Financial Wellness Booklet Table of Contents

Money Management ...... 3

Your Credit Report ...... 10

Downsizing Your Debt ...... 13

The Road to Homeownership ...... 17

Repaying Student Loans ...... 21

Retirement Planning ...... 24

Drive Away Happy ...... 29

A sound spending and savings plan is the foundation for long-term financial success. Examine your past finances to create a plan for all future spending and savings. A review of your expenses and spending habits will enable you to design a realistic monthly budget. Be prepared to make some changes, if those habits have kept you from achieving your financial goals. Let’s begin with your goals. Setting Financial Goals

Setting specific financial goals is one of the most important elements in creating a Spending Plan. They keep you on track and keep you Tomotivated set specific to use yourfinancial money goals: and credit wisely.

• • Record your goals (short-, mid- and long-term goals). • Determine the cost of each goal. • Determine when you would like to achieve the goal. Divide the number of months into the total cost to determine the monthly savings amount needed. Short-term goals (1-12 months) Total amount # of months Monthly savings Examples: vacation, stereo, paying off a bill needed to save needed

Total

Mid-term goals (1-5 years) Total amount # of months Monthly savings Examples: home/car down payment, home remodel needed to save needed

Total

Long-term goals (5+ years) Total amount # of months Monthly savings Examples: retirement, kid’s education. These can be trickier to plan for because you needed to save needed may need to consider inflation and your projected return on investment.

Total

In order to evaluate your progress as you work toward your goals, you must determine what your overall financial picture looks like today. Your net worth is simply the difference between what you own and what you owe. To make sure you are staying on track, it’s a good idea to calculate your assets and liabilities annually. If you conscientiously follow your plan you should see a gradual, steady increase in your net worth.

What you own Amount What you owe Amount

Checking/saving accounts Mortgage

Investment accounts Credit cards

Stocks & bonds Student loan(s)

IRA/401(k) Auto loan(s)

Home/real estate Other loan(s)

Automobile(s) Income tax due

Other asset(s) Other debt(s)

Total owned (a) Total owed (b)

To figure your net worth, subtract the total owed from the total owed: Total owned (a) Total owed (b) Net worth

- =

Enter your gross and net (after taxes) income from all sources. For income received infrequently, such as bonuses or tax returns, calculate the annual income, then divide by 12 to find the monthly amount. Source Yours Spouse/partner

Income Source/Employer

Part-time Employer/Second Job

Retirement/Pension

Child Support/Alimony

Social Security

Food Stamps

Unemployment Insurance

Support from Family/Friends

Rental Income

Other Income (variable or periodic)

Total monthly income

Household expenses are categorized into essential and discretionary. Since many expenses are variable, such as utilities and groceries, it is important to average these expenses. Other expenses are periodic (such as insurance or vehicle registration). Again, calculate the annual amount and divide by 12. Category Expense Average per month Goal per month

Rent/mortgage

2nd mortgage/equity line

Homeowner’s/renter’s insurance

Condo fees/HOA dues

Home maintenance/monitored alarm Housing Lawn/garden/pool

Gas/electric

Water/sewer/garbage

Internet/cable/satellite

Landline/cell phone

Groceries/household items Food At work/school

Health/dental/vision Insurance (exclude payroll deducted amounts) Life/disability

Doctor/chiropractor

Optometrist/lenses Medical care (exclude payroll deducted amounts) Dentist/orthodontist

Prescriptions

Vehicle payment #1

Vehicle payment #2

Auto insurance Transportation (exclude payroll deducted amounts) Gasoline/oil

Maintenance/repairs

Public transportation/tolls/parking

Daycare Child care (exclude payroll deducted amounts) Child support/alimony

Banking fees Miscellaneous Union dues

Federal/state tax repayment Income Taxes Estimated tax payments (self-employed)

Emergency Savings Goals

Total essential expenses

Category Expense Average per month Goal per month

Beauty/barber

Clothing/jewelry

Personal

Laundry

Cosmetics/Manicure

Movies/Concerts/Theater

Books/magazines

Streaming Subscriptions/CD/DVD

Entertainment Dining Out

Sports/Hobbies

Vacation Travel

Other

Tuition/Lessons

Pet Care

Postage

Holiday/Birthday/Gift

Miscellaneous

Cigarettes/Alcohol

Charity/Religious Contributions

Other

Total discretionary expenses

List all debts (except auto loans and mortgages) along with the name of the creditor, interest rate, total balance owed and the required minimum payment. This includes credit and charge cards, installment loans, personal loans, student loans and outstanding medical bills. Creditor name Interest rate Monthly payment Balance

Bottom Line

Once you have determined the total of your take-home pay and expenses, you are ready to determine your bottom line. Subtract the total of all expenses including debt payments from your net income. If the result is a positive number, you can add the extra money to your savings to reach your goals sooner. If your expenses exceed your income,Total you’ll discretionary need to make some adjustments to bring your finances back into balance. Monthly net income Total essential expenses Total debt payment Balance expenses

- - - =

Tracking Day-to-Day Expenses

If you don’t know where your money is going, it’s time to start tracking your spending. Different methods of tracking work for different people – some like to save receipts while others prefer to jot down all purchases in a small notebook they carry with them. Remember, tracking is only effective if you count every expense, including the morning newspaper and the 75 cents you put in the office vending machine.

10% Housing – Savings Spend no more than 35% of net income on housing. Depending on whether you rent or 35% Savings own, that –can include: mortgage/rent, utilities, insurance, taxes, and home maintenance. 15% Housing Transportation Save at least 10% of income throughout your working life. Make sure you have three to Transportation six (3-6) months’ income – in an emergency fund before you start saving for other goals.

25% 15% Spend no more than 15% of net income on transportation. That includes: car Other Debt payment, auto insurance, tag or license, maintenance, gasoline, and parking. Debt –

Spend no more than 15% of net income on all other consumer debt: student loans, retail Other – installment contracts, credit cards, personal loans, tax debts, and medical debts.

Spend no more than 25% of net income on all other expenses: food, clothing, entertainment, childcare, medical expenses, tithing/charity, and vacations. 35Adjust Your Plan +15+25+10

If the• amount you are now saving falls short of the amount you need to save to reach your goals, here are some questions to ask yourself: • Are you paying yourself first by putting away at least 10 percent of your after-tax income? • Could you increase the amount you’re saving by earning more or spending less? • Did you set reasonable, achievable goals? Could you delay the target date of any of your goals?

You should reevaluate your spending and savings plan annually, or whenever there is a big change in your financial wants and needs. Remember that a budget is simply a priority list – by following it you are ensuring that your money is used to acquire the things, or reach the goals, that are most important to you. Smart Tips Reaching Your Goals: Eight Tips for Staying on Track

1. Make it a family affair.

If you share your finances with someone, talk about your goals, compromise where necessary and work together. Let your kids know your goals (especially if you’re planning for something that will benefit them – a vacation, a house with a bigger yard, 2. Beetc.) good and toremind yourself. them of them before you go shopping together.

Make sure you leave a little room in your budget for the occasional treat. Too much sacrifice can be 3. Stayoverwhelming motivated and frustrating.

4. Direct deposit . Keep a picture of your goal in your wallet, on your computer, in your car—wherever you need it to stay inspired.

5. Be flexible. . Have the money for your goals automatically directed into savings each pay period.

6. Seek help. Expect the occasional setback and be willing to make changes when necessary.

7. Build a supportKnow system. there are experts who can help you decide how and where to invest, how to create a money management plan, and more.

If you’re changing spending habits, let people close to you know so they can help. They’ll understand meeting 8. Reviewfor coffee your instead budget. of dinner or going for a walk in the park instead of a stroll through the mall.

As time goes by, your financial life will change. Debts get paid off, new expenses arise…keep track of your budget throughout the process and make adjustments as you need to.

You may not think about them every day, but your credit report and the three little digits that make up your credit score probably influence your life in many ways. They can affect the cost of credit you receive, your ability to rent or buy a home, the insurance rates you pay, and even the jobs you can get. By understanding the reporting and scoring process, your consumer rights, and how to recover from inaccuracies and guard against identity theft, you can establish and maintain a stellar credit report and score. Your Rights

Credit bureaus are regulated by the Federal Trade Commission and must comply with the Fair Credit Reporting Act (FCRA). This law Thegives rightyou many to access rights, including:your reports

Credit bureaus generally charge a fee for reports. However, you can get a copy of your credit report for each bureau free once a year through the Annual Credit Report Request Service. (Their contact information is below.) You are also entitled to an additional free report if you were turned down for credit, insurance, or employment due to your credit history, believe your identity was stolen, are Theon welfare, right toor accuracyan unemployed and plan to look for a job within 60 days.

It is the credit bureaus’ responsibility to report only correct information. If you discover inaccuracies, you can file a dispute with the Thebureaus, right and to they have are negative required toinformation investigate it. “age-off” (See “Protecting Yourself From Errors”.)

Credit reports may reflect late payments, collection accounts, repossessions, and most other negative information for seven years. A Chapter 7 bankruptcy will remain on your credit report for ten years from the date of filing. Paid judgments can only stay on your credit report for seven years from the date the judgment was filed, but unpaid ones can stay until the statute of limitations for collection The(which right varies to fromprivacy state to state) expires. Most inquiries can stay on your credit report for two years.

Only those with a need recognized by the FCRA may access your report. This is usually a creditor, insurer, landlord, or other business. Employers must have written consent from you before accessing your report. You may also request that your information not be given to creditors looking to make pre-approval offers. This can be done by calling 1.888.5.OPTOUT. Credit Bureau Contact Information

AnnualSince contact Credit information Report Requestcan periodically Service change, confirmExperian addresses before sending a letter containing personal information.

P.O. Box 105283, Atlanta, GA 30348 P.O. Box 2104, Allen, TX 75013 877.322.8228 888.397.3742 Equifaxwww.annualcreditreport.com TransUnionwww.experian.com

P.O. Box 740241, Atlanta, GA 30374 2 Baldwin Pl., P.O. Box 1000, Chester, PA 19022 To order credit report: 800.685.1111 To order credit report: 800.888.4213 To report fraud: 888.766.0008 To report fraud: 800.680.7289 www.equifax.com www.transunion.com

Establishing Credit

It can be difficult to qualify for credit if you have a history of payment problems or are applying for the first time. Often getting credit is easier with a: Secured credit card

Unlike with a regular credit card, a secured credit card requires you to make a deposit with the creditor, which they can keep if you stop making payments. While secured credit cards are typically easier to get than regular credit cards, the credit limits are usually low, and the fees can be high. However, many creditors are willing to convert a secured credit card to a regular credit card after a year or two of on-time payments. Co-signer

Having a co-signer with good credit can increase your chances for approval, but be especially careful with this type of arrangement. Any late payments you make will not only reflect poorly on your credit report but your co-signer’s as well. After six months to a year, you may want to reapply for credit on your own. Identity Theft

Identity theft occurs when someone uses your personal information to commit fraud or other crimes. Thieves commonly use the information they steal to get credit cards or other types of credit and then rack up huge amounts of debt that go unpaid. If you become the victim of identity theft, being proactive can minimize its impact on you. You may need to communicate with several institutions, including: Creditors and financial institutions

If a credit card or checking account has been used or opened illegally, contact your creditor or financial institution immediately. They should close accounts that are not yours and change the account numbers and passwords for accounts that are yours. Monitor all future statements carefully for evidence of new fraud. Police

Identity theft is a crime, and you can file a police report. In fact, a credit bureau or creditor may want you to provide one to investigate and remove fraudulent information. Credit bureaus

Check your credit reports from all three bureaus to make sure that they are only reporting factual information. Remember, you are entitled to free reports if you believe you are the victim of identity theft. Dispute any fraudulent items. Even if the fraudulent information has not yet appeared on your reports, you can report it to the bureaus now. They can place a fraud alert on your reports, which notifies a creditor to take special caution when a credit application is made in your name.

You may want to also consider putting a security freeze on your credit file, which blocks anyone from accessing your credit reports without your permission.

If used wisely, credit cards and loans can be used as a stepping stone to achieve your goals and to help you during a difficult time. Whether that be a car loan, mortgage loan, student loan or credit card debt, it is important that you manage your money to meet your financial obligations. Money Management Basics

These are the most important aspects of money management. Incorporating these basics into your money management plan will put you in control of your money instead of it being in control of you. Distinguish between wants and needs.

1. Know the difference between your wants and needs. Take care of your needs first, then satisfy your wantsSet financial as funds goals. are available.

2. Determine short-term, long-term and investment goals. Setting specific financial goals keeps you motivated to balance Makeyour spending a spending plan. plan.

3. A Spending Plan brings freedom! Determine your monthly income, expenses, and debt payments and Trackperiodic your expenses. daily expenditures.

4.5. Step up monthly payments. Be aware where your money is going. Use a tracking sheet to identify and plug up your spending leaks.

The fastest way to become debt-free is to pay more every month. Target the highest-interest debt first. Re- direct money from less expensive debt, and increase your repayment dollars. After it’s paid off, focus on the next most expensive credit card,Live withinetc. your means.

6. Compare your total expenses to your monthly income. Make sure expenses don’t exceed income. Don’t use creditUse credit to make wisely. up the difference between your income and expenses. Be aware of your total debt.

7. Use credit for planned purchases and emergencies only (not impulse purchases). If possible, only charge what you can pay off every month. Track what you spend—when you pay interest, the cost of what you buy increases. Avoid paying only the minimum due. Don’t charge more every month than you are repaying to your creditors. Credit payments should not exceed 20% of your Buildnet income. your savings.If you are in serious debt it may be wise to discontinue the use of credit.

8. Set aside funds for periodic expenses such as car repairs, medical bills and taxes. Accumulate at least 3-6 months expenses in an emergency fund. If you are not in serious debt, save for short and long-term financial goals. Save at least 5%-10% Beof net current income. with your financial obligations.

9. Maintain a good credit rating. If you are unable to meet your credit obligations contact yourKickstart creditors your immediately retirement/college and explain savings the situation. account. Don’t borrow from one creditor to meet another obligation.

10. If you’ve fallen behind on retirement contributions or haven’t yet started a college account for your kids, now is the time to make a plan. Figure out how much you can afford to put away. Even if it’s not as much as you’d like, a smaller sum is better than no sum at all.

© 2019 BALANCE / REV0619 13 Financial Wellness Booklet One of the smartest things you can do for yourself financially and emotionally is to pay off your debt. It gives you an immediate raise! Payoff strategies

1. Stop buying on credit. Think of credit cards as plastic tools for taking out loans. Would you go to a bank and borrow $40 for dinner? 2. If you use credit, track what you spend. Keep your non-mortgage credit payments to 20% or less of your take home pay. 3. Call your credit card companies and see if they will lower your interest rates. Many will do so for their good customers when asked. 4. Transfer your debt to one or two low-rate credit cards. If the card has a low introductory, or “teaser”, rate, make sure the interest rate you are charged once that expires is low too. Also, be careful to avoid charging up your old cards. If you do, you will only be increasing your debt, not decreasing it.

5. Increase your payments – if you stick to only the minimums, it could be years before you are debt free. To save the most money, send extra money to the cards with the highest interest rate first. Or, if you want to see progress more quickly, focus on paying off the cards with the smallest balances. To see how long it will take you to pay off your debt, use the financial calculations on our website at https://www.balancepro.org/resources/calculators/accelerated-debt-payoff. 6. Use savings to pay off debt. It doesn’t make sense to pay 18% interest on a credit card to earn 3% on a savings account. But don’t use all of your savings to pay off debt. Keep some for emergency savings. If your car breaks down, you don’t want to use your credit card to fix it. 7. Send in your payment as soon as you receive the bill. Interest is usually calculated on an average daily balance, so every day you can reduce the balance, the more you will save in interest. Make more than one payment a month if possible. 8. A consolidation loan is an option. However, low-rate loans can be difficult to get – particularly if you are carrying a large debt load or have credit problems. Beware of finance companies whose interest rates are higher than a credit card. The lower payment can be tempting but it will cost you more in the long run. Example: Total debt = $2,000

Monthly payment Interest you’ll pay Total you’ll pay Time to pay off

If you pay the minimum (2%) $40 or less $4,943 $6,943 29 yrs., 11 months

If you “power pay” (pay a fixed amount, in this $40 $1,904 $3,904 8 yrs. case $40, even as the balance goes down)*

If you pay $10 extra each month $50 $1,113 $3,113 5 yrs.

