to help educate younger people on financial matters.

Other financial literacy resources
Given the general lack of financial education provided in schools, unsurprisingly, most teens look to their parents to learn money management skills.[iii] Fortunately, there are some great online resources that can help begin the conversation and help educate both parents and children on topics such as budgeting, how (or if) to use credit cards, differences in types of bank accounts, how to save, managing credit scores, etc.

Pepperdine University offers a “Financial Literacy Guide for Kids, Teens and Students”[iv], which covers many of the basics but also provides a useful set of links to resources where kids and parents alike can learn more through interactive games, quizzes, and demonstrations.

Included highlights are mobile apps which can be useful for budgeting, saving, and so forth, and even listings of websites that can help kids find scholarships or grants.

So if you feel like you haven’t learned quite as much about money and finances that you wish you had in school, contact me so that we can explore how money works together, and I can help put a strategy in place for you and your family!

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[i] https://www.washingtonpost.com/news/answer-sheet/wp/2017/12/19/grading-u-s-states-on-teaching-financial-literacy-some-earn-as-while-others-flunk/?noredirect=on&utm_term=.3faad208d1d9
[ii] https://www.councilforeconed.org/wp-content/uploads/2018/02/2018-SOS-Layout-18.pdf
[iii] https://www.juniorachievement.org/documents/20009/20652/2015+Teens+and+Personal+Finance+Survey
[iv] https://mbaonline.pepperdine.edu/financial-literacy-guide-for-kids-teens-and-students/

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Avoid these unhealthy financial habits

August 12, 2019

Avoid these unhealthy financial habits

As well-intentioned as we might be, we sometimes get in our own way when it comes to improving our financial health.

Much like physical health, financial health can be affected by binging, carelessness, or simply not knowing what can cause harm. But there’s a light at the end of the tunnel – as with physical health, it’s possible to reverse the downward trend if you can break your harmful habits.

Not budgeting
A household without a budget is like a ship without a rudder, drifting aimlessly and – sooner or later – it might sink or run aground in shallow waters. Small expenses and indulgences can add up to big money over the course of a month or a year. In nearly every household, it might be possible to find some extra money just by cutting back on non-essential spending. A budget is your way of telling yourself that you may be able to have nice things if you’re disciplined about your finances.

Frequent use of credit cards
Credit cards always seem to get picked on when discussing personal finances, and often, they deserve the flack they get. Not having a budget can be a common reason for using credit, contributing to an average credit card debt of over $9,000 for balance-carrying households.[i] At an average interest rate of over 15%, credit card debt is usually the highest interest expense in a household, several times higher than auto loans, home loans, and student loans.[ii] The good news is that with a little discipline, you can start to pay down your credit card debt and help reduce your interest expense.

Mum’s the word
No matter how much income you have, money can be a stressful topic in families. This can lead to one of two potentially harmful habits.

First, talking about the family finances is often simply avoided. Conversations about kids and work and what movie you want to watch happen, but conversations about money can get swept under the rug. Are you a “saver” and your partner a “spender”? Is it the opposite? Maybe you’re both spenders or both savers. Talking (and listening) about yourself and your significant other’s tendencies can be insightful and help avoid conflicts about your finances. If you’re like most households, having an occasional chat about the budget may help keep your family on track with your goals – or help you identify new goals – or maybe set some goals if you don’t have any. Second, financial matters can be confusing – which may cause stress – especially once you get past the basics. This may tempt you to ignore the subject or to think “I’ll get around to it one day”. But getting a budget and a financial strategy in place sooner rather than later may actually help you reduce stress. Think of it as “That’s one thing off my mind now!”

Taking the time to understand your money situation and getting a budget in place is the first step to put your financial house in order. As you learn more and apply changes – even small ones – you might see your efforts start to make a difference!

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[i] https://www.valuepenguin.com/average-credit-card-debt
[ii] https://www.fool.com/taxes/2018/04/22/how-much-does-the-average-american-pay-in-taxes.aspx

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What to do first when you receive an inheritance

July 10, 2019

What to do first when you receive an inheritance

In many households, nearly every penny is already accounted for even before it’s earned.

The typical household budget that covers the cost of raising a family, making loan payments, and saving for retirement usually doesn’t leave much room for spending on daydream items. However, if you’re fortunate, you might be the recipient of some unexpected cash – your family might come into an inheritance, you could receive a bonus at work, or you might benefit from some other sort of windfall.

If you ever inherit a chunk of money or receive a large payout, it may be tempting to splurge on that red convertible you’ve been drooling over or book that dream trip to Hawaii. Unfortunately for many though, newly-found money has the potential to disappear with nothing to show for it, if there is no strategy in place ahead of time to handle it wisely.

If you do receive some sort of unexpected bonus – before you call your travel agent – take a deep breath and consider these situations first.

Taxes or Other Expenses
If a large sum of money comes your way unexpectedly, your knee-jerk reaction might be to pull out your bucket list and see what you’d like to check off first. But before you start making plans, the reality is you’ll need to put aside some money for taxes. You may want to check with an expert – an accountant or tax advisor may have some ideas on how to reduce your liability.

If you suddenly become the owner of a new house or car as part of an inheritance, one thing to consider is how much it might cost to hang on to it. If you want to keep that house or car (or any other asset that’s worth a lot of money), make sure you can cover maintenance, insurance, and any loan payments if that item isn’t paid off yet.

Pay Down Debt
If you have any debt, you’d have a hard time finding a better place to put your money once you’ve set aside some for taxes or other expenses that might be involved with an inheritance. It may be helpful to target debt in this order:

  1. Credit card debt: This is often the highest interest rate debt and usually doesn’t have any tax benefit. Pay your credit cards off first.
  2. Personal loans: Pay these next. You and your friend/family member will be glad you knocked these out!
  3. Auto loans: Interest rates on auto loans are lower than credit cards, but cars depreciate rapidly (very rapidly). Rule of thumb: If you can avoid it, you don’t want to pay interest on a rapidly depreciating asset. Pay off the car as quickly as possible.
  4. College loans: College loans often have tax-deductible interest, but there is no physical asset with intrinsic value attached to them. Pay these off as fast as possible.
  5. Home loans: Most home loan interest is also tax-deductible. But since your home value is likely appreciating over time, you may be better off putting your money elsewhere if necessary, rather than paying off your home loan early.

