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Why You Should Pay Off High-Interest Debt First

June 3, 2020

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Brian Stewart LUTCF FSCP

Brian Stewart LUTCF FSCP

Insurance Representative

m: 410-746-6438 f: 301-352-3695

16901 Melford Blvd Ste 328

Bowie, Md 20715

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Boost Your Daily Routine with These 3 Financial Habits

Boost Your Daily Routine with These 3 Financial Habits
March 9, 2020

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

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

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

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

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

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

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

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

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

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Transamerica Agency Network is a marketing group with Transamerica. Insurance products are sold through United Financial Services, Inc. and affiliated Transamerica companies.

TAN132970-10.19

The downside of payday loans and cash advances

The downside of payday loans and cash advances
February 12, 2020

In an emergency you might need some extra cash fast.

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

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

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

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

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

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

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

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

Taking a payday loan, while extremely expensive, has an obvious reason: the applicant cannot obtain loans in any other way and has an immediate need for funds. The unfortunate reality is that being “credit invisible” can be extremely expensive, and those who are invisible or at risk of becoming invisible should start building their credit profiles, either with traditional credit cards or a secured card[iv], if the circumstances call for it. Then, if an emergency does arise, payday loans can be avoided.

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The Birds Have Flown the Coop!

The Birds Have Flown the Coop!
February 5, 2020

The kids (finally) moved out!

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

The answer is YES!

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

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

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

TAN132971-10.19

When should you start planning for retirement?

When should you start planning for retirement?
January 27, 2020

Depending on where you are in life’s journey, retirement may seem like a far away dream or it may be closing in faster than expected.

You might think that deciding when to start planning for retirement requires complicated algorithms. Yes, there may be some math involved – but the simple answer is – if you haven’t started planning yet, the time to start is right now!

The 80% rule
Many financial planners recommend saving enough to provide 80% of your pre-retirement income in your retirement years so you can maintain your standard of living. Following this rule isn’t an exact science though, because expense structures for each household can differ greatly. It is, however, a good place to start. How do we get to 80%? Living expenses typically decrease in retirement because costly commutes, investing in business clothing, and eating lunch out 5 days a week are reduced or eliminated. The other big expense that often changes is housing. At retirement, it’s common to trade in your 3, 4, or 5-bedroom home for something smaller, easier, and less expensive to maintain.

Retirement planning when you’re young
When you’re younger, planning for retirement may be a fairly simple process. Two considerations are life insurance and savings. This can’t be overstated: Now is the time to buy life insurance. If you’re young and healthy, life insurance rates are much more likely to be low. This also can’t be overstated: Now is the time to start saving. Every penny you put away now can get you closer to your goal. As anyone who’s older can tell you, life is full of surprises that end up costing money, and these instances have the potential to interfere with your savings strategy.

Longevity considerations
Another consideration is that we’re living longer. In the U.S. in 1960, life expectancy for men was 67 years. By 2016, life expectancy had increased to over 76 – with even longer life expectancy likely in following years – as medicine advances and as we become more aware of behaviors that affect our health.[i] Women tend to live even longer, with an average life expectancy of about 81 years by 2016.[ii] Life expectancy rates are essentially averages, with low and high numbers in the mix. If you’re fortunate enough to beat the average life expectancy, your retirement savings may become slim pickings in your later years, a time when you might not be able to generate supplementary income.

Manage your expenses
Whether you’re young or getting on in years, the time to start saving is now. But if you’re nearing retirement age, it’s also time to take an honest look at your expenses. Part of the trick to stretching retirement savings is to eliminate unnecessary costs. If you’re considering moving to a smaller home to cut costs – and you’re feeling adventurous – you might want to consider moving to a different state with a lower tax rate to enjoy your golden years. If you’re younger, it’s still a great time to assess your budget and eliminate any and all unnecessary spending that you can.

For younger people, time is your ally when it comes to saving for retirement, but waiting to start saving might leave you with less than you’d hoped for later in life. If you’re closer to retirement age, there’s still time to build your nest egg and examine your projected expenses. Talk to your financial professional today about options that may be available for you!

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Now’s the Time for Future Planning

Now’s the Time for Future Planning
January 20, 2020

What happened to the days of the $10 lawn mowing job or the $7-an-hour babysitting gig every Saturday night?