If you pay $50 extra each month $90 $491 $2,491 2 yrs., 3 months

If you pay $100 extra each month $140 $280 $2,280 1 yr., 4 months

* “Power pay” refers to making the same payment amount toward your card balance regardless of what is asked for as a minimum payment, in this case $40. As your balance decreases, the minimum payment also decreases because it’s based on a percentage of the balance. 2% of $2,000 is $40, but the next month the minimum payment would be $39 ($1960 x 2%) and the following month would be $38 ($1,921 x 2%). With “power pay”, you would continue paying that original $40.

10 warning signs of credit trouble

1. Paying only the minimum amount due on your credit cards 2. Charging more each month than you make in payments 3. Using credit and cash advances for items that used to be purchased with cash, like gas and groceries. 4. Having a total credit balance that rarely decreases 5. Being at or near your credit limit and applying for new cards 6. Needing a consolidation loan to pay existing debt 7. Not knowing the total amount that you owe 8. Experiencing feelings of anxiety and stress whenever you use your credit cards 9. Draining your savings to pay debts 10. Making bill payments late

Finding little places here and there where you can reduce your expenses is key in helping you to meet your financial goals. Circle the items that you plan to put into practice in the next 60 days. Saving on food costs

1. Plan your meals one week at a time. Review grocery ads to take advantage of specials. 2. Make a shopping list from your menu plan and the grocery ads. Post it on your refrigerator so you can keep a running list of what you need. When you shop, buy only what’s on your list. 3. Shop only once per week. You’ll spend less and have more free time. 4. Grocery shop when you are not hungry – you’ll buy less. 5. Use coupons for items your normally purchase if they are the best buy. Don’t buy something you don’t like just because you have a coupon for it. 6. Buy generic or sale brands whenever possible. Look carefully, a name brand on sale could be more expensive than the generic brand at a regular price. 7. Compare item price per unit—pound, ounce, dozen or package. Take your calculator with you! Buying a larger amount is usually more economical. 8. Reduce purchases of snack and “junk” foods. Substitute fresh fruits and vegetables, juice drinks, and popcorn. 9. Don’t buy convenience foods—make your own. Buy less expensive, more simple foods and drinks. 10. Waste less! Plan the use of leftovers (planovers) and wrap and store items carefully. 11. Double or triple recipes for spaghetti sauce, chili, and soups. Label and freeze for later use. This saves time and money. 12. Entertain with pot-lucks or inexpensive buffets, serving meals such as spaghetti, lasagna and salad. 13. Take your lunch to work and cut down on meals away from home. 14. Buy produce at Farmer’s Markets. It’s fun, fresher and cheaper! Saving on transportation

1. Have the scheduled maintenance done on your car. It is safer and cheaper in the long run. 2. Learn how to do your own car maintenance. Take a class at a local Junior College if necessary. Change your oil and air filters as recommended by your service manual. Protect against salt, rust and scratches by waxing your car at least every three months. 3. Form car pools to go to work, meetings and kid’s events. 4. Cut down on short trips. As yourself, “Do I really need to make this trip?” 5. Make lists of “things to do” and “things to buy” before you leave the house. Determine a route which uses your time and gas most efficiently.

6. Maintain and repair your existing car instead of buying a new one.

Shop for the best value in car insurance. – Check for multi-car and good student discounts. – Increase deductibles on auto insurance to $500.

– Consider dropping collision insurance when your car’s value has dropped significantly. 7. Have kids use school and public transportation whenever possible. Saving around the home

1. Learn how to refinish furniture. Get a book from the library or second-hand bookstores. 2. Learn to clean and fix household items yourself. Make small repairs to your home before they become big problems. 3. Reduce purchases of cleaning supplies. Buy products that have multiple uses. 4. Wash your walls instead of painting. Paint rather than re-plaster. 5. Experiment with sponges, crumpled newspapers, rags, feather dusters to create your own painted “wallpaper.” Paint walls a base color in latex paint. Take 1 cup of base color, add a small amount of another color, dip one of the “daubers” in the new color, and touch the wall in rows or in a random pattern.

© 2019 BALANCE / REV0619 15 Financial Wellness Booklet 6. Clean out the attic and garage and have a yard sale. Get rid of stuff! 7. Reduce use of air conditioning and open windows. 8. Check the effectiveness of your insulation and improve where needed. Save9. Install money an attic on or roof clothing fan.

1. Choose simple, basic styles that can be dressed up or dressed down depending on the occasion. 2. Try to avoid fad or novelty styles that will be out of date next season. If you do buy these pieces, purchase at discount stores. 3. Have your colors and personal style evaluated so you can buy clothing that works for you. 4. Buy coordinated clothing that you can mix and match. Three tops and three bottoms can make nine outfits. 5. Purchase new inexpensive accessories to jazz up an existing outfit. 6. Check out discount stores, clearance centers and factory outlets. Don’t forget second-hand clothing stores. 7. Plan your clothing purchases carefully, make a list of what you need, and then shop with those things in mind. Avoid impulse purchases. Six affordable and fun staycation ideas for your family

Whether your vacation time is limited or money is tight, a “staycation” can provide a wonderful family experience within your time and budget constraints. Some staycations can be created entirely at home with a little creativity. However, if you want a more traditional vacation experience while keeping your home as a base, here are some attractions and day trips to consider: 1. Museums.

Fascinating for both children and adults, museums offer a variety of experiences for the visitor, including fun interactive displays, depending on where you go. Some of the types of museums you may find in your state include those for children, science, 2. Artaerospace, galleries. glass, history, mineral, music and many others.

Often overlooked as a great source of learning and entertainment, local art galleries should be on every family’s list of places to visit. In addition to displaying the paintings, sculptures, and other art forms of both historic and contemporary artists, many 3. galleriesState and offer national classes, parks. films, and educational programs for children and adults.

Areas of natural beauty, locations of important historical events, and large regions for recreational use are all included in state and national parks. Although each park is unique, many offer hiking, fishing, boating, camping, and similar outdoor 4. Historicactivities. points Full-year of interest.passes are available in all state parks and are a practical purchase for families planning more than one yearly visit.

Every state has several points of historic significance, and there is usually a history museum at each state capital. Engage your children in the activity by asking them to explore local history to discover what famous people were born in your 5. Gostate. camping Don’t live on near your your lawn. capital? Look for historic homes and monuments to visit that are a little closer to your neighborhood.

Camping doesn’t necessarily have to involve a trip to the mountains. Forgo the long drive (and save on gas) by setting up tents on your own lawn. You can still roast marshmallows, tell ghost stories, and do most of the same fun outdoor activities. 6. HostPlus, campingthe Backyard at home Olympics. is a great way to introduce the little ones to the real thing.

For parents, vacations always involve finding entertaining activities for the kids without spending too much money. Fortunately, when you vacation at home, you can easily keep your children engaged by turning ordinary games into a special event…Cue the Backyard Olympics! Your family can team up and square off in various competitions such as the Water Balloon ALSO Toss, Unplug—literally Lawn Dart Challenge, Synchronized Wading (in the kiddy pool), and whatever else your imagination can think up!

To fully escape on your staycation, you should try taking a break from technology and media. If this is especially hard to do at home, close your laptop, put your phone in the drawer and unplug the TV. You might be surprised at how relaxed you feel after a few days. (And if you do a lot of online shopping, this might be a big money-saver too.)

If you are considering homeownership, it’s never too early to start planning. Though the process can feel long and overwhelming at times, it’s really nothing more than a series of practical steps. Plan for Up-front Costs

DownThere are payment many costs associated with getting your foot in your very own door.

