consumer-debt-trap

Crawling Out of the Consumer Debt Trap

The average American currently carries between $10,000 and $15,000 in consumer debt, and this includes credit cards, store cards, auto loans, personal loans and any other amounts owing that don’t include mortgage payments. If only the minimum required payment is made on debt of this amount, it would take a whopping 13.5 years to repay it in full – and this is if no additional debt is accrued during this time.

Regardless of the type of debt you’re carrying, there are steps you can take that will help you get out of the consumer debt trap once and for all.

Pay More than Minimum Required Installments

One of the best ways to eliminate consumer debt as quickly as possible is to pay more than the required minimum balances on any outstanding amounts. This will not only reduce the amount of time you’ll need to pay a bill in full; you will also save a significant amount of interest while repaying your debt.

Consider Using the Debt Snowball Method

This process involves paying as much as you can on your smallest consumer debt, while ensuring that minimum repayments are still being met on the others that still need to be repaid. 

Start by listing all of the consumer debts you’re currently carrying, from the smallest amount owing up to the largest. Do everything you can to pay as much as possible off on your smallest debt each month. Once the smallest debt has been fully repaid, take the amount you were paying towards it and include it on the minimum amount you were paying on the next smallest outstanding debt. 

An alternative approach here can be to get the debts with the highest interest rates paid first – this will help save a lot of money over the long term.

Stick to a Tight Budget

After deciding that you want to eliminate your consumer debt, you’ll need to examine your budget carefully – if you don’t have a budget outlined, now is the time to address this issue. 

Start by collecting bank account statements and carefully check each line item – this will allow you to see how your hard-earned cash is being spent each month. While those drive-through coffees and $10 lunches may not seem like a lot of money, they quickly add up, especially if it becomes a regular habit to indulge in them. 

Subscriptions to the fastest internet packages (slower options usually get the job done just as effectively but for a fraction of the price), online streaming, club memberships, monthly box deliveries and any other recurring expenses that aren’t genuine essentials should be eliminated from your budget until your debt is fully repaid. 

Once your debts have been paid in full, you’ll be able to re-examine your budget to determine how much money can be set aside for discretionary expenses. 

Although you may think that you’ll be depriving your family of the ‘nice to haves’ while you’re dealing with your outstanding consumer debt, the truth is that your whole family will enjoy far greater peace of mind in knowing that you’ll now be able to start saving for a rainy day instead of stressing about trying to make ends meet each month. 

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credit-cards-retirement

Are you Really Benefiting from those Credit Cards?

These days, a number of rewards-based credit cards are available to consumers and incentives such as air miles, discounts on store-specific purchases have never been easier to obtain – or so it seems. While many of these cards may seem to provide extremely attractive incentive options, it’s crucial to read the fine print associated with each of them before signing up.

Those Rewards Likely come with High Fees and Interest Rates

Accumulating rewards may seem awesome initially, but you’re totally defeating the object if your card comes with fees that actually outweigh the benefits you think you’re getting. 

In most cases, the average reward redemption value on these credit cards is around 1% of what you’ve paid to earn it. This means that if your interest rate is higher than 1% on the card, then the credit card company is the one who is really benefiting from this arrangement – and not the cardholder. 

Another thing to keep a close watch on is any annual fee that may be charged – these can often be quite exorbitant on rewards credit cards.

You’ll be Encouraged to Spend More

Basic human psychology suggests that when someone is offered anything that seems like a good deal, most people will be tempted to purchase it – even if they don’t need it. As such, companies that offer reward credit cards take full advantage of this type of thinking.

Before putting any purchase on your reward credit card, do the math to see how much you’ll really need to spend before you’ll qualify for any decent type of incentive. For example, it’s not worth spending an extra $1,000 on credit just to get a reward of $10.

Rewards may come with Limitations

That long list of potential rewards that can be earned with your credit card may seem tempting, but it’s crucial to read and understand all of the terms and conditions associated with using these cards. For example:

  • Rewards may expire – some credit cards rewards may expire after a predetermined period of time, so ensure that you’ll be able to redeem them before this happens
  • Rewards may be limited – some credit cards reward programs limit the amount of incentives that can be earned in a quarter or during a year, so you may not end up getting as much of an incentive as you’d initially thought
  • Beware of redemption thresholds – Unless your credit card offers cash-back rewards, you’ll have to convert accumulated reward points into something useful such as a gift card or even airline ticket. However, keep in mind that many reward programs require a minimum number of points to be accumulated before you’ll be allowed to redeem them for a reward – and this could mean that you’ll have to spend thousands of dollars before being able to take advantage of rewards you’ve earned

In most cases, consumers will benefit from using standard credit cards that charge lower interest rates and don’t charge annual fees of any sort instead of signing up for rewards-based options. Always ensure that all fine print is fully understood before signing up for any type of credit card – whether it’s reward-based or not. 