Not a penny withheld. No taxes to file. No stress about saving a “million dollars” for retirement. As a kid, doing household chores or helping out your friends and neighbors for a little spending money was vastly different from your grown up reality – writing checks for all those bills, paying your taxes, and buying all the things that children seem to need these days, all while trying to save as much as you can for your retirement. When you were a kid, did those concepts feel so far away that they might as well have been camped out on Easter Island?

What happened to the carefree attitude surrounding our finances? It’s simple: we got older. More opportunities. More responsibilities. More choices. As the years go by, finances get more complicated. So knowing where your money is going and whether or not it’s working for you when it gets there is something you need to determine sooner rather than later – even before your source of income switches from mowing lawns and babysitting to your first internship at that marketing firm downtown.

A great way to get a better idea of where your money is going and what it’s doing when it gets there? A financial strategy.

No message in a bottle sent from a more-prepared version of your future self is going to drift your way from Easter Island. A sound strategy for your money is essential, starting as soon as possible is better than waiting, and talking to a financial professional is a solid way to get going.

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TAN131530-0919

3 More "I Dos" for Newlyweds

3 More "I Dos" for Newlyweds

Congratulations, newlyweds!

“To have and to hold, from this day forward…”

At a time like this, there are 3 more “I dos” for you to consider:

1. Do you have life insurance?
Any discussion about life insurance is going to start with this question, so let’s get it out of the way! As invigorated as people feel after finding the love of their life…let’s face it – they’re not invincible. The benefits of life insurance include protecting against loss of income and covering funeral expenses. Many of these benefits can depend on what kind of life insurance you have. Bottom line: having life insurance is a great way to show your love for years to come – for better OR worse.

2. Do you have the right type and amount of life insurance?
Life insurance policies are not “one size fits all.” There are different types of policies with different kinds of coverage, benefits, and uses. Having the right policy with adequate coverage is the key to protecting your new spouse in the event of a traumatic event – not just loss of life. Adequate life insurance coverage and optional riders may help keep your spouse afloat in the case of an unexpected disabling injury or if long term care is needed. Your life with your spouse isn’t going to be one size fits all, and your life insurance policy won’t be either – for richer or poorer.

3. Do you have the right beneficiaries listed on your policy?
This question is particularly important if you had an existing policy before marriage. Most newlyweds opt for listing each other as their primary beneficiary, and with good reason: listing the correct beneficiary will help ensure that any insurance payout will get delivered to them – in sickness and in health.

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*Transamerica Agency Network is a marketing group with Transamerica. Insurance products are sold through United Financial Services, Inc. and affiliated Transamerica companies.

Any guarantees associated with a life insurance policy are subject to the claims paying ability of the issuing insurance company.*

TAN13296710-10.19

5 Things to Consider When Starting Your Own Business

5 Things to Consider When Starting Your Own Business
December 30, 2019

Does anything sound better than being your own boss?

Well, maybe a brand new sports car or free ice cream for life. But even a state-of-the-art fully-decked-out sports car will eventually need routine maintenance, and the taste of mint chocolate chip can get old after a while.

The same kinds of things can happen when you start your own business. There are many details to consider and seemingly endless tasks to keep organized after the initial excitement of being your own boss and keeping your own hours has faded. Circumstances are bound to arise that no one ever prepared you for!

Although this list is not exhaustive, here are 5 things to get you started when creating a business of your own:

1. Startup cost

The startup cost of your business depends heavily on the type of business you want to have. To estimate the startup cost, make a list of anything and everything you’ll need to finance in the first 6 months. Then take each expense and ask:

  • Is this cost fixed or variable?
  • Essential or optional?
  • One-time or recurring?

Once you’ve determined the frequency and necessity of each cost for the first 6 months, add it all together. Then you’ll have a ballpark idea of what your startup costs might be.

(Hint: Don’t forget to add a line item for those unplanned, miscellaneous expenses!)

2. Competitors

“Find a need, and fill it” is general advice for starting a successful business. But if the need is apparent, how many other businesses will be going after the same space to fill? And how do you create a business that can compete? After all, keeping your doors open and your business frequented is priority #1.

The simplest and most effective solution? Be great at what you do. Take the time to learn your business and the need you’re trying to fill – inside and out. Take a step back and think like a customer. Try to imagine how your competitors are failing at meeting customers’ needs. What can you do to solve those issues? Overcoming these hurdles can’t guarantee that your doors will stay open, but your knowledge, talent, and work ethic can set you apart from competitors from the start. This is what builds life-long relationships with customers – the kind of customers that will follow you wherever your business goes.

(Hint: The cost of your product or service should not be the main differentiator from your competition.)

3. Customer acquisition

The key to acquiring customers goes back to the need you’re trying to fill by running your business. If the demand for your product is high, customer acquisition may be easier. And there are always methods to bring in more. First and foremost, be aware of your brand and what your business offers. This will make identifying your target audience more accurate. Then market to them with a varied strategy on multiple fronts: content, email, and social media; search engine optimization; effective copywriting; and the use of analytics.

(Hint: The amount of money you spend on marketing – e.g., Google & Facebook ads – is not as important as who you are targeting.)

4. Building product inventory

This step points directly back to your startup cost. At the beginning, do as much research as you can, then stock your literal (or virtual) shelves with a bit of everything feasible you think your target audience may want or need. Track which products (or services) customers are gravitating towards – what items in your inventory disappear the most quickly? What services in your repertoire are the most requested? After a few weeks or months you’ll have real data to analyze. Then always keep the bestsellers on hand, followed closely by seasonal offerings. And don’t forget to consider making a couple of out-of-the-ordinary offerings available, just in case. Don’t underestimate the power of trying new things from time to time; you never know what could turn into a success!

(Hint: Try to let go of what your favorite items or services might be, if customers are not biting.)

5. Compliance with legal standards

Depending on what type of business you’re in, there may be standards and regulations that you must adhere to. For example, hiring employees falls under the jurisdiction of the Department of Labor and Federal Employment Laws. There are also State Labor Laws to consider.

(Hint: Be absolutely sure to do your research on the legal matters that can arise when beginning your own business. Not many judges are very accepting of “But, Your Honor, I didn’t know that was illegal!”)

Starting your own business is not an impossible task, especially when you’re prepared.

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TAN132972_1019

Getting Your Reindeer In a Row

Getting Your Reindeer In a Row

Dasher. Dancer. Prancer. Vixen.

Comet. Cupid. Donner. Blitzen. (And Rudolph too, of course.)

This is a holiday roll-call that’s instantly recognizable: the reindeer that pull Santa’s magical sleigh. But what if things got so hectic at the North Pole (not a stretch when you’re in charge of delivering presents to every child on Earth), that when it was time to hitch up the reindeer on Christmas Eve, they were all out of order?

Prancer. Cupid. Dasher. Comet. Dancer. Vixen. Blitzen. Donner.

Hmmm, someone’s missing… what happened to Rudolph? (Looks like he got left behind at the North Pole. In all the hubbub one of Santa’s elves forgot to review the pre-flight checklist.)

Since so much can change during the year from one crazy “Happy Holidays!” to the next, your ducks – or reindeer, that is – may not even be in a row at this point. They could be frolicking unattended in a field somewhere! And who knows where your Rudolph even is.

You know what can help with that? An annual review of your financial strategy. This review is key to keeping you on track for your unique goals. Lots of things can change over the course of a year, and your strategy could need some reorganizing. I mean, did you hear about everything that changed for Prancer? (What do you call a baby reindeer, anyway?)

Here are some important questions to consider at least once each year (or even more often):

1. Are you on track to meet your savings goals? A well-prepared retirement is a worthy goal. An annual review with a financial professional helps you make sure that nothing drove you too far off track this year, and if it did, you two can explore what can be done to get you back on the right path.

2. Do you have the potential for new savings? Did your health improve this year? Did that black mark on your driving record expire? Changes like these have the potential to positively impact your life insurance rate, but digging into your policy is important for discovering what kinds of savings might be in store for you.

3. Have your coverage needs increased? Marriage, having a child, or buying a home are all instances in which your life insurance coverage probably should be increased. Have any of these occurred for you over the last year? Have you added the new family member as a beneficiary?

If you haven’t had a chance to review your strategy this year, you can fit one in before Santa shimmies down the chimney. Which of your reindeer do you need to wrangle back into the ranks before the New Year gets going?

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Transamerica Agency Network is a marketing group with Transamerica. Insurance products are sold through United Financial Services, Inc. and affiliated Transamerica companies.

TAN132969-1019

3 Ways to Give Thanks for Loved Ones

3 Ways to Give Thanks for Loved Ones

Just saying “thanks” without giving a little thanks back tends to lose its charm when we start to lose our first teeth.

When we’re young, it seems like our parents and older siblings are just relieved that we’re learning some manners to offset our little legs swinging wildly off the chair under the dinner table, narrowly missing people’s shins. (Hey, it’s hard to sit still at big family meals when you’re that little!) All the grown up talk about far away jobs or how much you’ve grown wasn’t as stimulating as the tooth that had started to wiggle ever so slightly when you bit into some turkey… But at least you remembered to say thank you when someone passed the cranberry sauce!

As we got older, though, those conversations became easier to participate in as we shared our own stories, watched our extended family grow and mature, and then tried to wrangle our own kids into saying “thank you” when they were given a gift by a relative they hadn’t seen in a year.

The biggest lesson we learn about being thankful as we get older? It’s important to show the people we love how thankful we are for them – not just say it. We learn more about the responsibility we have to take care of the people we are thankful for. And at this time of year, we can give our thanks to them by making sure they are financially prepared if we suddenly aren’t around anymore.

Here are 3 ways you can give thanks for your loved ones:

1. Consider getting life insurance. Replacing lost income, covering funeral expenses, gaining potential tax advantages, having early access to money – these benefits of life insurance will give your loved ones a bit of financial stability and let them know how thankful you were for them. However, many of these benefits can depend on what type of life insurance you have, so taking the time to find the right type and amount of insurance for your particular needs and goals is important. Which leads us to the second way to give thanks…

2. Get the right type and amount of life insurance. Life insurance policies are not “one size fits all,” so investing your energy into this step is a key way to give thanks for your loved ones. Different types of policies have different kinds of coverage, benefits, and uses. Having the right policy with adequate coverage is the key to protecting your loved ones in the event of a traumatic event – not just the loss of life. Adequate life insurance coverage can help keep you and your loved ones afloat in the case of an unexpected disabling injury, or if you’re in need of long term care. Your life with your loved ones isn’t going to be one size fits all, and your life insurance policy won’t be either.

3. List the right beneficiaries on your policy. This question is particularly important if you haven’t looked at or updated your beneficiaries in a while. Why? Because listing the correct beneficiary will help ensure that any insurance payout will get delivered to the them. You may need to review your policy’s beneficiaries if you have recently married or divorced, had kids, or maybe even met with a cousin over the holidays who you’d like to leave a little something to!

Now that you know a little bit more about how tailored life insurance can help, how fast did it jump to the top of your “Holiday Gift Ideas” list?

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TAN132968-10.19

Putting a Wrap On the Sandwich Generation

Putting a Wrap On the Sandwich Generation
November 11, 2019

Ever heard of the “Sandwich Generation”?

Unfortunately, it’s not a group of financially secure, middle-aged foodies whose most important mission is hanging out in the kitchens of their paid-off homes, brainstorming ideas about how to make the perfect sandwich. The Sandwich Generation refers to adults who find themselves in the position of financially supporting their grown children and their own parents, all while trying to save for their futures. They’re “sandwiched” between caring for both the older generation and the younger generation.

Can you relate to this? Do you feel like a PB&J that was forgotten at the bottom of a 2nd grader’s backpack?

If you feel like a sandwich, here are 3 tips to help put a wrap on that:

1. Have a plan. In an airplane, the flight attendants instruct us to put on our own oxygen mask before helping someone else put on theirs – this means before anyone, even your children or your elderly parents. Put your own mask on first. This practice is designed to help keep you and everyone else safe. Imagine if half the plane passed out from lack of oxygen because everyone neglected themselves while trying to help other people. When it comes to potentially having to support your kids and your parents, a tailored financial strategy that includes life insurance and contributing to a retirement fund will help you get your own affairs in order first, so that you can help care for your loved ones next.

2. Increase your income. For that sandwich, does it feel like there’s never enough mayonnaise? You’re always trying to scrape that last little bit from the jar. Increasing your income would help stock your pantry (figuratively, and also literally) with an extra jar or two. Options for a 2nd career are everywhere, and many entrepreneurial opportunities let you set your own hours and pace. Working part-time as your own boss while helping to get out of the proverbial panini press? Go for it!

3. Start dreaming again. You may have been in survival mode for so long that you’ve forgotten you once had dreams. What would you love to do for yourself or your family when you have the time and money? Take that vacation to Europe? Build that addition on to the house? Own that luxury car you’ve always wanted? Maybe you’d like to have enough leftover to help others pursue their goals.

And remember: It’s not too late to start feeling less like baloney and more like a Monte Cristo.

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TAN131528-0919

Are you sure about this?

Are you sure about this?
September 23, 2019

Nearly every working adult dreams of a comfortable retirement, to finally be free to enjoy life.

If you’re approaching retirement age, it’s important to check on your numbers to be sure you’ve considered all the factors. If you’re younger, it might be difficult to know exactly how much to save. Think of it this way: strive to put away as much as you can.

What age do you want to retire?
Social Security can play a big role in retirement income, and the difference on a monthly basis between taking a benefit at age 62, 65, or waiting until age 70 to begin drawing benefits can be substantial.[i] If you choose to wait until 70 to take benefits, the total amount paid is comparable for all three options. However, from a cash-flow perspective, the bump in pay could be valuable when the monthly bills arrive in the mail.

How long will your money last?
One rule of thumb for knowing how much to take out of your retirement account each year is the “4% rule”.[ii] As its name suggests, you would withdraw 4% of your retirement savings each year. If you have a larger amount saved, your “income” from your retirement savings will be higher. The 4% rule is designed to prepare for 30 years of income after retirement. Of course, if your expenses are higher than your income, the money has to come from somewhere, potentially drawing your savings down faster – and that’s where many people get into trouble. Save as much as you can now.

Are you prepared for your health care needs?
The cost of health care for a couple retiring at age 65 varies, with estimates ranging between $197,000 and $265,000.[iii] This is the expense that often catches retirees by surprise. It’s relatively easy to budget for housing, food, utilities, and other essentials but medical care costs can vary widely and your actual expenses can be much higher or lower than average estimates.

By building a strategy for income from multiple sources, you’ll be much better prepared for retirement. Taking the time to prepare now is essential. Once you leave the workforce there might be less room for mistakes and fewer ways to earn additional income. When it’s time to retire, you’ll find that there’s no such thing as too much when it comes to retirement savings.

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Do I Need Life Insurance?

Do I Need Life Insurance?
September 19, 2019

It might be uncomfortable to think about the need for life insurance, but it’s an important part of your family’s financial strategy.

It helps protect your family during the grieving process, gives them time to figure out their next steps, and can provide income to cover normal bills, your mortgage, and other unforeseen expenses.

Here are some guidelines to help you figure out how much is enough to help keep your family’s future safe.

Who needs life insurance?
A good rule of thumb is that you should get life insurance if you have financial dependents. That can range from children to spouses to retired parents. It’s worth remembering that you might provide financial support to loved ones in unexpected ways. A stay-at-home parent, for instance, may cover childcare or education costs. Be sure to take careful consideration when deciding who should get coverage!

What does life insurance cover?
Life insurance can be used to cover a variety of unexpected expenses. Funeral costs or debts can potentially be financial and emotional strains, as can the loss of a steady income and employer-provided benefits. Think of life insurance as a buffer in these situations. It can give you a line of defense from financial concerns while you process your loss and prepare for the future.

How much life insurance do you need?
Everyone’s situation is different, so consider who would be financially impacted in your absence and what their needs would be. If you’re single with no children, you may only need enough insurance to cover funeral costs and pay off any debts.

If you’re married with children, consider how long it might take your spouse to get back on their feet and be able to support your family, how much childcare and living expenses might be, and how much your children would need to attend college and start a life of their own. A rule of thumb is to purchase 10 times as much life insurance as income you would make in a year. For instance, you would probably buy a $500,000 life insurance policy if you make $50,000 a year. (Note: Be sure to talk with a qualified and licensed life insurance professional before you make any decisions.)

An older person with no kids at home may want to leave behind an inheritance for their children and grandchildren, or ensure that their spouse is cared for in their golden years.

A business owner will need a solid strategy for what would happen to the business in the event of their death, as well as enough life insurance to help ensure that employees are paid and the business can either be transferred or closed with costs covered.

Life insurance may not be anyone’s favorite topic, but it can be a lifeline to your family in the event that you are taken from them too soon. With a well thought out life insurance policy for you and your situation, you can rest knowing that your family’s future has been prepared for.

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TAN253294-0320

Should you get rid of your credit cards?

Should you get rid of your credit cards?
September 18, 2019

There’s no doubt that credit card debt is a huge financial burden for many Americans.

On average, each household that has revolving credit card debt owes $7,104 (1).It might be tempting to see those numbers and decide to throw out your credit cards entirely.After all, why hang on to a source of temptation when you could make do with cash or a debit card? However, keeping a credit card around has some serious benefits that you should consider before you decide to free yourself from plastic’s grasp.

You might have bigger debts to deal with
On average, credit card debt is low compared to auto loans (​$27,934), student loans ($46,679),and mortgages ($192,618) (2). Simply put, you might be dealing with debts that cost you a lot more than your credit card. That leaves you with a few options. You can either start with paying down your biggest debts (a debt avalanche) or get the smaller ones out of the way and move up(a debt snowball). That means you’ll either tackle credit card debt first or wait while you dealwith a mortgage payment or student loans. Figure out where to start and see where your credit card fits in!

Ditching credit cards can lower your credit score
Credit utilization and availability play a big role in determining your credit score (3). The less credit you use and the more you have available, the better your score will likely be. Closing down a credit card account may drastically lower the amount of credit you have available, which then could reduce your score. Even freezing your card in a block of ice can have negative effects; credit card companies will sometimes lower your available credit or just close the account if they see inactivity for too long (4). This may not be the end of the world if you have another line of credit (like a mortgage) but it’s typically better for your credit score to keep a credit card around and only use it for smaller purchases.

It’s often wiser to limit credit card usage than to ditch them entirely. Figure out which debts are costing you the most, and focus your efforts on paying them down before you cut up your cards. While you’re at it, try limiting your credit card usage to a few small monthly purchases to protect your credit score and free up some extra funds to work on your other debts.

Need help coming up with a strategy? Give me a call and we can get started on your journey toward financial independence!

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(1). Erin El Issa, “Nerdwallet’s 2019 American Household Credit Card Debt Study,” Nerdwallet, December 2, 2019 (2). Erin El Issa, “Nerdwallet’s 2019 American Household Credit Card Debt Study,” Nerdwallet, December 2, 2019 (3). Latoya Irby, “Understanding Credit Utilization: How Your Usage Affects Your Credit Score,” The Balance, February 20, 2020 (4). Lance Cothern, “Will My Credit Score Go Down If A Credit Card Company Closes My Account For Non-Use?” March 2, 2020


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Turn your hobby into a side gig

Turn your hobby into a side gig
September 3, 2019

Do you have a hobby that you really love? Could you use a little extra cash?

What if you could get paid for doing something that you already enjoy doing? We’re all good at something. Many people have turned their hobbies into a side business as a way to earn extra money. For nearly everyone, there’s a topic they know well or a skill they have that many other people don’t have. That niche can spell opportunity – and a chance to turn something you enjoy doing anyway into a money-maker.

Depending on the type of hobby you want to monetize, your startup expenses may be quite low. For writing, coding, or graphic design, you might only need a laptop or tablet – something you may already have. If your hobby is fixing up old cars, however, you might need a place to do the work – possibly adding to the expense. For that scenario, you could check out the possibility of putting in a couple of Saturdays per month at a local shop to help save on rent and insurance costs.

With a little ingenuity, you might be able to earn $10 to $40 (or maybe more) per hour doing work you enjoy. Artists can earn extra money by selling arts and crafts items on specialized sites like Etsy.com. Freelance writers, coders, designers, and even teachers can find work on Upwork.com, Fiverr.com, and similar websites that bring clients and service providers together. Have you been on eBay.com lately? Would you bet that many of those successful eBay sellers began as hobbyists? If you have a knack for knowing what’s valuable, you may be able to turn garage sale and estate sale buys into a rewarding business. (Hint: If this is something you’d like to try, start out small. Concentrate on one type of item that might be near and dear to you, like brass musical instruments, or antique mason jars.)

The old saying that asserts “knowledge is power” applies here as well. Let’s say your childhood fascination with dinosaurs never quite went extinct. Maybe there’s a successful educational blog or a YouTube channel in your future. Technology has given us the power to reach a larger audience than ever before and to bring our knowledge to anyone who wants to learn more. Sharing what you know can be monetized in many ways and – if you love doing it – you might not feel like you’re working at all!

Do your research and understand any legal or insurance requirements that may apply to the area you want to get into, but don’t let a little legwork bar the way to your next great endeavor – even if it just starts as a side gig.

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Opportunity cost and your career

Opportunity cost and your career
August 26, 2019

“Opportunity cost” refers to what you can potentially lose by choosing one option over another – even when you aren’t thinking about it.

Nearly every choice you make precludes something else that might have been.

Opportunity cost exists in everything from relationships to finances to career choices, but here we’ll focus on that last one. Over a lifetime, the cost of career decisions can be massive.

The math
For opportunity costs that can be measured, usually in dollars, there’s even a math equation.

What I sacrifice / What I gain = Opportunity cost[i]

Let’s say you have two career choices. One is to work as a mechanic at $50 per hour and the other is to work as a karate instructor at $20 per hour.

Opportunity A / Opportunity B = Opportunity cost

Here it is with numbers: $50 / $20 = $2.50

To translate that, for every $1 you earn as a karate instructor, you could have earned $2.50 as a mechanic. The ratio remains the same whether it’s for one hour worked or 1,000 hours worked because it’s based on earnings per hour.

Adding a time element
We can only work a certain number of hours in a week and we can only work for a certain number of years in a lifetime. Adding time into the discussion doesn’t change the math relationship between the opportunities but it does recognize real-world constraints. Sometimes these limits are by choice. You could be both a full-time mechanic and a full-time karate instructor, but most people don’t want to work 80 hours per week.

Something has to give, and that’s where considering opportunity cost comes in. If you only want to work 40 hours in a week, you’ll have to choose one career over the other or split your time between the two. But even in splitting your time, there is an opportunity cost. Think about it like this: Every hour spent in a lower paying job costs money if you had an opportunity to earn more doing something else.

The bigger picture
In our example using the mechanic vs. the karate instructor, the difference in annual income is over $60,000 per year ($104,000 minus $41,600). Over a 40-year working career, the difference in earnings is nearly $2.5 million, and it all happened one hour at a time.

Life balance
Your career choice shouldn’t just be about money – you should do something you enjoy and that gives you satisfaction. There may be several other considerations as well – like opportunity to travel, the kind of people you work with, and the greater contribution you can make to the world. However, if there are two choices that meet all your criteria but one pays a bit more, just do the math!

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The state of financial literacy

The state of financial literacy
August 5, 2019

We learn a lot of things in school, some of which are useful later in life, some of which are hurriedly memorized and then promptly forgotten, and some of which barely get a passing glance.

In decades past, financial literacy wasn’t an emphasis in school curriculum – unless you include the odd math problem that involved interest rate calculations. For all our years of education, as a nation we were woefully unprepared for one of the largest challenges in adult life: financial survival.

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

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

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

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

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

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

Another useful resource can be found through InCharge, a debt solution organization that has also invested in creating a large collection of financial literacy resources.[iv] So if you feel like you haven’t learned quite as much about money and finances that you wish you had in school, contact me so that we can explore how money works together, and I can help you put a strategy in place for you and your family!

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What to do first if you receive an inheritance

What to do first if you receive an inheritance
July 31, 2019

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

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

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

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

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

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

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

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

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

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

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

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

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Understanding credit card interest

Understanding credit card interest
July 24, 2019

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

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

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

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

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

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

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

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

Some of the multiplied numbers below might look alarming, but after we divide by the number of days in the billing cycle (30), we’ll have the average daily balance.
($9,000 + $15,000 + $13,600 + $3,000)/30 = $1,353.33 (the average daily balance)
Here’s an eye-opener: If the $1,000 ending balance isn’t paid in full, interest is charged on the $1353.33, not $1,000.

We’ll also assume an interest rate of 15%, which gives a periodic (daily) rate of 0.00041095.
$1,353.33 x (0.00041095x30) = $16.68 finance charge

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

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

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

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Behind the curtain: How your insurance premium is determined

Behind the curtain: How your insurance premium is determined
July 22, 2019

Ever wonder why you’re paying the premium you’re paying?

It’s not arbitrary. Read on to take a peek into some factors that can determine the amount you’ll pay.

An insurance company issues contracts that provide coverage in the form of compensation due to a covered financial loss in exchange for premium payments. Insurance companies use statistics and probability projections to determine how much money someone should pay based on the probability that person will make an insurance claim. Those more likely to make a claim are typically required to pay a higher premium.

