Learn how to get an edge on your saving, spending and borrowing strategies when rates rise or fall.
The post How Does the Federal Reserve Interest Rate Affect Me? appeared first on Discover Bank – Banking Topics Blog.
Continue readingLearn how to get an edge on your saving, spending and borrowing strategies when rates rise or fall.
The post How Does the Federal Reserve Interest Rate Affect Me? appeared first on Discover Bank – Banking Topics Blog.
Continue readingI received a great email from Magen L., who says:
I no longer have any retirement savings because I cashed it all out to pay my debt. We also sold our home and moved into an apartment just as the pandemic was hitting. With the sale of our house, the fact that my husband is working overtime, and the stimulus money, we've saved nearly $10,000 and should have more by the end of the year. My primary question is, what should we do with it?
Right now, I have our extra money in a low-interest bank savings [account], and I'm considering moving it to a high-yield savings [account] as our emergency fund. Is that a good idea? For additional money we save, I intend to use it as a down payment on a new house. However, should I be investing in Roth IRAs instead? What is the best option?
Another question comes from Bianca G., who says:
I have zero credit card debt, but I have a car loan and a student loan. I will be receiving a large amount of money sometime next year. If my fiancé and I want to buy a home, is it better to pay off my car first and then my student loan, or should I just pay down a big portion of my student loan?
Thanks Megan and Bianca for your questions. I'll answer them and give you a three-step plan to prioritize your extra money and make your finances more secure. No matter if you're a good saver or you get a cash windfall from a tax refund, an inheritance, or the sale of a home, extra money should never be squandered.
Maybe you're like Magen and have extra cash that could be working harder for you, but you're not sure what to do with it. You may even be paralyzed and do nothing because you have a deep-seated fear of making a big mistake with your cash.
In some cases, having your money sit idle is precisely the right financial move. But it depends on whether or not you've accomplished three fundamental financial goals, which we'll cover.
To know the right way to manage extra cash, you need to step back and take a holistic view of your entire financial life.
To know the right way to manage extra cash, you need to step back and take a holistic view of your entire financial life. Consider what you're doing right and where you're vulnerable.
Try using a three-pronged approach that I call the PIP plan, which stands for:
Let's examine each one to understand how to use the PIP (prepare, invest, and pay off) approach for your situation.
The first fundamental goal you should have is to prepare for the unexpected. As you know, life is full of surprises. Some of them bring happiness, but there's an infinite number of devastating events that could hurt you financially.
In an instant, you could get fired from your job, experience a natural disaster, get a severe illness, or lose a spouse. If 2020 has taught us anything, it's that we have to be as mentally, physically, and financially prepared as possible for what may be around the corner.
While no amount of money can reverse a tragedy, having safety nets can protect your finances. That makes coping with a tragedy easier.
Getting equipped for the unexpected is an ongoing challenge. Your approach should change over time because it depends on your income, debt, number of dependents, and breadwinners in a family.
While no amount of money can reverse a tragedy, having safety nets—such as an emergency fund and various types of insurance—can protect your finances. That makes coping with a tragedy easier.
Everyone should accumulate an emergency fund equal to at least three to six months' worth of their living expenses. For instance, if you spend $3,000 a month on essentials—such as housing, utilities, food, and debt payments—make a goal to keep at least $9,000 in an FDIC-insured bank savings account.
While keeping that much in savings may sound boring, the goal for an emergency fund is safety, not growth. The idea is to have immediate access to your cash when you need it. That's why I don't recommend investing your emergency money unless you have more than a six-month reserve.
The goal for an emergency fund is safety, not growth.
If you don't have enough saved, aim to bridge the gap over a reasonable period. For instance, you could save one half of your target over two years or one third over three years. You can put your goal on autopilot by creating an automatic monthly transfer from your checking into your savings account.
Megan mentioned using high-yield savings, which can be a good option because it pays a bit more interest for large balances. However, the higher rate typically comes with limitations, such as applying only to a threshold balance, so be sure to understand the account terms.
Another critical aspect of preparing for the unexpected is having enough of the right kinds of insurance. Here are some policies you may need:
RELATED: How to Create Foolproof Safety Nets
Once you get as prepared as possible for the unexpected by building an emergency fund and getting the right kinds of insurance, the next goal I mentioned is investing for retirement. That’s the “I” in PIP, right behind prepare for the unexpected.
Investments can go down in value—you should never invest money you can’t live without.
While many people use the terms saving and investing interchangeably, they’re not the same. Let’s clarify the difference between investing and saving so you can think strategically about them:
Saving is for the money you expect to spend within the next few years and don’t want to risk losing it. In other words, you save money that you want to keep 100% safe because you know you’ll need it or because you could need it. While it won’t earn much interest, you’ll be able to tap it in an instant.