While a 20% down payment was the norm in the past, by obtaining a second mortgage, taking advantage of a government program, or purchasing mortgage insurance, it is now possible to buy a home with much less of a down payment. Keep in mind, however, that a substantial down payment works to your advantage – the more you have, the better the financing deal, the less you have to borrow, and Earnestthe lower moneyyour monthly outlay.

Earnest money is a cash deposit of about 2% of the price of the home. It proves to the seller that you are serious about wanting to buy. When you submit your offer, the money is deposited into an escrow account. If your offer is accepted, it will be applied toward the down Homepayment. inspection If it is rejected, the money will be returned to you, provided that it is stipulated in the contract.

Having a home inspection done by a qualified professional is your way of guarding against unseen and expensive problems popping up Closingonce you costsmove into the home. Count on a comprehensive inspection costing several hundred dollars.

Closing costs include all fees required to execute the sales transaction, such as attorney fees, title insurance, appraisals, points, and tax Post-purchaseescrows. Typically reserve paid up front,funds the average cost of these fees is 3-5% of the purchase price.

You may need to prove to the lender that you have enough money to protect against potential cash flow problems. Most lenders like to see Theat least extras two months’ worth of housing payments in reserve, either in savings or assets.

Extras are everything from moving costs to new furniture. If you plan to buy a fixer-upper or a home that doesn’t come with major appliances, these expenses will have to be planned for. The price of “extras” will vary greatly. First-time homebuyers are often strapped for cash though, so prioritizing non-essential expenses is important. Begin Saving

Because most people do not have immediate access to the large sums of cash required to buy a home, a savings plan will be necessary. After you have calculated the amount of money you need, decide when you would like to buy. Then divide the desired sum by the numberExample: of Ifmonths your objective you have is to save.save $15,000 and you want to purchase a home in three years, then you’ll need to set aside about $416 every month ($15,000/36).

If the goal you have set for yourself is not feasible, consider expanding your time frame, saving for a less expensive home, or making changes to your income and expenses.

To make saving as easy as possible, have the determined sum automatically deducted from your paycheck or checking account and deposited into a separate savings account.

The four components of a mortgage loan are Principal, Interest, Taxes and Insurance – commonly referred to as PITI. • Principal –

The principal is the amount of money you borrow. Mortgage loans are set up so that you may more interest than principal in • theInterest beginning, – and more principal than interest as you get further into the payback. The interest rate you receive will greatly affect your monthly payment and total cost of the loan. Fixed interest rates remain • consistentTaxes – over the course of the loan, and adjustable (ARM) interest rates change based on a variety of financial measurement rates. Property taxes may be included with our mortgage payments, or paid quarterly. The amount of tax depends on where you live, • andInsurance is usually – assessed as a percentage of the property value. You may also have to pay local government taxes. Homeowners insurance protects you from financial losses on your property that might result because of fire, wind, or other hazards. Potential mortgage related expenses

If you buy a home that shares a common area, you will likely have to pay homeowner association fees. These dues cover the property’s management and upkeep of common areas.

You may have to pay private mortgage insurance (PMI) premiums if you borrow more than 80% of the home’s worth. This type of insurance policy pays mortgage lenders for part of their financial loss if a loan is not repaid. You may drop this coverage when you have achieved 20% equity in the home. Mortgage Types

Fixed-rate mortgage

For a fixed-rate loan, the interest rate stays the same for the entirety of the repayment. The trade-off is that the interest rate is usually a bit higher than for other types of mortgages. The upside is that with the interest rate and monthly payment being fixed, there is less worry about an increase in outlay. Adjustable-rate mortgage

Often referred to by the acronym “ARM,” adjustable rate mortgages have a set interest rate for a set period but then the interest rate and monthly payment adjust at later fixed intervals. One appeal of an ARM is that they usually start off with a lower interest rate than a fixed- rate mortgage. Because of this, an ARM can be worth considering for someone who plans to sell the home in a few years or who anticipates a significant income increase. This is a very risky proposition though, since there are no guarantees that a home value will increase in the first few years of ownership, or that expected increases in income will come to fruition. Interest-only mortgage

Again, the initial payment is lower with an interest-only mortgage since you are paying only the interest for a specified amount of time, usually several years. After that time, however, the payment becomes higher because it begins to include both principal and interest. This is another risky type of mortgage since there is no guarantee you will be able to afford the increased payments in the future. Mortgage Term

The mortgage term is the length of your loan. Traditionally the most common term has been 30 years, but this number can vary anywhere from 10 to 50 years. Shorter loans usually have a lower interest rate, but they will always have a higher monthly payment since you are paying off the loan faster. A longer mortgage term means a lower monthly payment, but you will end up paying more interest over the life of the loan. • Government Programs –

A mortgage loan obtained through a federal government program can in many cases mean less stringent – VA loans: standards for qualifying and money saved in the long-run. The two most popular programs are: VA loans are insured by the Department of Veterans Affairs and are only available to eligible veterans. – FHA loans – No down payment is required. FHA loans are insured by the Federal Housing Administration, a division of HUD (the Department of Housing and Urban Development). A down payment of at least 3.5% is required.

© 2019 BALANCE / REV0619 18 Financial Wellness Booklet Many states and cities have programs specifically for first-time homebuyers. They make it easier to buy a home by offering such things as down payment assistance, below-market-rate units, and/or low-interest loans. Contact your local housing authority for information about programs in your area. Adjust for the Tax Benefits

In addition to the other benefits, there may also be some tax advantages to homeownership. Mortgage interest and property taxes may be tax deductible, which could increase your net income and offset some of the cost of the mortgage payment. Your unique tax situation will determine whether or not you are able to deduct mortgage interest and property taxes, and whether or not it will be beneficial for you. You can visit https://www.irs.gov/help/ita/can-i-deduct-my-mortgage-related-expenses to use a calculator that will help identify if you can deduct these types of expenses, and you may also want to seek the advice of a tax professional as well. Getting a Loan Application criteria

When lenders are considering whether to approve your loan application, they usually consider your: • Credit score –

Most lenders require your credit score to be at 620 or higher to get approval for a loan. Normally, to qualify for the best • interestDown payment rate you amountwill need and to have other a credit assets score – of 750 or higher. In most cases, a mortgage lender wants you to pay a certain percentage of the overall loan amount as a down payment on the home purchase. In the instances in which this is true, the amount of money you have saved for a down payment will determine what size of loan will be able to qualify for. For example, if your lender is requiring a 10% down payment and you have $20,000 saved, you could qualify for a loan of up to $180,000 ($200,000 maximum purchase price – the • $20,000Employment for the history down payment.)– Lenders also want to see that you have funds left over post-purchase. • Income – Most lenders prefer to see two years of consistent employment in the same field. The standard has traditionally been that lenders require the total of your mortgage payments not exceed 28-33% of your gross income each month, though some lenders may be willing to exceed that. Often referred to as the front-end ratio, this figure will • beDebt calculated – by using two years of proof-of-income documents like paystubs or tax returns. The normal requirement is that your monthly payments on existing debt not be above 36% of your gross income, although there can be some flexibility in certain cases for this number too. This percentage is often called the back-end ratio. Applying for Financing

The best time to try to get approved for a mortgage is before you start looking for a specific home to buy, since being pre-approved will let you know your price range. Additionally, some sellers may require that you have financing for the mortgage in place before they accept your offer. Pre-qualification vs. pre-approval

Pre-qualification is a projection of how much loan you might qualify for. The amount you are truly eligible for may be different based on your tax returns, credit reports or other factors. Pre-approval more closely resembles the real application process. It is a firm commitment from a financial institution that for 60-90 days, barring changes in your financial situation, they will finance a specific amount. Searching for a Home and Making an Offer Shop around

Once you know what you can afford and qualify for, it’s time to start looking at homes that meet your personal criteria. You can shop on your own by looking through the real estate listings online, or enlist the help of a real estate agent.

Real estate agents earn commissions paid by the seller, and so their services are free to the buyer. To find an agent, ask friends and relatives for recommendations. Interview several realtors before deciding on one, and ask questions about the areas and types of homes in which you’re interested. He or she should be well-acquainted with all the facts about a neighborhood that matter most to you: such as schools, safety, public transportation, traffic volume, or other issues that affect you and your family. As it could result in a conflict of interest, be wary of working with an agent who represents both you and the seller.

Making a prioritized wish list of desired features can help to ease the process of finding your dream home. Common factors in choosing a house include price, number of bedrooms and bathrooms, square footage, closet/storage space, energy efficiency, type of home (such as Makingsingle family or ancondo), Offer location, garage(s), yard, school district, safety, and noise.

If you are working with a real estate agent, the agent will look at “comps” – similar homes that have sold recently in the area – to determine an appropriate value for the home. 1) Purchase price 2) Closing date 3) How long the offer is still good The offer you make to the seller of a home usually has at least three components:

Many offers have additional components, such as seller concessions, inclusions, and contingencies. Seller concessions are costs that the seller pays for the buyer, which reduce the amount of money the seller receives. Typical concessions include closing costs and cash back for repairs or renovations. Inclusions refer to what stays in the house. If you want the appliances, blinds, chandeliers, or anything else, make sure to put it in the offer. Contingencies are conditions that must be met in order for the sale to go through. A home inspection, financing, and an appraisal are common contingencies.

Once the offer is written, your agent will present it to the seller. Along with the offer, it is customary to give the seller earnest money, also called a good faith deposit. Usually the amount is between 1-3% of the offered purchase price. This money is part of the down payment and shows the Finalseller you areSteps serious about purchasing the house. The money should go in an escrow account, where funds are held for, but not owned by, a party. Pre-closing period

Once your offer is accepted, you can arrange for the home inspection, which should be done by an independent, qualified professional, and either apply for a mortgage if you have not already done so or let your lender know you found a home if you were pre-approved. The lender will start to prepare for closing and may need additional documentation from you, such as proof of homeowners insurance. During this period, it is a good idea to periodically check in with the lender and make sure that they have everything they need. Now is also a good time to gather quotes on homeowners insurance. If you have other types of existing policies, you may be able to save by bundling your insurance with one provider.

About a day or so before closing, ideally after the seller has moved out, consider doing a final walkthrough of the property. In the walkthrough, you should make sure the seller left everything he or she agreed to leave and that the property is in the same condition it was in before. This is the best time to bring up any problems since the seller has not yet gotten paid. Once closing passes, your options for getting Closingthe seller to do something are limited.

Closing is the day that the mortgage is finalized and the title of the house is transferred to you. In many states, closing is handled by a title company. If not, it may be handled by a closing company or attorney. You will need to bring photo identification and a cashier’s check for the amount you are paying for closing costs and the down payment. You have a right to review the documents at least 24 hours before closing. You will probably want to hire a real estate lawyer to make sure you understand the paperwork and the process. The documents you will be signing include the: • Mortgage note – • Mortgage or deed The of trustmortgage – note is your promise to pay the lender according to the specified terms. • Closing Disclosure and Loan This Estimate gives the – lender the right to the title of the home if you do not pay the mortgage. The Loan Estimate is provided within three days of mortgage application submission and shows your estimated loan amount, interest rate, monthly payment and closing costs. The Closing Disclosure is provided at the loan closing and shows your actual loan terms. If you see any unexpected fee or the mortgage terms on the two documents are vastly different don’t just sign the documents - ask the lender to explain. The process is complete and the keys are yours. Welcome home.

Some students are able to pay for college with savings, grants or scholarships. However with tuition fees on the rise, it is not unusual to rely on student loans to partially or fully finance college costs. Keeping yourself informed about the different student loan options and repayment plans could help you select a plan that is right for you and even possibly avoid default when facing economic hardships. What Types of Student Loans do You Have?

Knowing what types of student loans you have is very helpful, as it can affect repayment options. One important distinction is whether the loan is public (meaning the government is either the lender or guarantor of the funds) or private. There are two major federal student loan programs: the William D. Ford Federal Direct Loan Program and Federal Family Education Loan (FFEL) Program. The Direct Loan and FFEL Programs both offer Stafford and PLUS loans.

The Stafford loan is the most common type of student loan and can be either subsidized or unsubsidized. If your loan is subsidized, the government pays your interest while are you in school or a period of deferment. If your loan is unsubsidized, you are responsible for the interest as soon as the funds are disbursed – while you are in school or deferment, you can choose to either pay the interest as it accrues or have it added to the loan balance (capitalized). PLUS loans are made to parents and graduate students and are always unsubsidized.

Private loans are made by lenders with no government involvement. They are generally not subsidized. While federal student loan holders have many options available to them under the law, such as alternative repayment plans and deferment (discussed later), private lenders are not required to offer these options. When do You Have to Start Paying Your Student Loans?

In general, you do not have to repay your student loans while you are in school (as long as you are enrolled at least half-time). For Stafford loans, your first payment is normally due six months after graduating. For PLUS loans, the borrower is given the option of starting repayment either within 60 days after the funds are disbursed or waiting until six months after the student has graduated or dropped beneath half-time enrollment. (The grace period is only 45 days after leaving school for graduate students.) If you have private student loans, you should talk to your lender about when you have to start repaying them.

For direct and FFEL loans, there are several repayment options available: • Standard repayment plan

This is the default plan borrowers are put on when you start making payments. You pay a fixed monthly amount for ten years (or less if the amount you borrowed • wasGraduated small). Therepayment monthly plan payment is the highest under this plan.

Payments can start out as low as half of what the standard plan offers (but never below the interest amount) and are typically increased every two years. If you owe enough, you can combine this plan with the extended repayment plan. Otherwise, the loan must still be paid off in 10 years (for loans that entered repayment on or after July 1, 2006), meaning that the later payments will be higher than under the standard plan. This plan may be appropriate for you if your income is low now, but • youExtended expect repayment it to increase plan significantly in the future.

This plan allows you to stretch the length of your repayment period to up to 25 years, which lowers your payment. You must owe at least • $30,000Income-contingent to use this plan. repayment plan

(for Direct loans only, excluding parent PLUS loans) Income and family size are taken into consideration when determining your monthly payment for this plan. For those with limited income, the monthly payment can be very low, even less than the interest charges. The repayment period can last longer than 10 years, • andIncome-sensitive any loan balance repayment remaining plan after 25 years of payment is canceled.

(for FFEL loans only) Like with the income-contingent repayment plan, your monthly payment is based on your income. However, the payment must cover at • leastIncome-based the interest, repayment and the repayment plan period is limited to ten years, so later payments will be higher.

(not available for parent PLUS loans) In order to qualify, you must have a certain level of student loan debt relative to your income and family size. Borrowers may be able to get a lower payment with the income-based repayment plan than the income-contingent or income-sensitive repayment plan. The monthly payment amount can be less than the interest charges, and any loan balance remaining after 25 years is canceled (10 years for Direct loans if you have a public service job).

For FFEL loans, you have a right to switch your repayment plan once a year (lenders can allow more frequent switching at their discretion). For Direct loans, you can switch plans as often as you want.

Like FFEL and Direct loans, the standard repayment period for Perkins loans is 10 years or less. Alternative repayment plans are not available, but schools can extend the repayment period for low-income borrowers and those facing prolonged illness or unemployment. Alternative repayment plans may also not be offered for private loans, but if you are struggling, you can talk to your lender about the possibility of restructuring your loan.

The chart below illustrates the monthly payments and interest charges under each repayment plan for a Direct Stafford loan, based on a loan amount of $50,000, interest rate of 6.8%, and borrower with an adjusted gross income of $35,000 and family size of 1. (These numbers are estimates only. Actual payments may vary. For the income-contingent and income-based repayment plans, it is assumed that there is an annual 3% increase in income and the poverty line.) Repayment Plan Term (months) Monthly Payment Interest Paid Total Paid

Standard 120 $575 $19,048 $69,048

Graduated (standard) 120 $332 (initial), $996 (final) $24,300 $74,300

Graduated (extended) 300 $283 (initial), $496 (final) $62,770 $112,770

Extended 300 $347 $54,111 $104,111

Income contingent 183 $387 (initial), $498 (final) $31,772 $81,772

Income based 245 $217 (initial), $575 (final) $53,680 $103,680

PAYE and REPAYE 240 $145 (initial), $508 (final) $67,855 $71,446

Consolidation

Consolidation is the combining of existing loans into one new loan. You can consolidate all, some, or just one of your student loans. (However, in general, you cannot consolidate a consolidation loan by itself.) You may be able to get a lower payment by consolidating your loans. You do not have to be current with payments to consolidate – in fact, many delinquent borrowers use consolidation to get back on track. You cannot combine your private loans with your federal loans into a federal consolidation loan. You can consolidate your federal loans and private loans with a private consolidation loan, but this is not recommended, as you lose the rights granted to federal loans, such as deferment and alternative repayment plans. If You Can’t Pay

If you find yourself unable to pay your federal student loans, you may be able to get relief with a deferment or forbearance. A deferment is a temporary suspension of payments. If your loans are subsidized, the interest will be suspended; if not, interest will continue to accrue. Deferments are only permitted under certain circumstances, including enrollment as at least a half-time student, temporary total disability, enrollment in a graduate fellowship program, unemployment or other economic hardship, active duty in the armed forces, or participation in a rehabilitation program for the disabled.

Forbearance is similar to deferment, only interest continues to accrue regardless of whether your loans are subsidized. (Forbearance can also involve a temporary acceptance of smaller payments.) Forbearances are granted for such reasons as a high monthly payment relative to your income, medical hardship or other unforeseen problems. If you have subsidized loans, obviously a deferment is preferable, but a forbearance is generally easier to obtain. Some private lenders may offer forbearances, but they are not required to do so.

A loan is considered in default if you don’t arrange a deferment or forbearance and are more than 270 days past due. The consequences of default are severe and can include aggressive collection tactics, tax refund interception, lawsuits, and non-judicial garnishment of up to 15% of your net wages. You will also be ineligible for deferments, alternative repayment plans, grants, and new student loans. Collection fees, which can be significant, will be added to your balance. Additionally, a default notation will appear on your credit report, and since there is no statute of limitations on student loans, the negative impact may follow you indefinitely if you continue to not pay.

For federal student loans, you have a one-time right to get out of default with a “reasonable and affordable payment plan”. If they want you to pay an amount you feel you cannot afford, be persistent in pushing for an amount that you are comfortable with – it may be helpful to send them a copy of your budget. Once you make nine on-time payments (for Direct and FFEL loans you are permitted to miss one payment; for Perkin loans you are not) your loan is rehabilitated, i.e., taken out of default.

Having a retirement free from money woes isn’t necessarily about being a millionaire, but rather using the assets you do have wisely and proactively. By identifying what you can control and focusing on that, you can put yourself in better position to have a retirement that allows you to achieve your goals. Use the following guide as a resource and introduction to begin the exploration of your retirement options. *This guide is not intended as professional financial planning advice* How Much Will You Need?

The traditional rule of thumb with retirement was that you will need 70-80% of your income in retirement to be able to live a comfortable life. However, everyone’s situation is different: some people find that they actually spend more money in retirement than they did the last few previous years and others find they are perfectly content to live their mature years modestly with simple pleasures.

Completing a retirement budget is a far more comprehensive way to examine your money needs than simply relying on a percentage of your current expenses. While it can be difficult to project your lifestyle into the future – especially if you are currently many years away from leaving the workforce – begin by using your current budget as a jumping off point. Think about expenses that may be less in retirement - like clothing or gas – and expenses that could be more - like airline tickets or healthcare expenses. Of course, remember to calculate inflation, especially if you are more than a year or two from retirement. Harness the Power of Time

$200,000

Knowing you will have enough on a monthly basis to live comfortably is great, but how do you know if it will last? After all, you don’t know how long you might live, especially with increasing life spans resulting in retirements $150,000 of 30 or even 40 years. If you are worried about stretching your dollars over the full length of your retirement, consider meeting with a financial planner and•Complete taking one or a more budget of the and following stick to steps: it both now and in retirement $100,000 •Make conservative withdrawals from retirement plans •Work longer and delay taking Social Security to increase the amount you get each month $50,000 •Work part-time in retirement $0 •Consider an annuity 15 years 20 years 25 years 30 years •Use assets – such as a home – as a source of income Start now Wait 10 years •Explore longevity insurance • Invest in financial products that generate dividends •Invest in bonds as security against dwindling income

Retirement Income

If you are currently among the gainfully employed, you are used to receiving a regular paycheck each month. In retirement this may be different, since you could have several sources of income making up your monthly “paycheck.” To see what your current retirement paycheck looks like, consider all potential sources of income:

Social Security www.socialsecurity.gov

Retirement accounts (401k, 403b, IRA) Plan administrator

Pension Employer

Investments Account administrator

Part-time work Estimate based on current wages

Home equity loan or reverse mortgage Estimate home value or equity position

Assets that can be liquidated Adjust current figures for inflation

Cash value insurance policies Plan administrator

Annuities Account administrator

Interest on savings, CDs or bonds Consult with provider and use financial calculator

Income from rental properties Adjust current figures for inflation

Inheritance Consult with benefactor

Add your monthly expected retirement totals from all these potential sources of income to see how your income projection currently sizes up. If this falls short of what you had projected in your retirement budget, look for ways to increase the amount you are currently putting toward retirement or ways to generate extra income during retirement. Understanding the Retirement Fundamentals Start early

Time is one of the biggest advantages you can have in saving for retirement. Unless your retirement is next month, you have the opportunity to take advantage of compound interest. Because the interest you receive from investments or savings is calculated on your total of deposits plus your past accumulated interest, you have a chance to see even a relatively small amount of money set aside each month add up to a large bundle when you choose to retire. Someone who is 30 years away from retirement could put $100 per month into a retirement account, receive a fairly typical 6% return on their investment, and potentially end up with close to $100,000 for retirement. If that same person waits 10 years to begin investing for retirement, the total saved might only be around $46,000.

Here’s Investor another 1 example of how valuable getting an early start Investor can be: 2 age 25 age 35 10 years 30 years – Starts saving $250 per month at . – Starts saving $250 per month at . contribution is $30,000 contribution is $90,000 – Saves diligently every month for . – Saves diligently every month for . – His/her total savings . – His/her total savings .

AtInvestor age 65, 2 if may both have investors $10,000 earn more 6% return, than InvestorInvestor 11, will but may he/she have had close to to contribute $240,000 3and TIMES Investor AS MUCH 2 might to end reach up thatwith amount!$250,000.

Use tax-deferred growth

So-called defined contribution plans provided by employers, such as 401(k) or 403(b) plans, allow your retirement savings to be free from taxes while they grow in value. Your investment will only be taxed when you withdraw money from the account. A defined contribution plan also has the benefit of reducing taxable income when you file your return every year. Individual Retirement Accounts (IRAs) also can provide tax benefits. See detailed descriptions of the different retirement savings plans on page 27 of this booklet.

You don’t have many chances in life to get free money. But a lot employers offer just that when they agree to make matching contributions to your retirement savings. Usually these funds are given dollar-for-dollar to a certain amount, or provided as a percentage of your contribution each month. If your employer offers matching contributions, do everything in your power to try to get as much of this free money as possible. Diversify

When choosing how to allocate your money among different types of investments, it’s important to not put too much of your funds into one type. By spreading your investments among different types of products – stocks, bonds, cash equivalents, etc. – you give yourself protection against major losses by one type of asset class while also providing yourself exposure to potential gains in different areas. Grow and protect

In deciding what types of specific investments your retirement funds will go toward, it’s important to think about both risk and reward. Some types of investment products, like stocks for example, come with a higher risk of large fluctuations but in turn give you a greater chance for growth. Others are more conservative choices that have little chance for huge growth but are much less likely to vary widely. A prudent retirement investor has a mix in their portfolio of both growth and security. Rebalance

If one category of your investments realizes gains disproportionate to the other types of investments in your portfolio, your allocations could get out of balance. For example, if the stocks in your portfolio see tremendous growth while the bonds lag behind, the value of your stocks could grow beyond the original percentage of your portfolio they were intended to represent. This is when it is necessary to contact your retirement plan provider to return each piece of the asset pie back to its original relative size. This process is called rebalancing. While there is no set consensus on how often you should rebalance your portfolio, the most common suggestions from experts vary from once per quarter to once per year. Other experts advise to rebalance any time your allocations have swung five percent in any direction. Many retirement funds automatically rebalance your allocations for you, so check with your fund’s administrator for more information. If you need to manually rebalance your settings, make sure you are aware of any fees charged for making these kinds of changes. Dollar cost averaging

If you have a significant amount of money invested in stocks, you likely keep a pretty close eye on what the market is doing. When it goes up, you probably have a positive feeling about continuing to contribute money to equity investments. However, when stocks go down, it can make you want to pull your money out quickly. If these emotions get the better of you, the net effect is that you consistently buy stocks when they are relatively high-priced and then abstain from buying them when they are priced lower. Using this method will mean that the average price of the stocks you have bought will always be higher.

There is a way to combat this emotional “chasing the market” type of trading, though. Dollar cost averaging means that when beginning an investment strategy, you decide on a period of time for which you will commit a consistent amount of money to be invested at regular intervals. Using dollar cost averaging is a way to take a “bigger picture” approach to your investing that can in the end give you much better value for the money you have invested and help you avoid the pitfalls of reactionary investment choices.

You have several different choices for how to invest your money for retirement. You don’t have to pick just one, and in fact, many people 401(k)use a combination or 403(b) of different types of plans to achieve their retirement savings goals.

These retirement plans allow you to take advantage of tax-deferred growth since neither contributions nor growth are taxed. Taxes aren’t taken until you withdraw money from the account. Many employers also provide matching contributions that are essentially free money added to your retirement account. There are restrictions on contribution amounts and penalties for early withdrawals. If your employer allows you to control the investment choices for your plan, you can decide which mix of different types of investments you Traditionalwant your particular IRA plan to put money into.

This type of Individual Retirement Account lets you invest pre-tax income that will also grow tax-deferred. Depending on your income, filing status and other factors, you may be able to deduct your contributions to a Traditional IRA on your tax return. Like a defined contribution plan, there are limits on what you are able to contribute. If you are 50 or older, you may be allowed to make catch-up contributions beyond the normal limits. You are able to make any type of investment you like, as long as it is allowed by the custodian (usually a financial institution or brokerage) of the account. Generally speaking there are no requirements for making contributions to a Traditional IRA, Rothbut any IRA distributions taken before age 59.5 are subject to taxes and a 10% penalty, unless the distribution meets certain conditions.

Unlike a Traditional IRA, under which your contributions are taxed upon withdrawal, in a Roth IRA your contributions are taxed. Withdrawals can thus be taken tax-free. Like a Traditional IRA, the gains made by your investments are not taxed. Many people who feel they may be in higher tax bracket when they retire than they are now find that a Roth IRA is a good fit for their needs. In order to contribute Annuityto a Roth IRA, you or your spouse must have earned income. Direct contributions to a Roth IRA can be withdrawn tax-free at any time.

Annuities are issued by insurance companies and are designed to grow in value and then pay out a stream of guaranteed monthly payments in retirement. They are usually considered an option after 401(k) or IRA options have reached maximum contributions. BrokerageDrawbacks can account include the high fees and lack of flexibility often associated with annuities.

While investment accounts opened with brokerages can give you greater flexibility with accessing your money and making investment choices, they lack the tax advantages of other retirement savings options and thus are usually not a top choice for this type of savings goal. Self-employed Plans

If you are your own boss, planning for retirement may take a little extra work, but there are some very beneficial options for you too. Below Individualare a few of the 401(k) most popular choices. (For specific questions about any of these options, contact a financial planner.)

As the name implies, the Individual 401(k) – sometimes called the Solo 401(k) – is similar to the retirement plan offered by employers. However, this plan is only for sole proprietors who have no employees. Like IRAs, the Individual 401(k) comes with Traditional or Roth SEPoptions. IRA This plan also has the benefit of allowing you to borrow money against your savings.

A Simplified Employee Pension, or SEP IRA, is a way for business owners to receive the same advantages for their business that would ordinarily be provided through an Individual Retirement Account. If the business owner has employees, the employees receive the same Simplebenefits asIRA the owner under the plan. The employer receives a tax deduction for plan contributions.

A Savings Incentive Match Plan for Employees, called a SIMPLE IRA for short, requires businesses owners to contribute once it is opened but is discretionary for any employees. This plan requires certain contributions by the employer on behalf of the employees.

Once you have decided what type of plan you will use to harbor your retirement nest egg, it’s time to choose what types of investments will make up your plan.

When choosing where you will invest your money, it is important to think about the time window you have until retirement. If you have more than 20 years until retirement, it is essential that your portfolio have the ability to grow significantly in that time. For that reason, you should be willing to take on some risk of periodic fluctuations in exchange for the long-term growth of your money. If you have a shorter time horizon, say 5 years until retirement, you need to have a greater level of security in your investments to make sure you don’t get caught in a major downswing in your investments just as you are about to retire. Most people do a mix of stocks, bonds, cash equivalents and other choices to give themselves diversity and exposure to growth opportunities. Below are some popular investment Stockschoices that can help you build a retirement investment plan with both growth and protection.

Stocks, sometimes also called equities, give you an ownership interest in a company. For this reason, there has traditionally been great potential for growth with stocks as the economy grows and companies flourish over time. The trade-off with investing in stocks is that there is a greater likelihood of dramatic swings in value in the short-term. However, the best argument for investing in stocks is that they have Bondshistorically far out-paced inflation in any large period of time. For this reason, stocks should always be on your retirement savings menu.

When you invest in bonds, you are lending money either to a company or to the government. In exchange for this loan, you get interest paid to you at predetermined times and amounts. This offers more safety than stocks, which can vary greatly in value. But the downside here is the lack of growth potential. Bonds are often thought of as a way to temper the effect of tempestuous investments. Generally Cashspeaking, and bonds cash are equivalents another standard choice for retirement savings because of their nearly guaranteed returns.

Certificates of Deposit (CDs), money market funds, money market funds or treasury bills tend to be among the safest investments you can make but also generally offer the lowest returns. Since the returns are so modest, there is a risk that your investment doesn’t grow as much as the rate of inflation. In other words, when you are ready to start taking out your money, the value of your account hasn’t grown as much as the cost of the common goods and services you will need to spend that money on. However, since many cash equivalent investments are insured by the government and losses are rare, this asset class can be a good choice when you are looking Mutualto preserve funds money in the months leading up to your retirement date.

If you’re like most people and want to protect your retirement money by diversifying your investments, a mutual fund could be a solid choice for your needs. Since mutual funds are designed to spread your money among different types of investments, you automatically get exposure to varying types of products. This variety can be within an asset class or across assets classes.

For example, you can choose a stock mutual fund that will invest in different types of companies, such as energy, technology, pharmaceutical, mining, etc. Or you can choose a mutual fund that divides your monthly investment among stocks, bonds, cash equivalents and other asset classes. The money you put into a mutual fund, which is pooled with other investors, is managed by a professional as a single investment product. You can request a prospectus to see how a particular mutual fund has performed in the past.

Now that you know some of the popular options for retirement investments, how do you know how to make your allocation choices? Usually the most important factor is your retirement time frame. If you are decades away from retirement, you may have time to ride out the ups and down of the stock market. Whether you choose an aggressive mix of investments (75% in stocks, 15% in bonds and 10% in cash equivalents), or a conservative blend (25% stocks, 25% in bonds and 50% in cash equivalents), a financial advisor can help you come up with a plan that suits the retirement needs of you and your family. Monitoring Your Accounts

Naturally you will want to check your retirement accounts periodically to see how your money is progressing toward your retirement goals. It is wise to make sure your allocations are still appropriate for your time frame, that your investments are still balanced correctly among the different asset classes, and that you are sticking to your original plan or investing.

Buy new, buy used, or lease? These are just a few of the many decisions you’ll need to make before happily driving away with a vehicle. While shopping for a car or truck is exciting, it is also no simple matter. You can avoid buyer’s remorse by making important financial and practical decisions before signing on the dotted line Some Things to Consider

Shopping for a car can be complicated and time-consuming. It involves balancing your desires with your economic reality, deciding whether to buy or lease, and knowing what is the best deal for you. To make the process efficient and improve your chances of driving away happy, you will need to consider: • Your Needs –

Think about your transportation requirements. Does your car need to be large enough for a family of five or small enough • toYour fit inWants tight –city parking spaces; tough enough to haul firewood, or chic enough to drive clients around? Your desires can certainly play a part in the car buying decision. Make, color, options, and style are all important to being • happyYour Budget with your – final choice. Read car-oriented magazines and websites for ideas. It is easy to get carried away and end up with a car that is out of your price range and a monthly payment beyond your capacity. Your budget, not a salesperson’s opinion, should dictate your decision. Review your income and expenses to see what you have available each month for auto expenses. Determine How Much You Can Afford

Complete a budget to see how much money you have available for car expenses. Make sure you include a monthly car payment, insurance premium, gas expense, the projected cost of maintenance and registration, and any parking expenses. If you need to estimate, use conservative figures. If you find there is little or no money available for auto expenses, you may need to rework your budget by reducing or eliminating non-essential expenses. Save for a Down Payment or Total Car Cost

While is it possible to buy a car with no money down, you will end up paying a lot more for it if you do so. The more you borrow, the more the car will ultimately cost.

To decrease the amount you finance, it is wise to make a significant down payment. With enough savings, you may be able to purchase a car outright (typically an option when buying a used car, rather than a new one).

Effective savings begins with first determining how much you want to save (determined by using the budget worksheet on page 3), then setting a reasonable date to achieve your goal. Use automatic deduction to make the process easy. Arrange with your financial institution to have a set sum deducted from your checking account and automatically deposited into savings. New, Used, or Lease: Advantages and Disadvantages of Each

After you determine how much you can afford to spend, the next step is to decide between buying new, buying used, or leasing. It is important to be familiar with each option’s positive and negative aspects.

While leasing a car may enable you to get “more car” for less money each month than what you might be able to purchase, it is important to remember that leasing means renting. When the term of the lease is up, you return the car. At that point, you have the option of paying any outstanding fees for mileage or damage, or purchasing the car outright. Often, you will pay more over time by leasing and then purchasing than you would have had you simply bought the car in the first place. If, during the course of the lease contract, you choose to return the car, very high penalties will likely apply.

Your credit history will have a serious impact on the interest rate you will be offered. The better your credit score, the better rate you will be eligible for. Other factors, such as length of employment, income, and expenses may also be considered when determining the type of financing you may qualify for. Pro Tip:

The percentage of your available credit limit you use makes up 30% of your credit score. Pay down your credit card balances at least a month before you apply for the car loan to be in better position to potentially get a low interest rate.

If your credit report isn’t perfect, you may consider having someone with good credit co-sign the loan for you. Be cautious about using this option though, as the cosigner assumes equal responsibility for the repayment of the loan. Any late or missed payments will appear on each of your credit reports.

Some financial institutions may offer special loans for first time buyers. These may enable you to get a loan at a reasonable rate even if you have a limited credit history. Financing Options and Implications

Because financing increases the total cost of the car, the loan you get is very important. Make sure you understand the following aspects of the loan agreement before you sign any documents: • • Exact price you’re paying for the vehicle • Amount you’re financing and finance charge • Annual percentage rate (APR) • Number and amount of payments Total sales price Shop for the Best Deal

The total amount you will pay for your car depends on its price, the annual percentage rate (APR), and the length of the loan. When shopping for the best deal: •

Don’t be fooled by an advertised low monthly payment – if the length of the loan is long and the interest rate is high, you may be • paying more. Be wary of extremely low promotional APRs. Though you may qualify for particularly low rates by making a large down payment, it may be more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down • payment. Look for manufacturer’s incentives. Dealers may offer cash back on specific models.

Table A: Zero Percent Financing

Zero percent financing sounds like an amazing bargain – after all, how can Price $20,000 $20,000 you beat a no interest loan? Often, you can. Such “deals” frequently come Down payment - $2,000 - $2,000 with inflated prices for extended warranties and loan insurance, high Manufacturer rebate - $2,000 -0 application fees, and pre-payment penalties. And because you forfeit the rebate option, you end up paying a higher price for the car. You may also be Amount to finance = $16,000 = $18,000 required to repay the car in three years or fewer – resulting in a very high Interest 5% interest loan 0% dealer loan monthly payment. See Table A to the right. Loan period 60 months 36 months

Monthly payment $301 $500 While the 0% interest offer seems to make sense, giving up the rebate and having a short-term loan can make for pretty steep monthly payments. And Total cost $18,060 $18,000 in the long term, it only costs $60 more to take the 5% loan over five years, with much more reasonable payments.

Zero percent financing can be elusive. It is only offered to those with very good credit, as determined by the lender. And it is often not available for the most popular cars and trucks. Dealer and Finance Company Loans

Table B: Dealer Financing

At an auto dealership, you will be encouraged to use dealer financing. Amount financed $16,000 $16,000 While not all dealer loans are bad, in most cases a loan from your financial Interest 5% interest loan 15% interest loan institution will be preferable. Table B below shows the difference between Loan period 60 months 60 months a loan at 5% interest (a good rate), and one at 15% (a rate often offered by finance companies). The higher interest rate increases the loan payment by Monthly payment $301 $381 $80 per month, resulting in an increased total cost of nearly $4800. Total cost $18,060 $22,838 Be Prepared

Never walk onto a car lot unprepared. Before you go, you should already know: • • The model and options you are looking for • Your transportation needs • How much you are willing to spend • How much you can afford to finance How much can you spend on a monthly payment

Gain a good understanding of price, models and features by conducting research using car-buying magazines, books, and the internet. Be sure to compare models and prices in ads and at dealer showrooms. Visit your financial institution before you shop, so you can seek your vehicle armed with the knowledge of how much you can spend.

To get the best price on your new car, you will often have to negotiate with the salesperson. Honing your bargaining skills will be worth it to you in the end, as it can often save you 10-20% of the advertised price. You may be able to negotiate a particularly good price on overstocked or less popular cars.

But remember – a deal isn’t a deal if you end up with a car you don’t really want. Sometimes ordering a car will save you more money than negotiating for one on the lot, as you won’t be paying for unnecessary options. Trade in Your Old Car

If you already have a vehicle, you will likely be selling it and using the profit to pay for all or part of your new car. To get the best price, make sure you know your car’s worth. Check reference books or the internet to know its value by (try www.kbb.com and www.nada.com). After that, you have two options: •

Sell the car yourself. You will usually get the best price this way, but will have to allow for the time it takes to sell, as well as the effort of • placing the ad, talking to and seeing a lot of people, and negotiating with buyers. Trade-in to the dealer. This is often the easiest option, though typically not the best deal. To ensure you get the most from a trade-in, do so only after you’ve negotiated the best possible price for your new car. Save on Car Insurance

Car insurance premiums (monthly payments) can be a substantial expense. However, you can improve your chances of getting the best deal. •

Improve your credit score. Insurers may use your credit score to determine the premium. Pay down excessive unsecured debt, pay off • collection accounts, and pay your current financial obligations on time, every time. • Establish long-term residence or become a homeowner – both connote responsibility. • Obey traffic laws and avoid tickets, particularly moving violations. If you do get a ticket, be sure to attend traffic school. Lower your coverage amounts and increase your deductible. If you are a careful driver with a good driving history, • it may be worth the risk. • Buy a used car – premiums are cheaper. • Avoid 4-wheel drive and high performance cars, which often carry higher premiums. Compare prices from local and national companies.

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