Fund Your Emergency Account
Before you buy that red convertible, make sure you’ve set aside some money for a rainy day. Saving at least 3-6 months of expenses is a good goal. This could be liquid funds – like a separate savings account.

Save for Retirement
Once the taxes are covered, you’ve paid down your debt, and funded your emergency account, now is the time to put some money away towards retirement. Work with your financial professional to help create the best strategy for you and your family.

Fund That College Fund
If you have kids and haven’t had a chance to put away all you’d like towards their education, setting aside some money for this comes next. Again, your financial professional can recommend the best strategy for this scenario.

Treat Yourself!
NOW you’re ready to go bury your toes in the sand and enjoy some new experiences! Maybe you and the family have always wanted to visit a themed resort park or vacation on a tropical island. If you’ve taken care of business responsibly with the items above and still have some cash left over – go ahead! Treat yourself!

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5 Things You Can Do With A Bonus

June 26, 2019

5 Things You Can Do With A Bonus

It’s your lucky day and you’re flush with cash. Maybe you just got a bonus at work, or a tax refund, or won that scratch-off lottery ticket.

Hold up. Don’t spend it all just yet. There are some great ways you can put that windfall to work for you before it disappears during a spontaneous shopping spree.

1. Pay off those credit cards. This may not seem like quite as much fun as the Paris vacation you were daydreaming about – but paying down debt is like finding money every single month. Every $100 you pay in interest equals about $130 you’d have to earn when you consider taxes. Paying down debt is the fastest way to give yourself a monthly raise if you come into some unexpected cash.

2. Save it. Experts recommend that you have enough savings to cover at least 3 to 6 months of expenses. In reality, nearly half of all households won’t make it more than a week without borrowing or selling something. 1 This is the perfect opportunity to break away from the statistics and get prepared. Consider a high-yield checking account that allows easy access to your savings.

3. Put it in the college fund. If you have kids, this is a great time to contribute to the college fund or to start one if you haven’t already. Depending on whether your kids attend an in-state or out-of-state school, tuition can easily range from $10,000 per year to over $30,000 per year for a 4-year school. Books and boarding are extra on top of that. It’s never too early to give your kids a head start!

4. Invest in yourself. This might be the perfect chance to finish off those last few credits for a degree or to earn that certification you’ve been wanting but couldn’t justify spending money to complete. If you choose carefully, the right degree or certification can open doors in your career, potentially enhancing your earning power and helping you break out of the holding pattern.

5. Take a vacation. Maybe it’s a trip to Paris or maybe it’s someplace else you’ve always wanted to go. If all the above are in good shape, go ahead and treat yourself. You deserve it!

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Source:

  1. https://www.forbes.com/sites/markavallone/2018/08/12/5-things-to-do-with-your-raise-or-bonus/#29b8643b1d95

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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 2017¹ and 69% of Canadian families as of 2015.² 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 $10,000.³ 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 households in the U.S. and Canada are carrying nearly $140,000⁴ and an average of $22,081⁵ in debt, respectively. 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 in the U.S.⁶ and just over $70,000 in Canada,⁷ 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.) The death benefit of a term life insurance policy may help, for a time, fill in the income gap created by the unfortunate passing of a breadwinner.

But Wait, There’s More… There are term life insurance policies available that can provide other benefits as well, including living benefits that may help keep 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. It’s important to consider whether a reduction in the death benefit would be a good alternative to using savings planned for other purposes.

In some cases, policies with built-in living benefits may cost more than a standard term policy but 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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Sources: ¹ United States Department of Labor. “Employment Characteristics of Families Summary.” Bureau of Labor Statistics, 4.19.2018, https://bit.ly/2kSHDvm. ² “Dual-income families with kids have doubled in Canada over past 40 years, StatsCan says.” CBC News, 5.30.2016, https://bit.ly/1OYwORd. ³ “Funeral Costs: How Much Does an Average Funeral Cost?” Parting, 9.14.2017, https://bit.ly/2isoHUC. ⁴ Sun, Leo. “A Foolish Take: Here’s how much debt the average U.S. household owes.” USA Today, 11.18.2017, https://usat.ly/2hJ7lah. ⁵ Evans, Pete. “Canadians’ average debt load now up to $22,081, 3.6% rise since last year.” CBC News, 12.7.2016, https://bit.ly/2gaxIUn. ⁶ Loudenback, Tanza. “Middle-class Americans made more money last year than ever before.” Business Insider, 9.12.2017, https://read.bi/2f3ey3F. ⁷ “Household income in Canada: Key results from the 2016 Census.” Statistics Canada, 9.13.2017, https://bit.ly/2rBX3JE.

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What Does “Pay Yourself First” Mean?

April 29, 2019

What Does “Pay Yourself First” Mean?

Do you dread grabbing the mail every day?

Bills, bills, mortgage payment, another bill, maybe some coupons for things you never buy, and of course, more bills. There seems to be an endless stream of envelopes from companies all demanding payment for their products and services. It feels like you have a choice of what you want to do with your money ONLY after all the bills have been paid – if there’s anything left over, that is.

More times than not it might seem like there’s more ‘month’ than ‘dollar.’ Not to rub salt in the wound, but may I ask how much you’re saving each month? $100? $50? Nothing? You may have made a plan and come up with a rock-solid budget in the past, but let’s get real. One month’s expenditures can be very different than another’s. Birthdays, holidays, last-minute things the kids need for school, a spontaneous weekend getaway, replacing that 12-year-old dishwasher that doesn’t sound exactly right, etc., can make saving a fixed amount each month a challenge. Some months you may actually be able to save something, and some months you can’t. The result is that setting funds aside each month becomes an uncertainty.

Although this situation might appear at first benign (i.e. it’s just the way things are), the impact of this uncertainty can have far-reaching negative consequences.

Here’s why: If you don’t know how much you can save each month, then you don’t know how much you can save each year. If you don’t know how much you can save each year, then you don’t know how much you’ll have put away 2, 5, 10, or 20 years from now. Will you have enough saved for retirement?

If you have a goal in mind like buying a home in 10 years or retiring at 65, then you also need a realistic plan that will help you get there. Truth is, most of us don’t have a wealthy relative who might unexpectedly leave us an inheritance we never knew existed!

The good news is that the average Canadian could potentially save over $300 per month¹ and the average American over $500 per month!² That’s great, and you might want to do that… but how do you do that?

The secret is to “pay yourself first.” The first “bill” you pay each month is to yourself. Shifting your focus each month to a “pay yourself first” mentality is subtle, but it can potentially be life changing. Let’s say for example you make $3,000 per month after taxes. You would put aside $300 (10%) right off the bat, leaving you $2,700 for the rest of your bills. This tactic makes saving $300 per month a certainty. The answer to how much you would be saving each month would always be: “At least $300.” If you stash this in an interest-bearing account, imagine how high this can grow over time if you continue to contribute that $300.

That’s exciting! But at this point you might be thinking, “I can’t afford to save 10% of my income every month because the leftovers aren’t enough for me to live my lifestyle.” If that’s the case, rather than reducing the amount you save, it might be worthwhile to consider if it’s the lifestyle you can’t afford.

Ultimately, paying yourself first means you’re making your future financial goals a priority, and that’s a bill worth paying.

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Sources: ¹ Alini, Erica. “The average Canadian could save $360 more a month without noticing: CIBC.” GlobalNews, 11.21.2017, https://globalnews.ca/news/3872236/average-canadian-could-save-360-month-cibc/. ² Martin, Emmie. “Here’s how much money the average middle-aged American could save each month.” CNBC, 11.8.2017, https://www.cnbc.com/2017/11/08/how-much-money-the-average-middle-aged-american-could-save-each-month.html.

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Should You Buy Or Lease Your Next Vehicle?

March 25, 2019

Should You Buy Or Lease Your Next Vehicle?

Behind housing costs, transportation costs are often one of the top expenses in most households.

Auto leasing has been popular for several decades, but many people still aren’t sure about the sensibility of leasing vs. buying a car, how the math works, and which is really the better value.

Should you lease a car?
In many cases, you can lease a car for less than the monthly payment for financing the exact same car. This is because with leasing, you never build any equity in the vehicle. Essentially, you are renting the vehicle for a predetermined number of miles per year with a promise that you’ll take good care of it and won’t let your kids spill ice cream on the seats. (After all, it’s not really your car.)

At the end of the lease – most often 2 or 3 years – you’ll have the option to buy the car. At this point, in many cases you would be able to find a comparable car for a few thousand less than the residual value on the car you leased. After the lease has expired, most people choose to lease another newer car, rather than buy the car they leased.

If you don’t drive many miles, there may be some advantages to leasing over buying, particularly if you prefer to drive something newer or if you need a late-model car for business reasons. As a bonus, for short-term or standard leases, the car is usually under warranty for the duration of the lease and maintenance costs are typically only for minor service items.

Should you buy a car?
If you’re like most people, when you buy a car, you’ll probably need to finance it rather than plunk down a lump sum in cash. Rates are relatively low, but you can still expect to pay a few thousand dollars in interest costs over the course of the loan. Longer loans have higher rates and more expensive vehicles can make the interest costs add up quickly. Still, at the end of the loan, you own the car.

Older cars usually have higher maintenance costs, but it may be less expensive to keep a car with under 150,000 miles and pay for any repairs, rather than make payments on a new car. Cars are also running reliably much longer now. The average age of cars and light trucks on the roads currently is up to 12 years, which means if you had a 5-year loan, you could be driving for 7 years (or more) without having to make a car payment.¹

So a big part of the savings in buying a car vs. leasing can occur if you keep the car for several years after it’s paid off. Cars depreciate most rapidly during the first 5 years of ownership, meaning you could take a big hit on the trade-in value during that time. Keeping the car for a bit longer puts you into a period where the car is depreciating less rapidly and you can benefit financially from not having a car payment. But if you think you might be tempted to trade the car in after 5 years (and you typically drive under 15,000 miles per year), you may want to take a closer look at leasing.

Keeping your car for 10 years
How would you like to “make” an extra $28,000 over the next 10 years? That’s enough to buy another car! All things being equal (you make the same modest down payment on a leased car as a financed car), and assuming an average auto loan rate for a $30,000 vehicle, you can save nearly $28,000 in a decade by buying and keeping your car for 10 years instead of leasing a car every 3 years. And that savings applies to each car you own.² (This calculation also assumes maintenance costs.)

Your savings will vary based on the type of car and its price of course, but buying a car and keeping it for a while after it’s paid off can “yield” handsome dividends.

Getting behind the wheel
It’s really up to your personal preference whether you buy or lease. If you like to rotate your vehicles so you can enjoy a new car every few years and not have to worry so much about maintenance, then leasing may be a better option. However, if you like the idea of not having to make a car payment for a good portion of the life of your car, then buying may be the right choice.

Either way, before you take the keys and drive off the lot, make sure to ask your dealer any questions you have, so you can fully understand all the terms and any underlying costs for your situation.

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  1. https://www.energy.gov/eere/vehicles/articles/fact-997-october-2-2017-average-age-cars-and-light-trucks-was-almost-12-years
  2. https://www.moneyunder30.com/buy-vs-lease-calculator

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4 fundamental home buying guidelines

March 6, 2019

4 fundamental home buying guidelines

Over the course of a 30-year mortgage term, a humble home may save you thousands of dollars as opposed to a more opulent one.

Even if you abide in a smaller house than you might have envisioned as a kid, it could still provide wonderful memories while offering a haven for your family.

Home ownership can be a desirable goal, but it may become a burden, however, if the home makes you “house poor”. Imagine if every spare penny had to go toward your mortgage or upkeep of your home with nothing left over. That’s the definition of things owning you instead of you owning things. Thankfully, there’s a different way.

If you’re in the market for a new home, there are four areas to consider before you start your serious search.

Save first
You might discover there are lots of ways you could buy a house with almost no money down. However, resist the temptation of low-down-payment loans. In what could be a still-volatile housing market, you would not want to run the risk of finding yourself in a negative equity position, which means you would owe more than your house is worth. You also may pay more for Private Mortgage Insurance, which is required for home loans with less than 20% down. Before you make your move, try to save up for the 20% down payment as well as any additional amounts to help cover closing costs. You’ll also want to have an emergency fund stashed away before you buy.

Think smaller
If you don’t need a “big” house, consider buying a smaller home. Everything in smaller homes may be less expensive to replace or maintain because there’s simply less square footage involved. (The purchase price could be lower as well.)

Keep your budget under 25%
The loan officer for your mortgage might say “yes” to an amount that would cause your monthly payments to be more than 25% of your take-home pay, but that doesn’t mean those payments will fit your budget. Leaving yourself some extra margin may help you navigate life’s surprises and may give you the freedom to save more, provide more for your kids’ college, or even plan that trip you’ve always wanted to take. Bear in mind that mortgage payments may include other fees, which may increase your final monthly payment amount significantly. A 30-year mortgage may provide flexibility

When you’re focused on how much you’re borrowing, a 15-year mortgage that pays down the debt faster may be tempting. Consider a 30-year loan, though. The potential flexibility of not being obligated to a possible higher monthly payment with a 15-year loan may come in handy when those unexpected emergencies happen.

All in all, it’s worth considering your long-term outlook before you even begin your new home search.

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When is it ok to use a credit card?

When is it ok to use a credit card?

Some could say “never!” but there might be situations in which using a credit card may be the option you want to go with.

Many families use credit with good intentions – and then life happens – surprise expenses or a change in income leave them struggling to get ahead of growing debt. To be fair, there may be times to use credit and times to avoid using credit.

Purchasing big-ticket items
A big-screen TV or a laptop purchased with a credit card may have additional warranty protection through your credit card company. Features and promotions vary by card, however, so be sure to know the details before you buy. If your credit card offers reward points or airline miles, big-ticket items may be a faster way to earn points than making small purchases over time. Just be sure to have a plan to pay off the balance.

Travel and car rental
For many families, these two items go hand in hand. Credit cards sometimes offer additional insurance protection for your luggage or for the trip itself. Your credit card company may offer some additional protection for car rentals. You might score some extra airline miles or reward points in this category as well because the numbers can add up quickly.

Online shopping
Credit card and debit card numbers are being stolen all the time. Online merchants can have a breach and not even be aware that your credit card info is out in the wild. The advantage of using a credit card as opposed to a debit card is time. You’ll have more time to dispute charges that aren’t yours. If your debit card gets into the wrong hands, someone might be quickly spending your mortgage money, food and gas money, or college tuition for your kids. Credit cards may be a better choice to use online because the effects of fraud don’t have an immediate impact on your bank balance.

Legitimate emergencies
Life happens and sometimes we don’t have enough readily available cash to pay for emergencies. Life’s emergencies can range from broken appliances to broken cars to broken bones and in these cases, you may not have any other viable options for payment.

Using credit isn’t necessarily a bad thing. In fact, if you plan carefully, you may reap several types of benefits from using credit cards and still avoid paying interest. You’ll have to pay off the balance right away to avoid finance charges, though. So, always think twice before you charge once.

Some credit cards offer consumer benefits, like extended warranties, extra insurance, or even rewards. There are some situations in which using a credit card may come in handy.

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Royal Wedding or Vegas? Keeping your wedding costs under control

December 19, 2018

Royal Wedding or Vegas? Keeping your wedding costs under control

The average cost of a wedding in the U.S. is over $33,000.[i]

That’s an expensive day by any standard!

That amount might be enough for a down payment on a first home or for a well-equipped, late-model minivan to shuttle around your 1.9 kids – assuming your family has an average number of children as a result of your newly wedded bliss.[ii]

If you’re having cold feet about shelling out that much cash for one day’s festivities – or even worse, if you fear you might have to go into debt to pay for it – here are a few ideas on how you can make your wedding day a special day to remember, and still save some money for other things (like that minivan).

Invite Close Friends and Family
Many soon-to-be newlyweds dream of a massive wedding with hundreds of people in attendance to honor their big day. But at some point during any large wedding, the bride or the groom – or maybe both – look around the well-dressed guests and ask themselves, “Who are all these people, anyway?”

You can cut the cost of your wedding dramatically by simply trimming the guest list to a more manageable size. Ask yourself, “Do I really need to invite that kid who used to live next door to our family when I was 6 years old?” Small weddings are a growing trend, with many couples choosing to limit the guest list to just close friends and immediate family. That doesn’t mean you need to have your wedding in the backyard while the neighbor’s dog howls during your vows – although you certainly can. It just means fewer people to provide food and drink for and perhaps a less palatial venue to rent.

Budget According to Priorities
Your wedding is special and you want everything to be perfect. You’ve dreamed of this day your entire life, right? However, by prioritizing your wish list, there’s a better chance to get exactly what you want for certain parts of your wedding, by choosing less expensive – but still acceptable – options for the things that may not matter to you so much. If it’s all about the reception party atmosphere for you, try putting more of your budget toward entertainment and decorations and less toward fancy food. Consider trading the seven-course gourmet dinner with full service for a selection of simpler, buffet-style dishes catered by your favorite restaurant.

Incorporate More Wallet-Friendly Wedding Ideas
A combination of small adjustments in your plan can add up to big savings, allowing you to have a memorable wedding day and still have enough money left over to enjoy your newfound bliss.

  • Consider a different day of the week. If you’re planning on getting married on a Saturday in June or September, be prepared to pay more for a venue than you would any other day of the week or time of the year. Saturday is the most expensive day to get married[iii], and June and September are both peak wedding season months.[iv] So if you can have your wedding on, say, a Friday in April or November, this has the potential to trim the cost of the venue.
  • Rent a vacation house – or even get married on a boat. The smaller space will prevent the guest list from growing out of control and the experience might be more memorable than at a larger, more typical location. Of course, both options necessitate holding the reception at the same location, saving money once more.
  • Watch the booze costs. There’s no need to have a full bar with every conceivable drink concoction and bow-tied bartenders that can perform tricks with the shakers. Odds are good that your guests will be just as happy with a smaller-yet-thoughtfully-chosen selection of beer and wine to choose from.
  • Be thrifty. If you really want to trim costs, you can get creative about certain traditional “must-haves,” ranging from skipping the flowers (chances are that nobody will even miss them) to purchasing a gently-used gown. (Yes, people actually do this.) Online outlets may provide beautiful gowns for a fraction of the price of a new gown.

There’s a happy medium between a “royal wedding” and drive-thru nuptials in Vegas. If you’re looking for a memorable day that won’t break the bank, consider some of the tips above to keep things classy, cool – and within your budget.

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[i] https://www.prnewswire.com/news-releases/couples-spend-an-average-of-33391-on-weddings-incorporating-cultural-religious-and-personalized-elements-according-to-the-knot-2017-real-weddings-study-300598597.html
[ii] https://www.statista.com/statistics/718084/average-number-of-own-children-per-family/
[iii] https://www.theknot.com/content/less-expensive-days-for-weddings
[iv] https://www.marthastewartweddings.com/631490/most-affordable-months-to-get-married

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Allowance: Is it still a good idea?

December 3, 2018

Allowance: Is it still a good idea?

Perusing the search engine results for “allowance for kids” reveals something telling: The top results don’t seem to agree with each other.

Some finance articles quote experts or outspoken parents hailing an allowance, stating it teaches kids financial responsibility. Others seem to argue that simply awarding an allowance (whether in exchange for doing chores around the house or not) instills nothing in children about managing money. They say that having honest conversations about money and finances with your kids is a better solution.

According to a recent poll, the average allowance for kids age 4 to 14 is just under $9 per week, about $450 per year.[i] By age 14, the average allowance is over $12 per week. Some studies seem to indicate that, in most cases, very little of a child’s allowance is saved. As parents, we may not have needed a study to figure that one out – but if your child is consistently out of money by Wednesday, how do you help them learn the lesson of saving so they don’t always end up “broke” (and potentially asking you for more money at the end of the week)?

There’s an app for that.
Part of the modern challenge in teaching kids about money is that cash isn’t king anymore. Today, we use credit and debit cards for the majority of our spending – and there’s an ever-increasing movement toward online shopping and making payments with your phone using any of the apps that are available.

This is great for the way we live our modern, fast-paced lives, but what if technology could help us teach more complex financial concepts than a simple allowance can – concepts like how compound interest on savings works, or what interest costs for debt look like? As it happens, a new breed of personal finance apps for families promises this kind of functionality. Just look at your app store!

Money habits are formed as early as age 7.[ii] If an allowance can teach kids about saving, compound interest, loan interest, and budgeting – with a little help from technology – perhaps the future holds a digital world where the two sides of the allowance debate can finally agree. As to whether your kid’s allowance should be paid upon completion of chores or not… Well, that’s up to you and how long your Saturday to-do list is!

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[i] https://cnb.cx/2E6hBic
[ii] https://to.pbs.org/2GBrjuI

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The Birds Have Flown the Coop!

August 20, 2018

The Birds Have Flown the Coop!

The kids (finally) moved out!

Now you can plan those vacations for just the two of you, delve into new hobbies you’ve always wanted to explore… and decide whether or not you should keep your life insurance as empty nesters.

The answer is YES!

Why? Even though you and your spouse are empty nesters now, life insurance still has real benefits for both of you. One of the biggest benefits is your life insurance policy’s death benefit. Should either you or your spouse pass away, the death benefit can pay for final expenses and replace the loss of income, both of which can keep you or your spouse on track for retirement in the case of an unexpected tragedy.

What’s another reason to keep your life insurance policy? The cash value of your policy. Now that the kids have moved out and are financially stable on their own, the cash value of your life insurance policy can be used for retirement or an emergency fund. If your retirement savings took a hit while you helped your children finance their college educations, your life insurance policy might have you covered.Utilizing the cash value has multiple factors you should be aware of before making any decision.*

Contact me today, and together we’ll check up on your policy to make sure you have coverage where you want it - and review all the benefits that you can use as empty nesters.

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*Loans and withdrawals will reduce the policy value and death benefit dollar for dollar. Withdrawals are subject to partial surrender charges if they occur during a surrender charge period. Loans are made at interest. Loans may also result in the need to add additional premium into the policy to avoid a lapse of the policy. In the event that the policy lapses, all policy surrenders and loans are considered distributions and, to the extent that the distributions exceed the premiums paid (cost basis), they are subject to taxation as ordinary income. Lastly, all references to loans assume that the contract remains in force, qualifies as life insurance and is not a modified endowment contract (MEC). Loans from a MEC will generally be taxable and, if taken prior to age 59 1/2, may be subject to a 10% tax penalty.

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A New Season of Life Insurance

A New Season of Life Insurance

Does it seem like only yesterday that you were welcoming your first child into your family? How quickly the years go by…

How amazing it is to see your children growing and maturing as they hit milestone after milestone! Before you know it, that kindergarten diploma will be traded in for a high school one! In every new season of life, your family’s needs change and evolve as quickly as your kids do.

A really big need to consider while the kids are still young? Financing college tuition. In Canada, citizens can expect to pay an average of $6,571 per year.

And College Board reported that the average 2016-2017 tuition plus room and board for an American in-state, 4-year public college was $20,500, whereas the same for the average private college cost $46,150. No one can guess what those costs might be in 5, 10, or 15 years.   If you choose to help finance your child’s tuition, make sure you’re not doing it at the expense of saving for your own retirement. It can be a challenge to save for a college education and your own future. Here’s a thought. If it gets difficult, imagine the look on your child’s face if she gets into her dream college and doesn’t have to turn it down because of the cost. You can also imagine the feeling of serenity that you and your spouse could experience with a well-funded retirement. With a solid financial strategy, the potential you create for both of these scenarios is worth all the sacrifice you might need to make now.

How can you protect this sacrifice? Life insurance is more important now for your family than ever. As you and your loved ones take new steps – whether that’s winding down into retirement or revving up into adult life – life insurance can help make sure everyone stays on track with their goals in the event of a sudden death or other unexpected life event.

The proper life insurance policy can help cover expenses including your child’s college tuition and replace income for your spouse to continue down their road to retirement. One quick phone call with me is all you need to get the ball rolling. Let’s review your existing policy or get you started on one that can help your family meet their needs – in all seasons of life.