Investing is for the money you expect to spend in the future, such as in five or more years. Purchasing an investment means you’re exposing money to some amount of risk to make it grow. Investments can go down in value; therefore, you should never invest money you can’t live without.
In general, I recommend that you invest through a qualified retirement account, such as a workplace plan or an IRA, which come with tax benefits to boost your growth. My recommendation is to contribute no less than 10% to 15% of your pre-tax income for retirement.
Magen mentioned Roth IRAs, and it may be a good option for her to rebuild her retirement savings. For 2020, you can contribute up to $6,000, or $7,000 if you’re over age 50, to a traditional or a Roth IRA. You typically must have income to qualify for an IRA. However, if you’re married and file taxes jointly, a non-working spouse can max out an IRA based on household income.
For workplace retirement plans, such as a 401(k), you can contribute up to $19,500, or $26,000 if you’re over 50 for 2020. Some employers match a certain percent of contributions, which turbocharges your account. That’s why it’s wise to invest enough to max out any free retirement matching at work. If your employer kicks in matching funds, you can exceed the annual contribution limits that I mentioned.
RELATED: A 5-Point Checklist for How to Invest Money Wisely
Once you're working on the first two parts of my PIP plan by preparing for the unexpected and investing for the future, you're in a perfect position also to pay off high-interest debt, the final "P."
Always tackle your high-interest debts before any other debts because they cost you the most. They usually include credit cards, car loans, personal loans, and payday loans with double-digit interest rates. Remember that when you pay off a credit card that charges 18%, that's just like earning 18% on an investment after taxes—pretty impressive!
Remember that when you pay off a credit card that charges 18%, that's just like earning 18% on an investment after taxes—pretty impressive!
Typical low-interest loans include student loans, mortgages, and home equity lines of credit. These types of debt also come with tax breaks for some of the interest you pay, making them cost even less. So, don't even think about paying them down before implementing your PIP plan.
Getting back to Bianca's situation, she didn't mention having emergency savings or regularly investing for retirement. I recommend using her upcoming cash windfall to set these up before paying off a low-rate student loan.
Let's say Bianca sets aside enough for her emergency fund, purchases any missing insurance, and still has cash left over. She could use some or all of it to pay down her auto loan. Since the auto loan probably has a higher interest rate than her student loan and doesn't come with any tax advantages, it's wise to pay it down first.
Once you've put your PIP plan into motion, you can work on other goals, such as saving for a house, vacation, college, or any other dream you have.
Here are five questions to ask yourself when you have a cash windfall or accumulate savings and aren’t sure what to do with it.
Having some emergency money is critical for a healthy financial life because no one can predict the future. You might have a considerable unexpected expense or lose income.
Without emergency money to fall back on, you're living on the edge, financially speaking. So never turn down the opportunity to build a cash reserve before spending money on anything else.
Getting a windfall could be the ticket to getting started with a retirement plan or increasing contributions. It's wise to invest at least 10% to 15% of your gross income for retirement.
Investing in a workplace retirement plan is an excellent way to set aside small amounts of money regularly. You'll build wealth for the future, cut your taxes, and maybe even get some employer matching.
Don't have a job with a retirement plan? Not a problem. If you (or a spouse when you file taxes jointly) have some amount of earned income, you can contribute to a traditional or a Roth IRA. Even if you contribute to a retirement plan at work, you can still max out an IRA in the same year—which is a great way to use a cash windfall.
If you have expensive debt, such as credit cards or payday loans, paying them down is the next best way to spend extra money. Take the opportunity to use a windfall to get rid of high-interest debt and stay out of debt in the future.
After you’ve built up your emergency fund, have money flowing into tax-advantaged retirement accounts, and are whittling down high-interest debt, start thinking about other financial goals. Do you want to buy a house? Go to graduate school? Send your kids to college?
Review your financial situation at least once a year to make sure you’re still on track.
When it comes to managing extra money, always consider the big picture of your financial life and choose strategies that follow my PIP plan in order: prepare for the unexpected, invest for the future, and pay off high-interest debt.
Review your situation at least once a year to make sure you’re still on track. As your life changes, you may need more or less emergency money or insurance coverage.
When your income increases, take the opportunity to bump up your retirement contribution—even increasing it one percent per year can make a huge difference.
And here's another important quick and dirty tip: when you make more money, don't let your cost of living increase as well. If you earn more but maintain or even decrease your expenses, you'll be able to reach your financial goals faster.
Continue readingWhen selling your home, it’s important to ensure the space is safe for you, your family, potential buyers, and your agent. Our safety checklist will help you create a safe environment before their home ever hits the market!
The post Selling Your Home? Read this Listing Safety Checklist First! appeared first on Homes.com.
Continue readingTable of Contents What is the VA Loan Limit? How to Apply for a VA Home Loan? What is the Median Home Price? What are the VA Appraisal Fees? Do I need Flood Insurance? How do I learn about Property Taxes? What is the Population? What are the major cities? About Benton County Veteran Information […]
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Continue readingThe Free Application for Federal Student Aid is a form that students must submit each year if they need federal assistance for their undergraduate or graduate school courses. You may also need to fill out the FAFSA if you’re interested … Continue reading →
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Continue readingSo, you’ve finally found your dream house. Sure, it may need a little work — okay, a lot of work — but you’re confident it will all be worth it in the end. That is, until your home renovation projects start to go down the toilet (or worse, the toilet starts falling through the floor). Here’s how to know if the home you are considering could be a great investment, or just a great way to empty your wallet. Is A Fixer-Upper the Right Choice For You? The right fixer-upper can be a great investment and a lot of fun. The rise of seemingly simple, yet stylish home renovation television shows has made many homeowners eager to transform rough diamonds into neighborhood jewels. Couple this with the improved job market and an upswing in home values, and you have a tidal wave of homeowners willing to invest in fixer-upper dwellings. In 2018, homeowners reported an average of $7,560 or more on major home improvements, up 17% over the previous year. But that doesn’t mean that these projects always go as planned — not everything gets wrapped up as quickly and neatly as it does on television. The same Home Advisor study shows an average of $416 on emergency spending. What many homeowners believe to be a simple “fixer-upper” can quickly turn into a “money pit,” transforming a dream project into an expensive nightmare. Denise Krogman is a general contractor, designer and co-owner with her husband Rob, at RDK Design and Build, LLC. Krogman knows that whether you’re looking to buy a fixer-upper in the near future or remodel your current home, it’s worth paying attention to what separates a fixer-upper from an endless money pit. The right fixer-upper can be a great investment and a lot of fun. But with every remodel there will be the unplanned, unforeseen incidentals that arise. If it needs more than a little ‘fixing up,’ you could find yourself in the midst of a complete remodel or a total scrap. Fixer-Uppers vs. Money Pits The first step to understanding what makes a home a fixer-upper is defining the term. Generally speaking, a fixer-upper is a house that doesn’t have serious problems and can be quickly and inexpensively refreshed, says Thomas Baker, building technology editor at This Old House. Homeowners who have a big budget, a high level of DIY skills, and plenty of free time may reasonably see any house in deplorable condition as a “fixer-upper.” However, even these skilled, experienced homeowners who are initially excited about a big project may fail to properly plan for a remodel. Without thorough research and planning, many homeowners are likely to exceed their spending limit and wind up with a money pit. Baker separates remodel-ready homeowners into two personas: the visionary and the accountant. A visionary homeowner is someone who is emotionally invested in their property and can tolerate higher expenditures in order to execute their ‘vision.’ He or she isn’t worried about the resale value. An accountant weighs each cost of improvement against the likelihood of getting a return on investment at the time of sale. Ideally, homeowners should strike a balance between these two extremes, taking care not to risk their financial futures with unsustainable expenditures on improvements, but also acting as a steward, putting something back into the house so that future generations can enjoy what it has to offer. A professional home builder, general contractor, or home inspector can help a homeowner assess the condition of the home before breaking ground and help keep a project in line once it’s begun. Having that person come aboard your planning process is a great step to take. But what should they, and you, be looking for when it comes to fixer-upper warning signs? Looking to get started with your dream home project? Check out our guide to the financial documentation and other paperwork you’ll need to begin the home loan process. Fixer-Upper Red Flags If you are committed to buying a home with a few imperfections, how do you know when those imperfections go from fixable to serious deal-breakers? When purchasing a fixer-upper, a homeowner should always look beyond the surface, says Sarah Boardman-Miller, an interior designer and construction consultant. It’s important to distinguish between a home with a lot of “cosmetic” needs, as opposed to those that need major (think structural) overhauls. Depending on the ‘fix-up’ budget, one can look past a dated or poorly laid out kitchen or bath. I like a house that has not been touched. It might be dated and original everything, but these are usually good houses. Do your homework. Was the previous owner there for 40 years? Is it clean? Well-kept? When most people watch the [TV] shows, so much of the process is cosmetic … from new cabinets, to counter tops, lighting and tile. Often homes are simply outdated, are decorated in poor taste, or just in need of a little TLC. Cosmetic fixes can be quick and cost-effective, and completely change the look of the house. That being said, homeowners should stay on the lookout for any red flags. Both Krogman and Boardman-Miller say foundational issues, roofing repairs or replacement, and electrical or plumbing problems may require “gutting,” which can send a home remodeling project into an expensive tailspin. Krogman adds that her team is careful about homes that need footprint changes, such as the removal or addition of walls or entire rooms. It’s best if the changes are minor. To avoid any surprises, it’s important to invest in a thorough home inspection, says Krogman. Always request an inspection from a highly reputable company. It’s worth the extra expense. Be sure to ask a lot of questions and get documentation. When was the roof last replaced? Have there been any electrical or plumbing fixes? If there was any previous remodeling done, was it done by a reputable general contractor? And look for cracks in the foundation, sinking sidewalks, water spots or damages in the drywall. Those fixes or changes are rarely minor and can become quite costly. Frank Lesh, an experienced home inspector who works for the certifying agency American Society of Home Inspectors, has two potential problems he wants homeowners to check for within their possible fixer-upper. First, he says, examine the exterior. Take a look at the big picture. If it’s sitting in a valley, the home may be at risk for water problems. Then I look at the general maintenance of the house exterior. Not whether there’s new paint, or flowers, but if the gutters and downspouts are in good condition and directed away from the house and if the roof is in reasonable shape. Next, inspect for insects. Termites and carpenter ants can gnaw away at the bones of a home. It takes an expert insect inspection to discover the extent of the damage, to check behind finished walls and ceilings and to see if bugs are in the walls and subfloors. A house is made of wood, and that’s what they eat. A good pest inspector can hear them or use infrared to see if they’re giving off heat behind the walls. Manage Your Remodeling Expectations One of the biggest dilemmas homeowners face when dealing with a fixer-upper is managing their expectations. Even when a home remodel is expertly planned, problems may still arise, Boardman-Miller says. It is all about expectations and the ability to roll with what is happening. You have to focus on what needs to be done and cut out the extras that you may have been planning. Be realistic and stay on budget. If you do your homework, you could end up with a fair amount of equity in the finished house and get what you really want. Baker says one of the most important things homeowners can do to avoid these costly issues is research, first into the home purchase process, then into contractors, home designers, and home improvement costs. Find a contractor/carpenter who loves to work on houses and whom you can trust to make good decisions on your behalf. Without trust, these projects can become a nightmare. Take your time. Watch home TV shows, read magazines, talk to contractors, and go to the web to become an expert on the topic [of remodeling]. When homeowners embark on a home renovation the risks are great, but the rewards are even sweeter when everything is well planned and executed, Krogman says. One man’s junk is always another’s treasure, so not only can you benefit financially, but you can give back by creating a beautiful home for your own family, or for someone else. CHECKLIST: Tricks for Separating Fixer-Uppers from the Money Pits Get a thorough home inspection Determine whether improvements are structural or cosmetic Do your research on what you’d specifically like done Talk to your contractor/designer and get a plan in writing Financially prepare for unforeseen issues Manage your expectations and stay on budget How do you know a home’s true value? Get a fast, no-obligation home estimate using our free tool. Getting From ‘Before’ to ‘After’ Without Going Broke At the end of a well-planned remodeling project, you can end up with the home features you want for a lower cost than the amount of equity you gained. It’s also possible that a lack of insight into your process and potential costs could leave you with an underwater (and maybe even unfinished) home, so it’s essential to make sure you know the facts before you swing a single hammer. But don’t let those potential pitfalls scare you away from a great opportunity for a smart investment. Just make sure you follow the checklist above and do the necessary homework to give yourself the best chance to come out ahead of the game. Have you done your research and know of a great home you can benefit from investing in? If you are ready to explore buying your own fixer-upper, take the first step and get pre-approved online or contact a PennyMac Loan Officer today to discuss your options. The views, information, or opinions expressed in this blog do not necessarily represent those of PennyMac Loan Services, LLC and its employees. The inclusion of links to third party sites is not intended to assign importance to those sites or to the information contained therein, nor is it intended to endorse, recommend, or favor any views expressed, or commercial products or services offered on these third party sites, or the vendors sponsoring the sites.
Continue readingFitch and Trepp reported that overall commercial mortgage-backed security delinquencies were down, while the MBA reported a slight increase.
Continue readingConventional loans have a few basic property standards, but no in-depth home condition requirements. You likely want a home inspection anyway.
Continue readingFannie Mae and Freddie Mac’s 0.5% refinance fee is delayed until December 1. But to avoid the fee and higher refinance rates, you need to apply sooner than that.
Continue readingNot knowing your mortgage rate can be an expensive mistake, especially in this rising interest rate market.
Yet nearly three-in-10 mortgage borrowers (29 percent) either didn’t know their mortgage rate or wouldn’t say, according to a survey by Bankrate.
This is a big problem, says Martin Choy, operations manager at Westwood Mortgage in Seattle.