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emergency funds

Why an Emergency Fund is Crucial

Nobody wants to spend time thinking about the various things that can occur unexpectedly in daily life, such as job losses, vehicle breakdowns and sudden medical emergencies. However, if you aren’t financially prepared for emergencies such as those mentioned here – or any other unexpected event that will cost money to rectify – you won’t only have the stress of the situation itself to deal with; you’ll also have the additional worry of wondering how you’ll be able to cover these unexpected expenses. 

How much should be Saved for Emergencies?

While there’s no hard and fast answer to this question, many experts recommend having an emergency fund consisting of at least $500. This will often be sufficient to cover an unexpected repair or expense that wasn’t part of your originally planned budget. 

Once you’ve managed to save $500, it’s recommended that you continue to build your savings in this account until such time as you have funds available to cover at least three to six months worth of regular expenses. If you’re a freelancer or seasonal worker, you may need to consider saving a bit more to cover the times when you’ll be out of work. 

How to Build an Emergency Fund

While you may think it will be impossible to build an emergency fund, there are often random expenses in a budget that can be trimmed or even eliminated – even temporarily. Here are some ways in which you can get the savings ball rolling:

  • Cancel subscriptions. While items such as Amazon Prime, Netflix and Hulu are nice to have, they aren’t genuine necessities. Halting these for even a month or two can help give your emergency fund the boost it needs
  • Save that stimulus check or tax refund. Although it’s tempting to blow that stimulus check on a vacation, new clothing or other treats, you’ll enjoy more peace of mind over the long term if you know there’s money set aside to cover an emergency. Consider treating yourself to something small and saving the bulk of that check
  • Redirect your small change. Nowadays, there are several apps available that can help you save by rounding up purchase amounts and putting those few pennies, dimes and quarters into your emergency fund account
  • Pay yourself first. If your employer offers direct deposit on payday, they may be able to divide your paycheck in such a way that a small portion of it goes automatically into your emergency fund account. Not seeing those funds in your main checking account will make it less tempting to use them
  • Sell unwanted items. Have your hobbies/sports/interests changed over the years and you’re now sitting with unused equipment relating to them in your garage, basement or attic? If so, consider placing ads to sell these items online. Funds obtained from this can then be placed into your emergency fund as well

It’s recommended that your emergency fund be a savings account that offers a good rate of interest, but that is also relatively easy to access. This will help ensure that while it can be obtained in an emergency, it won’t be too tempting to dip into it for non-emergency expenses. 

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Millennials-retirement

When Should Millennials Start Thinking about Retirement?

Research is revealing that although several millennials are making wiser financial choices than individuals of earlier generations, there are still a number of these younger folk who aren’t giving their retirement years nearly as much consideration as they should be. 

Many of the younger generation think that they won’t have to worry about saving too much for their retirement because of Social Security being available. However, the amount they will receive from this will not be nearly enough to cover their living expenses by the time they stop working – which is why now is the right time for them to start planning financially for their golden years. 

The Right Time is “Right Now”

As many as 50% of millennials have revealed that they don’t have any form of 401(k) and a mere 30% have mentioned that they have started to plan for and save money towards their retirement. However, the general consensus among the younger generation is that they want to enjoy themselves right away, meaning that they end up delaying saving towards retirement for as long as possible. 

It’s essential for millennials to understand that “right now” is when they need to think about saving and start taking the required action to do so. 

Learn about the Power of Compounding Interest

Several younger people aren’t aware of how compounding interest works and that it will be most effective when taken advantage of during their 20s and 30s. For instance, a 20 year old who invests a $1,000 lump sum and adds just $100 to it each month with a 4% interest rate will end up with more than $70,000 after 30 years. However, a 50 year old who invests the same amount, adds the same amount monthly, and gets the same 4% interest will only have about $15,000 saved after 10 years. 

Halt Unnecessary Spending 

A number of employers have the option for employees to contribute to various sponsored retirement funds, with the most common option being that of a 401(k). While the 3% match that most companies offer might not sound like much money, the truth is that it will accumulate substantially over time – thanks again to compound interest. 

Most employers off the 401(k) contribution match as a voluntary option, meaning that millennials who don’t enroll as soon as they’re eligible to do so will effectively be losing out on a 3% raise on their earnings. This is one situation that can be classified as obtaining free money, which is why it’s crucial for millennials to take full advantage of an offer like this. 

While it is often tempting for the younger generation to spend their earnings on the latest vehicles, gadgets, and other “nice to have,” the truth is that this will all come at the demise of their retirement. If you are a part of the millennial generation and you’re concerned about having enough funds to retire at some point in your future, schedule an appointment with our advisory team today.

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learning-retirement

Learn More about Retirement before Taking the Plunge

A number of working individuals delay planning for their retirement because they think it’s too far in the future to worry about for the time being. However, the truth is that the day you turn 60 or 65 will arrive a lot sooner than you realize so it’s important to familiarize yourself with as much information as possible pertaining to retirement – before leaving the office for the last time. This can be done in the following ways.

Read, Read and then Read some more

Nowadays, there are more blogs, news articles and well-written books that cover the various aspects related to retirement. Spending some time reading about topics such as available investment options, dealing with the extra time you will have on your hands after stopping work and whether you should consider working part-time or not to keep busy and perhaps supplement your income will go a long way in helping you to prepare for this time of your life. 

Network with Others who have Retired

Another great way to learn more about what retirement is like is to network with individuals who have already stopped working and are now living off of their investment income. Most of these individuals will be able to tell you how to make the most of your limited funds and still enjoy your newly found free time to the fullest. Several retirees will normally even be willing to provide advice regarding finding an honest and reliable investment specialist as well. 

Seek Professional Financial Advice 

While it’s possible for fellow retirees to give you leads or information about specific investment brokers or advisors, they will not be able to tell you how or where to invest your finances. As such, it’s crucial that you obtain professional financial advice before purchasing any retirement or investment products. While you’re looking for the right investment broker, ensure that you obtain as much information as possible before making your final decision – your retirement literally depends on it. 

Start Saving as Early as Possible

One of the best ways to help ensure that your golden years will be as financially stress-free as possible will be to start making the right money-related decisions immediately. The sooner you get started with setting up and contributing to as many savings plans as you can realistically afford to, the more your money will be able to grow because of the power of compounding interest over the years. 

Don’t wait until you’re in your late 40s or 50s to start putting money away for retirement because this could mean that you’ll have to save as much as 70% of your disposable income just so that you’ll be able to afford the essentials by the time you reach your 60s and 70s. 

If you are keen to learn more about ensuring that your retirement years will not be spent stressing over finances, get in touch with our team today. We will assess your financial situation and help compile a realistic savings and investment plan for you. 

 

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kids learning money

How Early Should Kids Learn about Investing?

Many parents have debated with regards to what the best gifts to give their children over time would be. While aspects such as a good education, books, educational games, toys and puzzles and a stable home environment are all crucial, one of the most important gifts of all that is often overlooked is that of a good financial education.

Children who don’t learn about using finances correctly and investing a portion of their earnings often end up becoming adults who generate excessive levels of consumer debt because of living beyond their means. In many cases, they may even rely on their parents for financial support well into adulthood as well. 

Below are a few ways in which you can start preparing your children to learn as much as they can about making their money work for them at the earliest possible age.

Introducing Basic Money Concepts

Many children will be able to understand the simpler aspects regarding money from around the ages of three to four years old. As such, you can start off by talking about money whenever it’s relevant to your daily life. For instance, if you’re out shopping with your child, show them how you’re comparing prices and looking for items that are on sale so that you can save money.

Allow them to observe while you’re paying bills and explain to them how much essentials like heat, electricity, groceries, rent or mortgage payments and clothing costs. If you’re paying down debt, explain to them why you have it and how long it will take for you to repay it in full. If your children are slightly older, they will be able to understand the concept of how interest works on debt as well. 

Moving on to Investing

Although teaching children to pay bills on time is crucial, it’s just as important for them to know how they can make their money work for them over the long term by investing a portion of any funds they may receive as gifts, allowances, or even from working at a part-time job when they’re older. 

  • