Michael & Claar Runyan

Michael & Claar Runyan

8018886888

Business Owner

10653 S River Front Pkwy
Suite 190
South Jordan, Utah 84095

m8018886888 w8015698888 f8889597262

Schedule a Call

World Financial Group

Save the money or pay off the debt?

February 13, 2019

Jump To Article

Subscribe to get my Email Newsletter

Save the money or pay off the debt?

February 13, 2019

Save the money or pay off the debt?

If you come into some extra money – a year-end bonus at work, an inheritance from your aunt, or you finally sold your rare coin collection for a tidy sum – you might not be quite sure what to do with the extra cash.

On one hand you may have some debt you’d like to knock out, or you might feel like you should divert the money into your emergency savings or retirement fund.

They’re both solid choices, but which is better? That depends largely on your interest rates.

High Interest Rate
Take a look at your debt and see what your highest interest rate(s) are. If you’re leaning towards saving the bonus you’ve received, keep in mind that high borrowing costs may rapidly erode any savings benefits, and it might even negate those benefits entirely if you’re forced to dip into your savings in the future to pay off high interest. The higher the interest rate, the more important it is to pay off that debt earlier – otherwise you’re simply throwing money at the creditor.

Low Interest Rate
On the other hand, sometimes interest rates are low enough to warrant building up an emergency savings fund instead of paying down existing debt. An example is if you have a long-term, fixed-rate loan, such as a mortgage. The idea is that money borrowed for emergencies, rather than non-emergencies, will be expensive, because emergency borrowing may have no collateral and probably very high interest rates (like payday loans or credit cards). So it might be better to divert your new-found funds to a savings account, even if you aren’t reducing your interest burden, because the alternative during an emergency might mean paying 20%+ rather than 0% on your own money (or 3-5% if you consider the interest you pay on the current loan).

Raw Dollar Amounts
Relatively large loans might have low interest rates, but the actual total interest amount you’ll pay over time might be quite a sum. In that case, it might be better to gradually divert some of your bonus money to an emergency account while simultaneously starting to pay down debt to reduce your interest. A good rule of thumb is that if debt repayments comprise a big percentage of your income, pay down the debt, even if the interest rate is low.

The Best for You
While it’s always important to reduce debt as fast as possible to help achieve financial independence, it’s also important to have some money set aside for use in emergencies.

If you do receive an unexpected windfall, it will be worth it to take a little time to think about a strategy for how it can best be used for the maximum long term benefit for you and your family.


WFG115110-0219

Are you credit worthy?

February 11, 2019

Are you credit worthy?

Credit scores are determined by credit reports, which are built over time by those who utilize credit.

However, there is a sizeable portion of the United States population, numbering in the tens of millions of individuals[i], who either have no credit history, credit history that’s too limited to provide a score, or credit history that’s too old to provide a score. These people may be rejected by lenders simply because they can’t prove their creditworthiness.

A large segment of these citizens are either just becoming adults and have yet to build a score, have little access to today’s modern financial system, or are from older generations who no longer need loans and thus their history has become “stale” or too old for scoring purposes. New immigrants who have no credit history in the United States also face this issue. The invisibles tend to cluster in dense urban centers or in small, rural towns, and, according to the latest Consumer Financial Protection Bureau’s report, lack of internet access seems to have a stronger correlation to credit invisibility than access to a physical bank branch.[ii]

The detriment of credit invisibility
It might seem better to always cover your bills with cash and simply save up for whatever items you wish to purchase. And this is generally a sound practice. However, if doing this leads to credit invisibility, it may have a detrimental effect on your financial life.

Most people – even if they have enough money on hand to cover normal bills and the occasional emergency – might someday want to purchase a home, start a business, or need a new car. It’s not usual that someone could pay for these high-dollar items with cash. Entering a loan agreement for any of these situations may be something you choose to do if the benefits seem to outweigh the costs, and if you have a solid strategy in place to repay the loan. If you can’t prove your creditworthiness, it might be more difficult to secure a loan for these things.

How to avoid being credit invisible
If you are credit invisible because you have little to no assets and lenders refuse to open accounts for you, one possibility is obtaining a secured credit card.[iii] The cardholder deposits cash and the deposit amount is usually the credit limit. The issuer has zero liability against your non-repayment, because they already have the money. Using a secured card and paying the balance back on time helps you build a credit history if you have none.

Once you’ve started to build a history, you may be able to apply for a “real” credit card. At that point, you’ll want to be cautious with your spending (according to a budget, of course) and always make sure to pay your bill on time, especially in full whenever possible so you can avoid interest. Then you should be on your way to establishing a solid credit history, which may help you with other milestones in life, like buying a home, replacing an old car, or even starting a new business venture with a friend.


[i] https://www.americanbanker.com/opinion/senate-should-take-up-bill-to-help-lenders-see-credit-invisibles
[ii] https://www.consumerfinance.gov/about-us/blog/new-research-report-geography-credit-invisibility/
[iii] https://www.experian.com/blogs/ask-experian/what-is-a-secured-credit-card/

WFG114854-0219

The dangers of payday loans and cash advances

January 30, 2019

The dangers of payday loans and cash advances

In an emergency you might need some extra cash fast.

