Tag: Personal Finance (page 1 of 2)

Building Financial Independence After College

College years bring forth an abundance of growth and independence for students alike.  You’re likely getting into the habit of managing your school work and class schedule completely on your own, and if you’re taking advantage of on-campus housing you’re living on your own for the first time.  With all of these new life milestones coming to light, there’s a good chance that though you’re taking your own independent strides, you may still be under a parental wing, financially. As graduation is approaching for many college students this month, it may be time for you to consider the best ways to adapt to the real world, and potentially build your financial independence.  Here are a few tips:

Open Your Own Account/Credit Card

The first major step to building your own financial freedom after college is looking into opening your own bank account or credit card if you haven’t already.  Visit a bank that you trust, and sit down with a banker that will help set you up with the right type of account, preferably one that builds interest or provides you with small rewards.  As for a credit card, building your credit is an essential part of growing up; however, always be careful when using a credit card. To build your credit wisely, make small purchases that you can pay off in full each month.  Racking up a high balance that requires you to make minimum payments can ultimately do more harm than good in the long run. Additionally, you’ll want to research which credit card would work best for you. Many companies offer different programs and rewards and incentives; make sure you find what fits your financial situation best.

Take on Small Bills

If your parents were assisting you with some of your bills, such as your cell phone or car payment, consider taking them on, on your own.  You can start small, by taking over your cell phone, and build as you go, moving forward with a car payment/insurance, rent, and your student loans.  These payments will not only help you practice paying bills on time, but many of them will also help build your credit score.

Generate Income

During college, you may have had a part-time job or an internship.  Now that you’ve graduated and have more time available, you can consider adding more hours to your current schedule or looking for full-time work.  Either option will generate a consistent income that will help you build steady financial independence.  Once you’re building your income, consider making some of it automatically deposit into a savings account or an emergency fund.

Student Loan Myths

Student Loan Myths

Many people take out student loans in an attempt to ensure they earn more over their working lives. Overall student loan debt in the US is now more than $1.5 trillion. Those in such debt generally have a great desire to pay it off. This leads to many myths around the subject of student loan debt. Here are a few to avoid.

You Can’t Pay Student Loans Early

There is a common myth that says you have to pay the stated amount each month and that it’s impossible to pay off student loan debt early. This is not the case. It is indeed possible to pay extra and take care of student loans before the actual term of the loan is finish. There’s no penalty for paying early, and you may be able to save thousands in interest costs in the process.

You’re Stuck With Your Interest Rate

Student loans can come from the government, and they can come from private lenders. Those who take out loans from multiple lenders will likely get stuck with a variety of interest rates. Private loans can come with higher interest rates, but there’s no need to be stuck with a bad rate. It’s possible to refinance these loans and save money in the process. There is the possibility to consolidate the loans into one loan if you have a good credit score.

You Can Skip Payments

Some borrowers are stuck with very large student loan payments each month. There is an option for income-based repayment plans. Others might think skipping a payment or two is a good idea from a cash flow standpoint. Actually, this idea could not be further from the truth. Going into default on a student loan will hurt your credit score. Additionally, the interest will continue to compound on the unpaid amount, which will increase the amount of debt you actually owe.

Public Service Forgiveness Is Free Money

There is a program in place that allows borrowers who work in public service to have their student loan debt forgiven after spending 10 years serving the public. However, contrary to popular belief, this is not free money. You’ll have to claim the amount of the debt that gets discharged as income on your tax return, and you’ll owe taxes on that amount.

Student loans can be scary. The amount that college students are willing to borrow has grown in recent years. There are many myths that surround repayment. Don’t get caught up in believing them. They can wind up costing you even more money.

What Your FICO Score Means

What your FICO score means

Just as the understanding of the value of a dollar comes with time, the importance of your credit score often evades us until we are deciding to buy a car or purchase a home. The gravity that a credit score holds is substantial. These scores influence the credit available to you and the terms that go along with it, such as interest rates. When looking to purchase a car or home, lenders rely on the consumer’s credit scores for an understanding of the risk they take on by loaning money.

While there are different credit scores, the most widely used and accepted is the FICO score created by Fair Isaac Corporation. Using the information provided by one of three major credit reporting agencies (Equifax, Experian, and Transunion) FICO creates a credit score ranging from 300 to 850, with the higher number representing lower risks for lenders and insurers.

How exactly do they determine a consumers credit score? FICO analyzes five main factors, which each have a different impact on the score:

  • Payment History (35% of the FICO score)
  • Debt/amounts owed (30%)
  • Age of credit history (15%)
  • New credit/inquiries (10%)
  • A mix of accounts/types of credit (10%)

While the exact number of your credit score can be distracting, it is more beneficial to focus on the areas that require work, rather than feeling overwhelmed by your rank on the credit range. Let’s take a more in-depth look at the five main factors considered by FICO when determining consumer credit scores:

Payment History

This is simply how well does a consumer do with paying their bills on time. Credit reports show when consumer payments are submitted for lines of credit, and it specifies how long payments took to come in: 30, 60, 90, 120 or more days late. Since payment history is the most significant component of a credit score, it is essential to get all credit line payments in as soon as possible.

Accounts Owed

This refers to the amount of money a consumer owes in whole. Having a lot of debt doesn’t necessarily have a significant impact on your credit. Instead, FICO looks at the ratio of money owed to the amount of credit available. Put simply, do not max out your lines of credit.

Length of Credit History

The longer a consumer has had credit, the better this element of their score will be. FICO looks at how long the oldest account has been open, the age of the newest account and the overall average.

New Credit

This refers to recently opened lines of credit. If a consumer opens a bunch of new accounts in a short period, this signals FICO that there is a higher risk, which lowers the consumer’s credit score.

Mix of Accounts
Just like stockbrokers want to diversify their portfolios, consumers want to expand their credit portfolio. With a healthy mix of retail accounts, credit cards, installment loans, such as a car loan, and mortgages, a consumer has ensured a higher FICO score.

Common Financial Mistakes Many People Make

Common Financial Mistakes Many People Make

Rarely, does someone have a perfect financial history.  Mistakes in finance are common and it’s likely that most people have experienced them at one point or another.  The important thing is to figure out how to correct them, as they can tend to pile up and create somewhat of financial hardship.  However, don’t panic; with the right tools, you can easily change your financial habits. The following tips are a great guide and provide insight into the many financial mistakes people tend to make.

Too Many Monthly Payments

You may not realize it, but your monthly payments tend to add up, quickly.  Many people are seeking the “better” things in life, so they’re willing to tack on monthly finance payments to acquire the things they desire.  And while the monthly payments may not seem like a big hit at the time, the more you have, the more they tend to add up. Additionally, it’s not uncommon for people to have monthly payments that are more on the unnecessary side.  Consider the gym, for example. While for some, a gym membership is a great investment, for others, it may just be a monthly bill that isn’t regularly utilized.  Consider where your bills each month are going, and see which ones are actually necessary.

High Credit Balances

While credit cards may seem like a great way to get what you need, without having to see your bank account take an immediate hit, they can do more harm than good if they aren’t used properly.  Think of a credit card as borrowed money; money that needs to be paid back, and should be paid back in full to avoid any further charges like interest and late fees. The days of cash only are gone for many people, as credit cards are a regular part of today’s society.  Utilize your credit cards to purchases that you know you’ll be able to pay in full and avoid using them for everyday purchases that will increase your balance quickly.

Failing to Set a Monthly Budget

Budgeting your expenses on a monthly basis is a great financial habit to have; however, many people neglect to do this.  Without a budget, you’re freely spending your money without keeping track of where it’s going. By the end of the month, you’re left wondering where your paychecks have gone and why you aren’t able to contribute anything to your savings account.  

Falling Behind on Bills and Payments

Making late payments is an unfortunate, but common habit for many individuals.  Late payments can hurt your financial health in that you will likely get hit with late charges and increased interest payments.  Additionally, late payments can affect your overall credit score and lower it by a few points. Once this cycle starts, it can be hard to correct and break.  

Great Ways to Boost Your Credit

Great Ways to Boost Your Credit

 

One of the many ways we are “defined” by society, is by our credit score and history.  Your credit information has a very significant impact on not only your personal finances but also a majority of your life and different events you may experiences, such as buying your first home.  The first step in credit management is establishing your credit score. Once this is done, it’s important to remember that you’ll want to continue to build your credit up in various ways; you can do this by gradually making small credit charges or larger transactions such as financing or leasing your first vehicle.  Always remember that any credit charges you make need to be paid back within a specific period of time, and late payments can negatively impact your score, as well as result in late charges and higher interest payments. Here are some great tips for boosting your credit:

Make Payments On-Time

Whenever you make a credit charge, you should keep the payment due date noted somewhere where it will help you remember.  Credit cards are a great tool for boosting your credit when they are used properly; however, they can do more harm than good when they aren’t managed correctly.  Any credit card charges you make should always be paid on early or on time. This will give you a good rapport with the credit company, as well as boost your score.  You’ll also avoid any late charges, and you’ll have a better chance of getting future credit cards and other purchases with low-interest rates.

Avoid Making Minimum Payments

While minimum payments are an option that you’ll usually see when you’re making a payment, it’s best to pay your bills in full if you can.  Minimum payments tend to extend your payback period, as you’ll incur interest that can sometimes make a minimum payment useless. Do your best to make any payments in full.  If you’re unable to make them in full, try to pay back well over the minimum, to tackle the balance the best you can.

Address Any Late Bills or Payments

Late bills or payments can happen sometimes.  As humans, we forget, and it isn’t uncommon. You may have changed bank accounts or hit a financial hardship that caused you to get set back on some payments.  If that’s the case, once you’re in a better financial position, work on getting any late payments or bills settled as quickly as possible. This will help bring your credit score back up if it’s taken a hit recently.

Steps to Setting Up a 529 College Savings Plan

As a parent, your number one concern is always your children and how you can best provide for them.  While they may be young still, the future of their education is likely only a few years away, and as time goes on, college tuition costs are increasing drastically.  This may concern you, especially if you’re still paying off your own loans from your college days! Luckily, there’s hope, and a great way to get your little one’s future college finances in order.  The solution: a 529 college savings plan. Wondering the best way to set one up? Here are some simple tips:

Pick a Plan that Works Best for You

When it comes to 529 plans, it’s not as simple as just one.  There are two main types of 529 saving plans that you can choose from.  You can decide if a prepaid plan works best for you, or if an investment plan is a better choice.  If you decide on a prepaid plan, you can think of it as a locked-in plan. You generally pay for a year or a portion of the tuition ahead of time, locking in the price.  Depending on your state, the requirement can vary. Investment plans give you the ability to choose how you want to invest your funds, and how you can use the money depending on the institution that’s chosen down the road.

Open the Account

To open your 529 account, you’ll need to submit an application; this can generally be completed online; however, in some cases, you may need to mail it in.  Additionally, you’ll need to choose the right account to work with, whether it’s an Individual (Custodial), Trust, or Business account. From there, you’ll choose the custodian (likely yourself), and the beneficiary, (your child).

Choose the Right Investments

Your investment portfolio is the next step in your process, and it usually depends on your investment preferences.  In most cases, you can choose an age-based portfolio that lines up with the age of your child (beneficiary). This way is usually the easiest way to manage your investments.  You can also go with an individual portfolio that will give you the ability to build your investments on your own, any way you’d like. Either way, you’re able to switch your options and change them if you want to down the road.

Submit Application & Deposit Funds

When your application is completed, either a physical copy to mail in, or done electronically online, you can submit everything with either a check or electronic funds sent to the account.  It’s always important to make sure the submitted information is accurate, or it could prolong the process.

Essential Saving Tips for First Time Home Buyers

Essential Saving Tips for First Time Home Buyers

 

Buying a home is a process that can often take a substantial amount of time, and cost a lot of money.  As a new homeowner, it’s wise to expect a number of expenses, in addition to your mortgage and taxes. From closing costs to renovations and new furniture, buying your first home can prove to be quite costly.  If you want to make sure you budget properly, and remain in control of your finances throughout the home buying process, here are a few solid tips to follow.

Home Repairs

Unless you’re buying a brand new home, you will likely be faced with a few repairs; if you’re in a fixer-upper situation, your repairs could run you thousands.  Older homes face tremendous wear and tear, and you’ll need to spend on different materials and tools to make fixes are or completely replace something. Having a separate budget after closing costs is a great way to ensure that you’ll have the right amount of funds to cover any necessary repairs or renovations. As time goes on, you can use your budget to focus on other things you may want to change in your new home.

Maintenance

Property upkeep is another financial factor to consider when purchasing your first home.  You’ll need to set aside money throughout the year to save for general maintenance. Exterior projects such as lawn and landscaping, or interior projects like painting or purchasing new appliances, to mention a few.  

HOA Fees

Depending on where you decide to buy your home, you may need to factor Home Owners Association fees, into your budget.  HOA fees can potentially add a few hundred dollars to your monthly expenses, in addition to your mortgage and other utility bills.  Additionally, it is wise to consider other expenses, like homeowners insurance; which is sometimes required as a first time home buyer or buyers that are using an FHA loan.  Never forget to factor in your property tax; depending on your location your property tax cost could vary.

Emergency Fund

Creating an emergency fund is essential when owning a home.  It isn’t uncommon for an unexpected expense to come up that may require immediate payment.  Plan ahead for things like this, and assure that you can handle a financial emergency. Contribute a percentage of your pack check every month into a separate fund that you don’t use unless you absolutely need to.  

Saving for Your Child’s College Education

SAVING FOR YOUR CHILD'S COLLEGE EDUCATION

 

With the rapidly rising cost of college tuition, parents are well-justified in their anxiousness about how to pay for their child’s education. There is a myriad of options for parents wanting to get a head start in saving for this big investment. Although it can often be overwhelming deciding what path to take when planning for your child’s educational future and how to pay for it, here are a few of the top options to consider for your savings plan:

529 College Plan

The gold standard of college saving is the 529 plan. Also known as Qualified Tuition Programs (QTP), this plan allows parents to invest after-tax money into a qualified fund and then withdraw that money and its gains tax-free to put toward use for educational expenses. With more than 30 states offering these type of plans, it pays to shop around to find the best fit for your individual needs.

Roth IRA

Although this type of investment is most associated with retirement savings, a Roth IRA can also be an invaluable vehicle when saving for college expenses. The withdraw rules are similar to the 529, however, investors can use the Roth dividends to also go toward retirement, giving this type of plan more flexibility should your child not pursue a higher education.

Prepaid College Tuition Plans

Self-explanatory in nature, these plans allow parents the benefit of pre-paying for college at today’s prices. By locking in current prices, parents can guard themselves against rapidly escalating costs while also saving money.

Coverdell Education Savings Account

This trust applies to both college education expenses as well as costs incurred at K-12 levels. Although the terms are more flexible, a Coverdell account comes with a $2,000 annual limit, making this choice a deterrent for families wishing to contribute more.

UGMA and UTMA Custodial Accounts

Although these accounts do not have as many tax advantages as its Roth or 529 counterparts, they can be gifted to a child for any reason. Unlike other investment accounts geared toward education, these accounts are placed in the child’s name, giving them full control over the money when the term expires. Conversely, since the child owns the fund, the amount of qualifying aid might be affected.

Strategies for Quick Debt Repayment

John J Bowman Jr - Debt Repayment

It’s a warm Saturday afternoon, and you’ve decided that you deserve a day out on the town with your friends. You’re exhausted and burned out from a too-long work week, sick of the grind and needing a break. You’ve been so thoughtful lately, you think, minding your budget, that you deserve to splurge a little. You hit the mall with a gaggle of friends and start swiping; more than a few bag handles circle your wrists as you reach for your credit card to pay for overpriced popcorn and soda at the complex’s theatre. You haven’t gotten your paycheck yet, but that’s okay – you know that your credit will cover you for now. When you check your banking app the next day, though, you can’t quite believe the number that blinks up at you. How can your credit balance be so high?