How insurance works
The concept itself is relatively simple: bad things happen sometimes and people want to avoid financial ruin that could arise from those bad things. To maintain peace of mind, or sometimes by law, people will obtain insurance to reduce the risk of ruin. People also use insurance to “make themselves whole” again after financial issue, such as a car accident or the loss of income.

All those who want to obtain insurance apply to be part of a pool. The insurance company then calculates how many people are in the pool, how much money they’ll probably need to pay insurance claims, then calculate each individual’s risk to the company.

Which factors affect premiums
Which factors affect premiums vary widely across insurance types. Driving style and vehicle value are obvious determining factors in car insurance. But so are other factors you may not be able to change, like location: those who commute to work spend more time in their cars and thus increase the probability of having an accident, simply for being in the car longer.

Health and life insurance focus on healthy lifestyles. If you’re more likely to live longer and require less medical attention, the lower your premiums. Renters and homeowners insurance consider the value of the property and the contents therein. Insurance plans will also vary based on the amount of coverage they offer. If your fire insurance only covers $2,000 worth of possessions, all things being equal, you’re probably going to pay a lower premium than someone who wants $20,000 of coverage.

Reducing your premiums
To avoid frequently making lower-risk members pay for the claims of higher-risk members, not everyone is thrown together in the same pool. If you can adjust your personal risk factors so that you’re entered into a different pool, you might see substantial reductions in your insurance premium. Your insurance company or agent should be able to help you identify which factors you score high for in riskiness so you can try to reduce your costs.

For example, if you smoke, quitting may greatly reduce your premiums (although you may have a waiting period like 12 months after you quit in order to qualify as a non-smoker). If you have several speeding tickets, ask how much a driving school certificate might help reduce your premiums.

The takeaway here is that your riskiness is based on a quantification of factors and the probability that any one of those factors will trigger a claim. Changes you can make in your lifestyle may add up to significant savings with your premiums, so it’s worth looking into!

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Got debt? Throw a snowball at it!

Got debt? Throw a snowball at it!

Most of us wish we could be debt free, but it seems like a dream reserved for a few financial wizards.

After all, it’s hard to find a family that doesn’t have debt hanging over them. In this day of easy credit and deferred interest, it’s not hard to accumulate sizable financial obligations.

It is possible, however, to become debt free. One method, the so-called “snowball” method, can be an effective way to get on top of those seemingly never-ending payments. When you think about tackling your debt, it might make sense to pay off the obligation you have at the highest interest rate first, when you look at it mathematically. But sometimes the highest interest rate debt may also be the largest amount you have to deal with, which might create frustration if the balance is going down too slowly.

The debt snowball method can seem counterintuitive because it doesn’t always follow the math, since in most cases, the math favors paying down the debt with the highest interest rate first. The snowball method instead focuses on building momentum – the idea that small successes can lead to larger successes. Paying off the smallest balance first can build momentum to plow through the next largest balance, then the next one and so forth – like a snowball gaining size and speed as it rolls down a hill.

To restate, once you’ve paid off the smallest balance, more cash is available to put toward the next smallest amount. After the second smallest amount is paid off, the cash you freed up by paying off the first two debts can now be applied to the third largest balance.

The snowball method of debt repayment is intended to help simplify the process of becoming debt free. Because you’re starting with smaller balances and working your way up, your mortgage (if you have one) would be one of the last balances to tackle. Some financial experts might recommend leaving the mortgage out of your snowball payments altogether, but that’s up to you and how ambitious you are!

Ready to start?
First, remind yourself it may take some time to get your debt to zero, but hang in there. If you stick to your strategy, you can make great strides toward financial freedom!

Second, make a list of your debts and sort them by size from lowest to highest. Then, pay the minimum on all the balances except the smallest one, and put as much as you can towards that one. Let’s say the payment you’re making on the smallest balance is $20. Once that balance is paid off, add that $20 to whatever you were paying toward the next smallest balance. Let’s say that balance has a minimum payment of $30. That means you can now put $50 a month toward it to knock it out faster.

When the second balance is paid off, you’ll have an extra $50 a month you can put towards the third highest balance.

See the snowball? Keep going! Over time, you should have enough momentum and freed up cash available to really make a dent in your debt.

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