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How Much Life Insurance Do You Really Need?

July 30, 2018

How Much Life Insurance Do You Really Need?

Whenever you’re asked about choosing a new life insurance policy or adding additional coverage, do you have any of the following reactions?

1. “No way. We took care of this years ago. Having some kind of life insurance policy is what you’re supposed to do.”

2. “Well, it is only a few more dollars each month… But what if we never end up using the benefits of that rider? What if I could spend that extra money on something more important now, like getting that new riding lawn mower I wanted?”

3. “ANOTHER RIDER FOR MY POLICY?! Sign me up!”

Even though there might be some similar responses when faced with a decision to upgrade what you already have, with the right guidance, you can finance a policy that has the potential to protect what is most important to you and your family, fit your needs, and get you closer to financial independence.

The most honest answer I can give you about how much life insurance you really need? It’s going to depend on you and your goals.

General rules of thumb on this topic are all around. For instance, one “rule” states that the death benefit payout of your life insurance policy should be equal to 7-10 times the amount of your annual income. But this amount alone may not account for other needs your family might face if you suddenly weren’t around anymore…

  • Paying off any debt you had accrued
  • Settling final expenses
  • Continuing mortgage payments (or surprise upkeep costs)
  • Financing a college education for your kids
  • Helping a spouse continue on their road to retirement

And these are just a few of the pain points that your family might face without you.

So beyond a baseline of funds necessary for your family to continue with a bit of financial security, how much life insurance you require will be up to you and what your current circumstances allow.

If you’ve had enough of a guesswork, reactionary approach to how you’ll provide for your loved ones in case of an unexpected tragedy, give me a call. We’ll work together to tailor your policy to your needs!

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You'll Still Need This After Retirement

July 30, 2018

You'll Still Need This After Retirement

Ask anyone who’s had a flat tire, a leaky roof, or an unexpected medical bill – having enough money tucked away in an emergency fund can prevent a lot of headaches.

It may seem obvious to create a cushion for unexpected expenses while you’re saving up for retirement, especially if you have kids that need to get to their soccer games on time, a new-to-you home that’s really a fixer-upper, or an injury that catches you off guard. But an emergency fund is still important to keep after you retire!

Does your current retirement plan include an emergency fund for unexpected expenses like car trouble, home or appliance repair, or illness? Only 41% of Americans surveyed that they are less than $200 from being unable to meet their current monthly bills. That means over 50% of Canadians and nearly 60% of Americans may need to turn to other methods of coverage like taking loans from family or friends or accruing credit card debt.

After you retire and no longer have a steady stream of income, covering unexpected expenses in full (without interest or potentially burdening loved ones) can become more difficult. And when you’re older, it might be more challenging to deal with some of the minor problems yourself if you’re trying to save some money! You’re probably going to need to keep the phone number for a good handyman, handy.

Don’t let an unexpected expense after retirement cut into your savings. A solid financial strategy has the potential to make a huge difference for you – both now and during your retirement.

Contact me today, and together we can put together a strategy that’s tailored to you and your needs.

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The Shelf Life of Financial Records

July 16, 2018

The Shelf Life of Financial Records

When you finally make the commitment to organize that pile of financial documents, where are you supposed to start?

Maybe you’ve tried sorting your documents into this infamous trio: the Coffee Stains Assortment, the Crumpled-Up Masses, and the Definitely Missing a Page or Two Crew.

How has this system been working for you? Is that same stack of disorganized paper just getting shuffled from one corner of your desk to the top of your filing cabinet and back again? Why not give the following method a try instead? Based on the Financial Industry Regulatory Authority (FINRA)’s “Save or Shred” ideas, here’s a list of the shelf life of some key financial records to help you begin whittling that stack down to just what you need to keep. (And remember, when disposing of any financial records, shred them – don’t just toss them into the trash.)

1. Keep These Until They Die: Mortgages, Student Loans, Car Loans, Etc.
These records are the ones to hang on to until you’ve completely paid them off. However, keeping these records indefinitely (to be on the safe side) is a good idea. If any questions or disputes relating to the loan or payment of the loan come up, you’re covered. Label the records clearly, then feel free to put them at the back of your file cabinet. They can be out of sight, but make sure they’re still in your possession if that info needs to come to mind.

2. Seven Years in the Cabinet: Tax-Related Records.
These records include your tax returns and receipts/proof of anything you might claim as a deduction. You’ll need to keep your tax documents – including proof of deductions – for 7 years. Period. Why? In the US, if the IRS thinks you may have underreported your gross income by 25% This can be a little confusing, especially if you file late returns for any reason, so round the 6 years up to 7, and you’ll give yourself a little bit of wiggle room if the Canada Revenue Agency (CRA) comes knocking. Also important to keep in mind for both countries: Some of the items included in your tax returns may also pull from other categories in this list, so be sure to examine your records carefully and hang on to anything you think you might need.

3. The Sixers: Property Records.
This one goes out to you homeowners. While you’re living in your home, keep any and all documents from the purchase of the home to remodeling or additions you make. After you sell the home, keep those documents for at least 6 more years.

4. The Annually Tossed: Brokerage Statements, Paycheck Stubs, Bank Records.
“Annually tossed” is used a bit lightly here, so please proceed with caution. What can be disposed of after an annual review are brokerage statements, paycheck stubs (if not enrolled in direct deposit), and bank records. Hoarding these types of documents may lead to a “keep it all” or “trash it all” attitude. Neither is beneficial. What should be kept is anything of long-term importance (see #2).

5. The Easy One: Rental Documents.
If you rent a property, keep all financial documents and rental agreements until you’ve moved out and gotten your security deposit back from the landlord. Use your deposit to buy a shredder and have at it – it’s easy and fun!

6. The Check-‘Em Againsts: Credit Card Receipts/Statements and Bills.
Check your credit card statement against your physical receipts and bank records from that month. Ideally, this should be done online daily, or at least weekly, to catch anything suspicious as quickly as possible. If everything checks out and there are no red flags, shred away! (Note: Planning to claim anything on your statement as a tax deduction? See #2.) As for bills, you’re in the clear to shred them as soon as your payment clears – with one caveat: Bills for any big-ticket items that you might need to make an insurance claim on later (think expensive sound system, diamond bracelet, all-leather sofa with built-in recliners) should be held on to indefinitely (or at least as long as you own the item).