Having your emergency fund at the ready would be ideal to cover your conundrum, but what if your emergency fund has been depleted, or you can’t or don’t want to use a credit card or line of credit to get through a crisis?

There are other options out there – a cash advance or a payday loan.

But beware – these options pose some serious caveats. Both carry high interest rates and both are aimed at those who are in desperate need of money on short notice. So before you commit to one of these options, let’s pause and take a close look at why you might be tempted to use them, and how they compare to other credit products, like credit cards or traditional loans.

The Cash Advance
If you already have a credit card, you may have noticed the cash advance rate associated with that card. Many credit cards offer a cash advance option – you would go to an ATM and retrieve cash, and the amount would be added to your credit card’s balance. However, there is usually no grace period for cash advances.[i] Interest would begin to accrue immediately.

Furthermore, the interest rate on a cash advance may often be higher than the interest rate on credit purchases made with the same card. For example, if you buy a $25 dinner on credit, you may pay 15% interest on that purchase (if you don’t pay it off before the grace period has expired). On the other hand, if you take a cash advance of $25 with the same card, you may pay 25% interest, and that interest will start right away, not after a 21-day grace period. Check your own credit card terms so you’re aware of the actual interest you would be charged in each situation.

The Payday Loan
Many people who don’t have a credit history (or who have a poor credit rating) may find it difficult to obtain funds on credit, so they may turn to payday lenders. They usually only have to meet a few certain minimum requirements, like being of legal age, showing proof of employment, etc.[ii] Unfortunately, the annualized interest rates on payday loans are notoriously high, commonly reaching hundreds of percentage points.[iii]

A single loan at 10% over two weeks may seem minimal. For example, you might take a $300 loan and have to pay back $330 at your next paycheck. Cheap, right? Definitely not! If you annualize that rate, which is helpful to compare rates on different products, you get 250% interest. The same $300 charged to a 20% APR credit card would cost you $2.30 in interest over that same two week period (and that assumes you have no grace period).

Why People Use Payday Loans
Using a cash advance in place of purchasing on credit can be hard to justify in a world where almost every merchant accepts credit cards. However, if a particular merchant only accepts cash, you may be forced to take out a cash advance. Of course, if you can pay off the advance within a day or two and there is a fee for using a credit card (but not cash), you might actually save a little bit by paying in cash with funds from a cash advance.

Taking a payday loan, while extremely expensive, has an obvious reason: the applicant cannot obtain loans in any other way and has an immediate need for funds. The unfortunate reality is that being “credit invisible” can be extremely expensive, and those who are invisible or at risk of becoming invisible should start cautiously building their credit profiles, either with traditional credit cards or a secured card[iv], if your circumstances call for it. (As always, be aware of fees and interest rates charged with the card you choose.) Even more important is to start building an emergency fund. Then, if an emergency does arise, payday loans can be avoided.


[i] https://www.investopedia.com/ask/answers/111414/how-does-interest-work-cash-advance-my-credit-card.asp
[ii] https://www.speedycash.com/faqs/payday-loans/
[iii] https://www.incharge.org/debt-relief/how-payday-loans-work/
[iv] https://www.experian.com/blogs/ask-experian/what-is-a-secured-credit-card/

WFG113158-0119

Budgeting 101: Where should I start?

January 2, 2019

Budgeting 101: Where should I start?

It’s the new year so there are bound to be some new resolutions you want to stick to.

If one of them is improving your budgeting skills – or maybe just creating a budget in the first place – read on for some guidelines that may help reduce some of your expenses (including what you might call the essentials).

Start with debt and interest rates
If you have any loans in your name, rest assured there will be interest associated with those loans, unless you’ve got a really nice aunt who loaned you some money interest-free. From the borrower’s perspective, interest is simply the expense of receiving money from a creditor which you’re required to pay back over time. No one wants to pay higher interest than necessary.

In contrast to other expenses, like rent, food, or entertainment, interest itself produces absolutely no value for the borrower. The borrowed money may produce value, but the interest itself does not. For that reason, you’re going to want to pay as little interest on your loans as possible.

One strategy is to transfer credit card balances to lower APR credit cards – just beware of transfer fees. Read the fine print to make sure the new card actually carries a lower interest rate, as sometimes the rate after the introductory period may go up. If you can refinance any of your loans, like student, auto, or home, consider it. For example, there’s no reason to pay 5% if you can pay 4%. (Again, make sure you understand the terms and any fees involved.)

Slim down the essentials
This is the time when all items in your budget are going to come under consideration. Everything is on the table. For transportation, any reduction in cost you can make is going to depend on your location. If you live in a high-density urban area and you normally drive yourself or use public transit to get to work or other destinations, ask yourself if you can walk or cycle instead. These options often provide health benefits as well.

The key? Look at the essential sections of your budget and mentally run through how you obtain those essentials, like driving to the nearest grocery store or who your landlord is. Then brainstorm alternatives for paying for these items or services – anything is fair game! (For example, would your landlord reduce your rent if you help out with yard maintenance?) Finally, do a little research and analysis to see if those alternatives are cheaper (and feasible).

Eliminate non-essentials
The next step is to look at each non-essential and determine its utility to you. If you barely think about the actual purchase, you might have simply developed the routine of purchasing that item or service (think: “monthly movie subscription service you never use anymore”). In that case, the hardest part might be combing through your credit card statement and nixing the services you never use. Another example of routine, autopilot spending might be the soda you buy with your lunch. Do you really need it? Maybe not. Switching to tea or coffee that you can brew at home may be cheaper. And water is (usually) free.

Repeat this process with every non-essential. Are you really using your 10GB/mo mobile internet plan? If not, look for a lower, more cost-effective GB plan. The key here is to try to distinguish between convenience and necessity.

Don’t discount the discount
There are discounts everywhere, from loyalty programs to manufacturers’ coupons to seasonal specials. If there is an essential that burns your budget, it may be worth checking to see if you’re eligible for a government program.[i]

Some credit cards offer rewards programs, but be very careful to pay off the full amount each month to avoid accruing interest, otherwise your rewards could be negated.

Keep the big picture in mind
Sometimes it can be hard to justify the time and effort that might be involved to save $2 per day. It’s just two dollars, right? But look at the accumulated savings. Saving $2 per day for a year translates to over $700, or about $60 per month. If you choose to brew that tea instead of buying the soda, maybe you can afford the 10GB plan instead of the 1GB plan.


[i] https://www.usa.gov/benefits

WFG112772-0119

Building your budget

December 24, 2018

Building your budget

The number of Americans who have developed and apply a budget is alarmingly low.

One poll puts the number at 32%.[i] That equates to tens of millions of Americans who don’t have a budget. Yikes!

You don’t have to be a statistic. Here are some quick tips to get you started on your own budget so you can help safeguard your financial future.

Know Your Balance Sheet
Companies maintain and review their “balance sheets” regularly. Balance sheets show assets, liabilities, and equity. Business owners probably wouldn’t be able run their companies successfully for very long without knowing this information and tracking it over time.

You also have a balance sheet, whether you realize it or not. Assets are the things you have, like a car, house, or cash. Liabilities are your debts, like auto loans or outstanding bills you need to pay. Equity is how much of your assets are technically really yours. For example, if you live in a $100,000 house but carry $35,000 on the mortgage, your equity is 65% of the house, or $65,000. 65% of the house is yours and 35% is still owned by the bank.

Pro tip: Why is this important to know? If you’re making a decision to move to a new house, you need to know how much money will be left over from the sale for the new place. Make sure to speak with a representative of your mortgage company and your realtor to get an idea of how much you might have to put towards the new house from the sale of the old one.

Break Everything Down
To become efficient at managing your cash flow, start by breaking your spending down into categories. The level of granularity and detail you want to track is up to you. (Note: If you’re just starting out budgeting, don’t get too caught up in the details. For example, for the “Food” category of your budget, you might want to only concern yourself with your total expense for food, not how much you’re spending on macaroni and cheese vs. spaghetti.)

If you typically spend $400 a month on food, that’s important to know. As you get more comfortable with budgeting and watching your dollars, it’s even better to know that half of that $400 is being spent at coffee shops and restaurants. This information may help you eliminate unnecessary expenditures in the next step.

What you spend your money on is ultimately your decision, but lacking knowledge about where it’s spent may lead to murky expectations. Sure, it’s just $10 at the sandwich shop today, but if you spend that 5 days a week on the regular, that expenditure may fade into background noise. You might not realize all those hoagies are the equivalent of your health insurance premium. Try this: Instead of spending $10 on your regular meal, ask yourself if you can find an acceptable alternative for less by switching restaurants.

Once you have a good idea of what you’re spending each month, you’ll need to know exactly how much you make (after taxes) to set realistic goals. This would be your net income, not gross income, since you will pay taxes.

Set Realistic Goals and Readjust
Now that you know what your balance sheet looks like and what your cash flow situation is, you can set realistic goals with your budget. Rank your expenses in order of necessity. At the top of the list would be essential expenses – like rent, utilities, food, and transit. You might not have much control over the rent or your car payment right now, but consider preparing food at home to help save money.

Look for ways you can cut back on utilities, like turning the temperature down a few degrees in the winter or up a few degrees in the summer. You may be able to save on electricity if you run appliances at night or in the morning, rather than later in the afternoon when usage tends to be the highest.[ii]

After the essentials would come items like clothes, office supplies, gifts, entertainment, vacation, etc. Rank these in order of importance to you. Consider shopping for clothes at a consignment shop, or checking out a dollar store for bargains on school or office supplies.

Ideally, at the end of the month you should be coming out with money leftover that can be put into an emergency fund (your goal here is at least $1,000), and then you can start adding money to your savings.

If you find your budget is too restrictive in one area, you can allocate more to it. (But you’ll need to reduce the money flowing in to other areas in the process to keep your bottom line the same.) Ranking expenses will help you determine where you can siphon off money.

Commit To It
Now that you have a realistic budget that contains your essentials, your non-essentials, and your savings goals, stick to it! Building a budget is a process. It may take some time to get the hang of it, but you’ll thank yourself in the long run.


[i] https://www.debt.com/edu/personal-finance-statistics/
[ii] https://news.energysage.com/whats-the-cheapest-time-of-day-to-use-electricity-with-time-of-use-rates/

WFG112291-1218

Why have a good credit score?

December 12, 2018

Why have a good credit score?

A rare few may have little need for credit, and might not even concern themselves with whether their credit scores were high, low, or somewhere in between.

For most people, however, at some point in life we’ll need access to credit, which is why we should keep an eye on our credit scores and make adjustments to our financial behavior to help keep our credit scores as high as possible.

Interest rates are generally lower with better credit scores
As of December 2018, the average credit card interest rate can be anywhere from 15.37% to 20.90%, but can rocket up to 29.99% in some cases if a payment is missed and you fall prey to a late payment penalty. On the other side of the scale, high credit scores can earn interest rates that are lower than average, which may reduce the cost of credit if you need it.[i]

It’s easy to pick on credit cards because of their typically high interest rates, but a good credit score may save you money on long-term loans like your mortgage, or on loans that occur repeatedly, such as auto loans. Auto leasing rates can also be considerably less expensive if you have good credit.[ii]

A higher interest rate on one or two balances may not seem like a big deal. However, your credit score is probably affecting the rates on all or most of your credit-based transactions, which may cost you money every month (or may save you money every month).

Insurance rates can be lower
It’s become commonplace for insurers to weigh credit as a risk factor when determining premiums for auto or home insurance. Somewhere in their loss statistics, insurers found a correlation between credit and risk of a loss, and as a result, depending on your state, consumers with a good credit score can generally expect lower insurance rates if all other factors are equal.[iii] In most households, insurance is a sizable monthly expense, so keeping your rates as low as possible can be beneficial to your budget.

Avoid security deposits and get easier approval
Your credit score comes into play with expenses such as utilities.[iv] Utility providers routinely require security deposits before beginning service for many consumers. With a good credit score, it may be possible to bypass security deposit requirements or to earn a reduced security deposit amount, keeping more cash freed up to use as you see fit.

The same concept also applies to cell phone service providers. With a good credit score, you’ll probably have more choices from providers, and be able to get later model phones sooner. Without a good credit score, however, you may be forced to choose from no contract providers, which often have service limitations or a smaller offering of mobile devices.

Taking steps to protect your credit score and to improve it, if it needs a little help, may save you money in the long run and open up new opportunities.

Have you checked your credit score lately? It’s free![v]


[i] https://www.valuepenguin.com/average-credit-card-interest-rates
[ii] https://www.preventloanscams.org/good-credit-scores/
[iii] https://www.nerdwallet.com/blog/insurance/car-insurance-rate-increases-poor-credit/
[iv] https://www.creditcards.com/credit-card-news/cellphone-credit-check-1270.php
[v] https://www.annualcreditreport.com/index.action

WFG111715-1218

Understanding credit card interest

November 28, 2018

Understanding credit card interest

We all know credit cards charge interest if you carry a balance, but how are interest charges actually calculated?

It can be enlightening to see how rates are applied, which might motivate you to pay off those cards as quickly as possible!

What is APR?
At the core of understanding how finance charges are calculated is the APR, short for Annual Percentage Rate. Most credit cards now use a variable rate, which means the interest rate can adjust with the prime rate, which is the lowest interest rate available (for any entity that is not a bank) to borrow money. Banks use the prime rate for their best customers to provide funds for mortgages, loans, and credit cards.[i] Credit card companies charge a higher rate than prime, but their rate often moves in tandem with the prime rate. As of the second quarter of 2018, the average credit card interest rate on existing accounts was 13.08%.[ii]

While the Annual Percentage Rate is a yearly rate, as its name suggests, the interest on credit card balances is calculated monthly based on an average daily balance. You may also have multiple APRs on the same account, with a separate APR for balance transfers, cash advances, and late balances.

Periodic Interest Rate
The APR is used to calculate the Periodic Interest Rate, which is a daily rate. 15% divided by 365 days in a year = 0.00041095 (the periodic rate), for example.

Average Daily Balance
If you use your credit card regularly, the balance will change with each purchase. If credit card companies charged interest based on the balance on a given date, it would be easy to minimize the interest charges by timing your payment. This isn’t the case, however – unless you pay in full – because the interest will be based on the average daily balance for the entire billing cycle.

Let’s look at some round numbers and a 30-day billing cycle as an example.
Day 1: Balance $1,000
Day 10: Purchase $500, Balance $1,500
Day 20: Purchase $200, Balance $1,700
Day 28: Payment $700, Balance $1,000

To calculate the average daily balance, you would need to determine how many days you had at each balance.
$1,000 x 9 days
$1,500 x 10 days
$1,700 x 8 days
$1,000 x 3 days

Some of the multiplied numbers below might look alarming, but after we divide by the number of days in the billing cycle (30), we’ll have the average daily balance.
($9,000 + $15,000 + $13,600 + $3,000)/30 = $1,353.33 (the average daily balance)

Here’s an eye-opener: If the $1,000 ending balance isn’t paid in full, interest is charged on the $1353.33, not $1,000.