 

Sometimes, using a credit card to cover purchases can feel like playing with Monopoly money. We spend and spend and spend, knowing that we don’t have to pay back our debt right now. The fact that the money will need to be paid back at some point is a concern for later…until later rolls around to the present, and we face a veritable mountain of debt. According to a 2017 nerdwallet study on household debt, the average American consumer owes $15,983 in credit card debt. Totaled across the nation, that’s $931 billion owed by US consumers. Paying off this debt is an intimidating endeavor, but not an impossible one. Here, I provide a few strategies for a quick and efficient debt repayment.

 

Put the Cards Down

If you want to lower the mountain, why would you add to its height? Stop using your credit cards, and avoid making purchases that would add to your overall balance. Steering clear of credit for a few days or weeks might help you keep better tally of how much you actually spend in a day; the dues feel dearer when you have to pay them immediately, rather than at some hazy later date.

 

Revisit Your Budget

Take a closer look at your current budget! Can you trim any of your costs? Be tough but fair with yourself; you probably don’t need Netflix, Hulu, and HBOGo. Being on a budget doesn’t require you to give up all entertainment, but treating yourself should only go so far. Once you have a pared-down budget, you can start crunching the numbers and make an estimate of how much you can afford to apply towards your debt each month. Remember, paying off your balance now will greatly decrease what you pay in interest later!

 

Pick Up a Side Hustle

Trimming a budget can only go so far. In the end, you’ll make more from a part-time job or side hustle than you would ever save by canceling subscriptions or couponing. Find a money-making gig that can fit with your schedule!

 

Apply Unexpected Income Sources Towards Your Balance

It can be tempting to splurge when you find yourself with an unexpected windfall. However, the money you spend on luxuries now could be handicapping your ability to pay for more basic needs later. Put bonuses, inheritances, and tax refunds towards paying off your debt! Once you live debt-free, you will be able to afford splurging now and again.

 

Be Consistent

Debt repayment won’t happen unless you hold yourself to a firm budget and repayment schedule. Be consistent! As much as it might hurt to pass on dinners out or afternoons at the mall, your debt-free future self will be much happier and more financially secure for your efforts.

 

Credit Card Do’s and Don’ts

john j bowman jr accountant - credit card

Credit cards are like keys; they open doors to affordable mortgages, nice cars, low-interest loans, and ideal rental options. As useful as these thin plastic cards are, though, they aren’t without their dangers. When over- or thoughtlessly used, credit cards can cause consumers to spiral deep into debt, and ultimately have a negative impact on a person’s ability to borrow money. To (safely) get the most out of a credit card, you need to use them properly. Here are five do’s and don’ts to using credit cards.

 

Don’t Carry a Balance

 

Credit card companies charge high monthly interest rates. While paying the minimum balance may seem like a great idea, it won’t do much to bring down the balance. It’s important that credit card holders pay as much money as possible each month. Depending on the card’s interest rate, the average card owner will save anywhere from 10% to 29% a year in interest.

 

Use a Credit Card Instead of a Debit Card

 

Again, there is nothing wrong with using credit cards. The issue is the irresponsibility of credit card use. Credit cards and debit cards are not the same. Credit cards offer a greater level of fraud protection. In situations where fraud occurs, it’s easier to get a refund with a credit card.

 

Avoid Cash Advances

 

Cash advances may seem like a great idea. However, cash advances do not have a grace period. An automatic fee is added each time a person uses this card feature. Also, cash advances come with higher interest rates than the rest of the credit card balance.

 

Don’t Use All of the Available Credit

 

The amount spent on a card should not exceed 20% to 30% of the available credit limit. Using any more than this will affect the FICO score. Even if the balance is paid off in full, card issues do not like when borrowers reach their card’s credit limit.

 

Take Advantage of Balance Transfers

 

Credit cards with high annual percentage rate cost consumers a lot of money. One way to alleviate some of these costs is by taking advantage of balance transfers. Some cards allow consumers to transfer the balance without paying a fee. The advantage of transferring the balance to another card includes paying lower interest fees.

 

Credit cards are useful. When used correctly they are convenient financial tools. Using these cards irresponsibly can lead to financial issues that may last years. Hopefully, these tips will help consumers avoid the pitfalls of credit card usage.