So even if your kids released their inner Michelangelo on the shoebox of financial papers under your bed, some of them need to be kept – for more than just sentimental value. And it’s vital to keep the above information in mind when you’re considering what to keep and for how long.

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How to Avoid Financial Infidelity

How to Avoid Financial Infidelity

If you or your partner have ever spent (a lot of) money without telling the other, you’re not alone.

This has become such a widespread problem for couples that there’s even a term for it: Financial Infidelity.

Calling it infidelity might seem a bit dramatic, but it makes sense when you consider that finances are the leading cause of relationship stress. Each couple has their own definition of “a lot of money,” but as you can imagine, or may have even experienced yourself, making assumptions or hiding purchases from your partner can be damaging to both your finances AND your relationship.

Here’s a strategy to help avoid financial infidelity, and hopefully lessen some stress in your household:

Set up “Fun Funds” accounts.

A “Fun Fund” is a personal bank account for each partner which is separate from your main savings or checking account (which may be shared).

Here’s how it works: Each time you pay your bills or review your whole budget together, set aside an equal amount of any leftover money for each partner. That goes in your Fun Fund.

The agreement is that the money in this account can be spent on anything without having to consult your significant other. For instance, you may immediately take some of your Fun Funds and buy that low-budget, made-for-tv movie that you love but your partner hates. And they can’t be upset that you spent the money! It was yours to spend! (They might be a little upset when you suggest watching that movie they hate on a quiet night at home, but you’re on your own for that one!)

Your partner on the other hand may wait and save up the money in their Fun Fund to buy $1,000 worth of those “Add water and watch them grow to 400x their size!” dinosaurs. You may see it as a total waste, but it was their money to spend! Plus, this isn’t $1,000 taken away from paying your bills, buying food, or putting your kids through school. (And it’ll give them something to do while you’re watching your movie.)

It might be a little easier to set up Fun Funds for the both of you when you have a strategy for financial independence. Contact me today, and we can work together to get you and your loved one closer to those beloved B movies and magic growing dinosaurs.

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The Burden of a Damaged Paycheck

April 9, 2018

The Burden of a Damaged Paycheck

How many of these “rules to live by” did you hear growing up?

Don’t run with scissors!

Look both ways before crossing the street!

Never dive into the shallow end!

They may have been yelled angrily from the front porch or shouted gruffly from the side of the pool – but it was done with love. These rules were all about keeping you safe from avoidable injuries and preventable accidents.

Now these lessons are as engrained in your way of life as flossing your teeth every single night, right? You may even have passed these “rules to live by” on to (yelled them at, maybe?) your own kids! These tips show how much you care about your family – and their safety and comfort.

If you’ll excuse my insistence, I have one more safety tip to add to your collection:

Get disability insurance!

When it comes to an unexpected disabling injury or illness, simply being cautious may not prevent it. And being careful won’t always protect you or your family from the burden of a damaged paycheck.

According to the Council for Disability Awareness, an accident is not usually the cause of a disability later in life. Instead, the inability to earn a paycheck can be caused by heart disease, cancer, and other illnesses.*

Disability insurance can replace part of your income due to an injury or illness. But waiting to consider disability insurance until you are face-to-face with a damaged paycheck is waiting too long.

Contact me today, and together we can explore your options. Let’s discuss what you can do to continue looking out for your financial safety as well as helping to ensure the comfort and care of your loved ones.

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Source: “Chances of Disability: Me, Disabled?” Council for Disability Awareness*, 2018, https://bit.ly/1iCWEwO.

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Boost Your Daily Routine with These 3 Financial Habits

March 26, 2018

Boost Your Daily Routine with These 3 Financial Habits

It’s late Friday afternoon. Your to-do list is a crumpled, coffee-stained memory in the bottom of your wastebasket. Another great week in the books!

But as you head out for a night on the town with friends or maybe cuddle up next to your kids to watch their favorite movie, did you ever consider how you spent your after-work time during the week?

Whether you’re routine-driven, a free spirit, or somewhere in between, setting aside a few minutes every day to spend on your finances has the potential to make a huge difference in the long run. By adding these 3 financial habits to your daily routine, you have the potential to give yourself a little more power over your finances.

1. Check your inbox (or mailbox). Whether you pay your bills via credit card, automatic withdrawal, or a hand-written check that you mail in to the company, a daily look-see will help you stay on top of any alerts you get. Spend a few minutes every day glancing over incoming bills, payment receipts, and new online transactions. Being aware of the exodus (or pending exodus) of your money can help fend off late fees, overdrawing your accounts, or maxing out your credit card.

2. Review your spending. Every evening, take quick stock of any spending you did that day – whether in brick-and-mortar stores or online. This exercise can be eye-opening. For instance, are you in the habit of grabbing a piping hot cup of coffee from the drive-thru on your morning commute? Depending on your coffee preference, that can cost up to $5 a day! Maybe 5 bucks isn’t a huge deal, but consider this:

  • $5 for coffee x 5 days a week = $25
  • $25 a week x 4 weeks/month = $100
  • That’s $100 per month spent on coffee!

Just staying aware of those little daily expenditures may make a huge difference in your financial health; when you know how much you’re paying over time for something you could prepare at home (for far less money), you may decide to scale back on the barista-brewed coffee so you can help boost your financial future – and keep yourself on the path to financial independence.

3. Learn a little more. Knowing how money works is a vital part of achieving and maintaining financial independence. Taking a few moments every day to educate yourself a little more about money can make a huge difference in the long run. It can keep you aware of best practices for money management and all the ways your money can work for you. Try a blog post, YouTube video, or a best-seller on finances to keep yourself informed and up to date.

As you start putting these simple financial habits in place, contact me any time! Together we can assess how these small changes could help strengthen your financial strategy and get you closer to financial independence.

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6 Financial Commitments EVERY Parent Should Educate Their Kids About

6 Financial Commitments EVERY Parent Should Educate Their Kids About

Your first lesson isn’t actually one of the six.

It can be found in the title of this article. The best time to start teaching your children about financial decisions is when they’re children! Adults don’t typically take advice well from other adults (especially when they’re your parents and you’re trying to prove to them how smart and independent you are).

Heed this advice: Involve your kids in your family’s financial decisions and challenge them with game-like scenarios from as early as their grade school years.

Starting your kids’ education young can help give them a respect for money, remove financial mysteries, and establish deep-rooted beliefs about saving money, being cautious regarding risk, and avoiding debt.

Here are 6 critical financially-related lessons EVERY parent should foster in the minds of their kids:

1. Co-signing a loan

The Mistake: ‘I’m in a good financial position now. I want to be helpful. They said they’ll get me off the loan in 6 months or so.’

The Realities: If the person you’re co-signing for defaults on their payments, you’re required to make their payments, which can turn a good financial situation bad, fast. Also, lenders are not incentivized to remove co-signers – they’re motivated to lower risk (hence having a co-signer in the first place). This can make it hard to get your name off a loan, regardless of promises or good intentions. Keep in mind that if a family member or friend has a rough credit history – or no credit history – that requires them to have a co-signer, what might that tell you about the wisdom of being their co-signer? And finally, a co-signing situation that goes bad may ruin your credit reputation, and more tragically, may ruin your relationship.

The Lesson: ‘Never, ever, EVER, co-sign a loan.’

2. Taking on a mortgage payment that pushes the budget

The Mistake: ‘It’s our dream house. If we really budget tight and cut back here and there, we can afford it. The bank said we’re pre-approved…We’ll be sooo happy!’

The Realities: A house is one of the biggest purchases couples will ever make. Though emotion and excitement are impossible to remove from the decision, they should not be the driving forces. Just because you can afford the mortgage at the moment, doesn’t mean you’ll be able to in 5 or 10 years. Situations can change. What would happen if either partner lost their job for any length of time? Would you have to tap into savings? Also, many buyers dramatically underestimate the ongoing expenses tied to maintenance and additional services needed when owning a home. It’s a general rule of thumb that home owners will have to spend about 1% of the total cost of the home every year in upkeep. That means a $250,000 home would require an annual maintenance investment of $2,500 in the property. Will you resent the budgetary restrictions of the monthly mortgage payments once the novelty of your new house wears off?

The Lesson: ‘Never take on a mortgage payment that’s more than 25% of your income. Some say 30%, but 25% or less may be a safer financial position.’

3. Financing for a new car loan

The Mistake: ‘Used cars are unreliable. A new car will work great for a long time. I need a car to get to work and the bank was willing to work with me to lower the payments. After test driving it, I just have to have it.’

The Realities: First of all, no one ‘has to have’ a new car they need to finance. You’ve probably heard the expression, ‘a new car starts losing its value the moment you drive it off the lot.’ Well, it’s true. According to CARFAX, a car loses 10% of its value the moment you drive away from the dealership and another 10% by the end of the first year. That’s 20% of value lost in 12 months. After 5 years, that new car will have lost 60% of its value. Poof! The value that remains constant is your monthly payment, which can feel like a ball and chain once that new car smell fades.

The Lesson: ‘Buy a used car you can easily afford and get excited about. Then one day when you have saved enough money, you might be able to buy your dream car with cash.’

4. Financial retail purchases

The Mistake: ‘Our refrigerator is old and gross – we need a new one with a touch screen – the guy at the store said it will save us hundreds every year. It’s zero down – ZERO DOWN!’

The Realities: Many of these ‘buy on credit, zero down’ offers from appliance stores and other retail outlets count on naive shoppers fueled by the need for instant gratification. ‘Zero down, no payments until after the first year’ sounds good, but accrued or waived interest may often bite back in the end. Credit agreements can include stipulations that if a single payment is missed, the card holder can be required to pay interest dating back to the original purchase date! Shoppers who fall for these deals don’t always read the fine print before signing. Retail store credit cards may be enticing to shoppers who are offered an immediate 10% off their first purchase when they sign up. They might think, ‘I’ll use it to establish credit.’ But that store card can have a high interest rate. Best to think of these cards as putting a tiny little ticking time bomb in your wallet or purse.

The Lesson: ‘Don’t buy on credit what you think you can afford. If you want a ‘smart fridge,’ consider saving up and paying for it in cash. Make your mortgage and car payments on time, every time, if you want to help build your credit.’

5. Going into business with a friend

The Mistake: ‘Why work for a paycheck with people I don’t know? Why not start a business with a friend so I can have fun every day with people I like building something meaningful?’

The Realities: “This trap actually can sound really good at first glance. The truth is, starting a business with a friend can work. Many great companies have been started by two or more chums with a shared vision and an effective combination of skills. If either of the partners isn’t prepared to handle the challenges of entrepreneurship, the outcome might be disastrous, both from a personal and professional standpoint. It can help if inexperienced entrepreneurs are prepared to:

  • Lose whatever money is contributed as start-up capital
  • Agree at the outset how conflicts will be resolved
  • Avoid talking about business while in the company of family and friends
  • Clearly define roles and responsibilities
  • Develop a well-thought out operating agreement

The Lesson: ‘Understand that the money, pressures, successes, and failures of business have ruined many great friendships. Consider going into business individually and working together as partners, rather than co-owners.’

6. Signing up for a credit card

The Mistake: ‘I need to build credit and this particular card offers great points and a low annual fee! It will only be used in case of emergency.’

The Reality: There are other ways to establish credit, like paying your rent and car loan payments on time. The average American household carries a credit card balance averaging over $16,000. Credit cards can lead to debt that may take years (or decades) to pay off, especially for young people who are inexperienced with budgeting and managing money. The point programs of credit cards are enticing – kind of like when your grocer congratulates you for saving five bucks for using your VIP shopper card. So how exactly did you save money by spending money?

The Lesson: ‘Learn to discipline yourself to save for things you want to buy and then pay for them with cash. Focus on paying off debt – like student loans and car loans – not going further into the hole. And when you have to get a credit card, make sure to pay it off every month, and look for cards with rewards points. They are, in essence, paying you! But be sure to keep Lesson 5 in mind!’

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