We’ll also assume an interest rate of 15%, which gives a periodic (daily) rate of 0.00041095.
$1,353.33 x (0.00041095 x 30) = $16.68 finance charge

$16.68 may not sound like a lot of money, but this example is only about 1/12th of the average household credit card debt, which is $15,482 for households that carry balances.[iii] At 15% interest, average households with balances are paying $2,322 per year in interest.

That was a lot of math, but it’s important to know why you’re paying what you might be paying in interest charges. Hopefully this knowledge will help you minimize future interest buildup!

Did you know?
When you make a payment, the payment is applied to interest first, with any remainder applied to the balance. This is why it can take so long to pay down a credit card, particularly a high-interest credit card. In effect, you can end up paying for the same purchase several times over due to how little is applied to the balance if you are just making minimum payments.


[i] https://www.thestreet.com/markets/rates-bonds/what-is-the-prime-rate-14742514
[ii] https://wallethub.com/edu/average-credit-card-interest-rate/50841/
[iii] https://www.nerdwallet.com/blog/average-credit-card-debt-household/

WFG110401-1118

Is a personal loan a good idea?

November 14, 2018

Is a personal loan a good idea?

Life is full of surprises – many of which cost money.

If you’ve just used up your emergency fund to cover your last catastrophe, then what if a new surprise arrives before you’ve replenished your savings?

Using a credit card can be an expensive option, so you might be leery of adding debt with a high interest rate. However, you can’t let the ship sink either. What can you do?

A personal loan is an alternative in a cash-crunch crisis, but you’ll need to know a bit about how it works before signing on the bottom line.

A personal loan is an unsecured loan. The loan rate and approval are based on your credit history and the amount borrowed. Much like a credit card account, you don’t have to put up a car or house as collateral on the loan. But one area where a personal loan differs from a credit card is that it’s not a revolving line of credit. Your loan is funded in a lump sum and once you pay down the balance you won’t be able to access more credit from that loan. Your loan will be closed once you’ve paid off the balance.

The payment terms for a personal loan can be a short duration. Typically, loan terms range between 2-7 years.[i] If the loan amount is relatively large, this can mean large payments as well, without the flexibility you have with a credit card in regard to choosing your monthly payment amount.

An advantage over using a personal loan instead of a credit card is that interest rates for personal loans can be lower than you might find with credit cards. But many personal loans are plagued by fees, which can range from application fees to closing fees. These can add a significant cost to the loan even if the interest rate looks attractive. It’s important to shop around to compare the full cost of the loan if you choose to use a personal loan to navigate a cash crunch. You also might find that some fees (but not all) can be negotiated. (Hint: This may be true with certain credit cards as well.)

Before you borrow, make sure you understand the interest rate for the loan. Personal loans can be fixed rate or the rate might be variable. In that case, low rates can turn into high rates if interest rates continue to rise.

It’s also important to know the difference between a personal loan and a payday loan. Consider yourself warned – payday loans are a different type of loan, and may be an extremely expensive way to borrow. The Federal Trade Commission recommends you explore alternatives.[ii]

So if you need a personal loan to cover an emergency, your bank or credit union might be a good place to start your search.


[i] https://www.nerdwallet.com/blog/loans/personal-loan-calculator/
[ii] https://www.consumer.ftc.gov/articles/0097-payday-loans

WFG109858-1118

Avoid these unhealthy financial habits

October 29, 2018

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!


[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

WFG108542-1018

The return of – dun, dun, dun – Consumer Debt

October 22, 2018

The return of – dun, dun, dun – Consumer Debt

It might sound like a bad monster movie title, but the return of consumer debt is a growing concern.

A recent New York Times article details the rise of consumer debt, which has reached a new peak and now exceeds the record-breaking $12.68 trillion of consumer debt we had collectively back in 2008. In 2017, after a sharp decline followed by a rise as consumer sentiment improved, we reached a new peak of $12.73 trillion.[i]

A trillion is a big number. Numbers measured in trillions (that’s 1,000 billion, or 1,000,000 million – yes, that’s correct!) can seem abstract and difficult to relate to in our own individual situations.

While big numbers can be hard to grasp, dates are easy. 2008 is when the economy crashed, due in part to an unmanageable amount of debt.

Good debt and bad debt
Mortgage debt still makes up the majority of consumer debt, currently 68% of the total.[ii] But student loans are a category on the rise, currently more than doubling their percentage of total consumer debt when compared to 2008 figures.[iii] Coupled with a healthier economy, these new levels of consumer debt may not be a strong concern yet, but the impact of debt on individual households is often more palpable than the big-picture view of economists. Debt has a way of creeping up on families.

It’s common to hear references to “good debt”, usually when discussing real estate loans. In most cases, mortgage interest is tax deductible, helping to reduce the effective interest rate. However, if a household has too much debt, none of it feels like good debt. In fact, some people pass on home ownership altogether, investing their surplus income and living in more affordable rented apartments – instead of taking on the fluctuating cost of a house and its seemingly never-ending mortgage payments.

Credit card debt
Assuming that a mortgage and an auto loan are necessary evils for your household to work, and that student loans may pay dividends in the form of higher earning power, credit card debt deserves some closer scrutiny. The average American household owes over $15,000 in credit card debt,[iv] more than a quarter of the median household income. The average interest rate for credit cards varies depending on the type of card (rewards cards can be higher). But overall, American households are paying an average of 14.87% APR for the privilege of borrowing money to spend.[v]

That level of debt requires a sizeable payment each month. Guess what the monthly credit card interest for credit card debt of $15,000 at an interest rate of 15% would be? $187.50! (That number will go down as the balance decreases.) If your monthly payment is on the lower end, your debt won’t go down very quickly though. In fact, at $200 per month paid towards credit cards, the average household would be paying off that credit card debt for nearly 19 years, with a total interest cost of almost $30,000 – all from a $15,000 starting balance! (Hint: You can find financial calculators online to help you figure out how much it really costs to borrow money.)

You may not be trillions in debt (even though it might feel like it), but the first step to getting your debt under control is often to understand what its long-term effects might be on your family’s financial health. Formulating a strategy to tackle debt and sticking to it is the key to defeating your personal debt monsters.


[i], [ii] & [iii] https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html
[iv] & [v] https://www.nerdwallet.com/blog/average-credit-card-debt-household/

WFG108345-1018

What to do first when you receive an inheritance

October 15, 2018

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!


WFG107225-1018

To Close It or Not to Close It? That Is the Question.

September 17, 2018

To Close It or Not to Close It? That Is the Question.

Your credit score helps determine the interest rate you’ll pay for loans, how much credit you’re eligible to receive, and it can even affect other monthly expenses, such as auto or homeowners insurance.

Keeping your credit in tip top shape may actually help save you money in some cases. With that in mind, how do you know if it’s a good idea to open a new credit card or to close some credit card accounts? Let’s find out!

Opening Credit Card Accounts
Opening a new credit card isn’t necessarily detrimental to your credit score in the long term, although there may be some potential negatives in the short term. As you might expect, opening a new credit card account will place a new inquiry on your credit report, which could cause a drop in your credit score. Any negative effect due to the inquiry is often temporary, but the long-term effect depends on how you use the account after that (not making minimum payments, carrying a high balance, etc.).

Opening a new credit card account can affect your credit rating in two other ways. The average age of your credit accounts can be lowered since you’ve added a credit account that’s brand new (i.e., the older the account, the better it is for your score). On the plus side, opening a new credit card account can reduce your credit utilization. For example, if you had $5000 in available credit with $2500 in credit card balances, your credit utilization is 50%. Adding another card with $2500 in available credit with the same balance total of $2500 drops your credit utilization to 33%. A lower credit utilization can help your score.

Closing Credit Card Accounts
Closing a credit card account can also affect your credit score, largely due to some of the same considerations for opening new credit card accounts. Generally speaking, closing a credit card account likely won’t help boost your credit score, and doing so could possibly lower your credit score for the same reasons above (lowering the average age of your accounts, increasing your credit utilization, etc.).

First, the positive reasons to close the account: This might be obvious, but closing a credit card account will prevent you from using it. If discipline has been a challenge, instead of closing the account, you might consider simply cutting up the card or placing it in a lockbox.

Second, the negative reasons to close the account: Closing a credit card account when you have outstanding balances on other credit card accounts will raise your credit utilization. A higher credit utilization can cause your credit rating to fall. You’ll also want to consider the average age of all of your accounts, which can play a big role in your credit score. A longer history is better. Closing a credit account that was established long ago can impact your credit score negatively by lowering your average account age.

Fair Isaac, the company responsible for assigning FICO scores, recommends not closing credit card accounts if your goal is to raise or preserve your credit score.[i]

Would opening or closing a bank account have any effect on my score?\ Closing a bank account has no effect on your credit rating and normally doesn’t appear on your credit report at all. When you open a bank account, however, your bank may perform a credit inquiry, particularly if you apply for overdraft protection. A hard inquiry (such as an overdraft protection application) can cause a temporary drop in your credit score. Soft inquiries – which are also common for banks – will appear on your credit report but do not affect your credit rating. Banks may also check your report from ChexSystems[ii], a company that reports on consumer bank accounts, including overdraft history and any unresolved balances on closed accounts.[iii]

WFG97806-0918


[i] https://www.myfico.com/credit-education/faq/cards/impact-of-closing-credit-card-account
[ii] https://www.chexsystems.com/web/chexsystems/consumerdebit/page/home/
[iii] https://www.mybanktracker.com/news/account-denied-chexsystems-report

Should You Buy Or Lease Your Next Vehicle?

September 10, 2018

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.


  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

WFG097633-0918

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.


*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.

WFG1880941-0817

Headed in the Right Direction: Managing Debt for Millennials

Headed in the Right Direction: Managing Debt for Millennials

Three simple words can strike fear into the heart of any millennial:

Student.

Loan.

Debt.

The anxiety is not surprising: In 2015, US college graduates had an average of $30,100 in student loan debt.

Nearly $30 grand? For that you could travel the world. Put a down payment on a house. Buy a car. Even start a new business! But instead of having the freedom to pursue their dreams, there’s a hefty financial ball and chain around millennials’ feet.

That many young people owing that much money before they even enter the workforce? It’s unbelievable!

Now just imagine adding car payments, house payments, insurance premiums, and more on top of that student debt. No wonder millennials are feeling so terrible: studies showed that Canadian students who had to take out large loans were in a state of poorer mental health report that paying for essentials alone is a “somewhat-to-very-significant” source of stress.

Now is the time to get ahead of your debt. Not later. You have the potential to manage that debt and get out from under it!

So how do you do that? Sometimes improving your current situation involves more than making smarter choices with the money you earn now. Getting out of that debt ditch means finding a way to make more.

There are 2 things you can monetize right now:

  • Your education
  • Your experience

Both have their own challenges. You may not have spent much time in a particular field yet, so not a lot of experience. And what if you’re working a job that has nothing to do with your major? There goes education.

Two speed bumps. One right after the other. But you can still gain momentum in the direction you want your life to go!

How? A solid financial strategy. A goal you can see. A destination for financial independence.

Debts can become overwhelming – remember that stat up there? But with a strategy in mind for the quick and consistent repaying of your loans, so much of that stress and burden could be lifted.

Contact me today. A quick phone call is all we need to help get you rolling in the direction YOU want to go.

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.

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.

Which Debt Should You Pay Off First?

July 9, 2018

Which Debt Should You Pay Off First?

Nearly every type of debt can interfere with your financial goals, making you feel like a hamster on a wheel – constantly running but never actually getting anywhere.

If you’ve been trying to dig yourself out of a debt hole, it’s time to take a break and look at the bigger picture.

Did you know there are often advantages to paying off certain types of debt before other types? What the simple list below doesn’t include is the average interest rates or any tax benefits to a given type of debt, which can change your priorities. Let’s check them out!

Credit Cards
Credit card interest rates now average nearly 17% in the US¹ and around 19% in Canada.² For most households, credit card debt is the place to start – stop spending on credit and start making extra payments whenever possible. Think of it as an investment in your future!

Auto Loans
Interest rates for auto loans are usually much lower than credit card debt, often under 5% on newer loans. Interest rates aren’t the only consideration for auto loans though. New cars depreciate nearly 20% in the first year. In years 2 and 3, you can expect the value to drop another 15% each year. The moral of the story is that cars are a terrible investment but offer great utility. There’s also no tax benefit for auto loan interest. Eliminating debt as fast as possible on a rapidly depreciating asset is a sound decision.

Student Loans
Like auto loans, student loans are usually in the range of 5% to 10% interest. While interest rates are similar to car loans, student loan interest is often tax deductible, which can lower your effective rate. Auto loans can usually be paid off faster than student loan debt, allowing more cash flow to apply to student debt, investment accounts, or other needs.

Mortgage Debt
In most cases, mortgage debt is the last type of debt to pay down. Mortgage rates are usually lower than the interest rates for credit card debt, auto loans, or student loans, and mortgage interest may be tax deductible if structured properly. If mortgage debt keeps you awake at night, paying off other types of debt first will give you greater cash flow each month so you can begin paying down your mortgage.

When you’ve paid off your other debt and are ready to start tackling your mortgage, try paying bi-monthly (every two weeks). This simple strategy has the effect of adding one extra mortgage payment each year, reducing a 30-year loan term by several years. Because the payments are spread out instead of making one (large) 13th payment, it’s likely you won’t even notice the extra expense.


Source: ¹ Dilworth, Kelly. “Rate survey: Average card rate climbs to all-time high of 16.92 percent.” creditcards.com, 7.5.2018, https://bit.ly/2Hpxf9T. ² Murphy, Paul. “How Does Credit Card Interest Work in Canada?” 4 Pillars, https://bit.ly/2fL2y13.

WFG2194252-0718

Handling Debt Efficiently – Until It’s Gone

Handling Debt Efficiently – Until It’s Gone

It’s no secret that making purchases on credit cards will result in paying more for those items over time if you’re paying interest charges from month-to-month.

Despite this well-known fact, the average American now owes over $6,000 in credit card debt.* For households, the number is much higher, at nearly $16,000 per household. Add in an average mortgage of over $200,000, plus nearly $25,000 of non-mortgage debt (car loans, college loans, or other loans) and the molehill really is starting to look like a mountain.

The good news? You have the potential to handle your debt efficiently and deal with a molehill-sized molehill instead of a mountain-sized one.

Focus on the easiest target first.
Some types of debt don’t have an easy solution. While it’s possible to sell your home and find more affordable housing, actually following through with this might not be a great option. Selling your home is a huge decision and one that comes with expenses associated with the sale – it’s possible to lose money. Unless you find yourself with a job loss or similar long-term setback, often the best solution to paying down debt is to go after higher interest debt first. Then examine ways to cut your housing costs last.

Freeze your spending (literally, if it helps).
Due to its higher interest rate, credit card debt is usually the first thing to tackle when you decide to start eliminating debt. Let’s be honest, most of us might not even know where that money goes, but our credit card statement is a monthly reminder that it went somewhere. If credit card balances are a problem in your household, the first step is to cut back on your purchases made with credit, or stop paying with credit altogether. Some people cut up their cards to enforce discipline. Ever heard the recommendation to freeze your cards in a block of ice as a visual reminder of your commitment to quit credit? Another thing to do is to remove your card information from online shopping sites to help ensure you don’t make mindless purchases.

Set payment goals.
Paying the minimum amount on your credit card keeps the credit card company happy for 2 reasons. First, they’re happy that you made a payment on time. Second, they’re happy if you’re only paying the minimum because you might never pay off the balance, so they can keep collecting interest indefinitely. Reducing or stopping your spending with credit was the first step. The second step is to pay more than the minimum so that those balances start going down. Examine your budget to see where there’s room to reduce spending further, which will allow you to make higher payments on your credit cards and other types of debt. In most households, an honest look at the bank statement will reveal at least a few ways you might free up some money each month.

Have a sale. To get a jump-start if money is still tight, you might want to turn some unused household items into cash. Having a community yard sale or selling your items online can turn your dust collectors into cash that you can then use toward reducing your balances.

Transfer balances prudently.
Consider balance transfers for small balances with high interest rates that you think you’ll be able to pay off quickly. Transferring that balance to a lower interest or no interest card can save on interest costs, freeing up more money to pay down the balances. The interest rates on balance transfers don’t stay low forever, however – typically for a year or less – so it’s important to make sure you can pay transferred balances off quickly. Also, check if there’s a balance transfer fee. Depending on the fee, moving those funds might not make sense.

Don’t punish yourself.
Getting serious about paying down debt may seem to require draconian measures. But there likely isn’t a need to just stay home eating tuna fish sandwiches with all the lights turned off. Often, all that’s required is an adjustment of old spending habits. If your drive home takes you past a mall where it would be too tempting to “just pick a little something up”, take a different route home. But it’s important to have a small treat occasionally as well. If you’re making progress on your debt, you deserve to reward yourself sometimes. All within your budget, of course!


Sources: El Issa, Erin. “2017 American Household Credit Card Debt Study.” NerdWallet*, 2017, https://nerd.me/2ht7SZg.

WFG2194224-0718

3 Easy Ways To Save For Retirement (Without Investing)

April 30, 2018

3 Easy Ways To Save For Retirement (Without Investing)

Our retirement years will be here sooner than we think.

Ideally, you’ve been putting away money in your IRA, 401k, or other savings accounts. But are you overlooking ways to save money now so you can free up more for your financial strategy or help build your cash stash for a rainy day?

1. Pay Yourself First.
If you’re making contributions to your 401k plan at work, you’re already paying yourself first. But you can also apply the same principle to saving. (If you open a separate account just for this, it’s easier to do.) If you prefer, you can accomplish the same thing on paper by keeping a ledger. Just be aware that paper makes it easier to cheat (yourself). With a separate account, you can schedule an automatic transfer to make the process painless and fuhgettaboutit.

Here’s how it works. Whenever you get paid, transfer a fixed dollar amount into your special account – before you do anything else. If you don’t pay yourself first, you might guess what will happen. (Be honest.) If you’re like most people, you’ll probably spend it, and if you’re like most people, you might not really know where it went. It’s just gone, like magic.

Paying yourself first helps to avoid the “disappearing money” trick. Hang in there! After a while, as the money starts adding up, you’ll impress yourself with your savings prowess.

2. Got A Bonus From Work? Great! Keep it.
What do you think most people are tempted to do if they get a bonus or a raise? What are YOU most tempted to do if you get a bonus or a raise? Probably spend it. Why? It’s easy to think of 100 things you could use that extra cash for right now. Home repairs or upgrades, a night out on the town, that new handbag you’ve been coveting for months… Maybe your bonus is enough for you to consider trading in your car for a nicer one, or getting that new addition to your house.

Receiving an unexpected windfall is fun. It’s exciting! But here is where some caution is wise. Pause for a moment. If you had everything you needed on Friday and then get a raise on Monday, you’ll still have everything you need, right? Nothing has changed but the calendar. If you hadn’t gotten that bonus, would your life and your current financial strategy still be the same as it was last week? Consider putting (most of) that extra money away for later, and using some of it for fun!

3. Pay Down That Debt.
By now you’ve probably heard a financial guru or two talking about “good” debt and “bad” debt. Debt IS debt, but some types of debt really are worse than others.

Credit cards and any high-interest loans are the first priority when retiring debt – so that you can retire too, someday. Do you really know how much you’re paying in interest each month? Go ahead and look. I’ll wait… Once you know this number, you can’t “unknow” it. But take heart! Use this as a powerful incentive to pay those balances off as fast as you can.

The cost of credit isn’t just the interest. That part is spelled out in black and white on your credit card statement (which you just looked at, right)? The other costs of credit are less obvious. Did you know your credit score affects your insurance rates? Keeping those cards maxed out can cost more than just the interest charges.

Every month you chip away at the balances, you’ll owe less and pay less in interest. (You’ll feel better, too.) And you know what to do with the leftover money since you knocked out that debt. Hint: Save it.

But keep this in mind – life is about balance. It’s okay to treat yourself once in awhile. Just make sure to pay yourself first now, so you can treat yourself later in retirement.


WFG2109306-0518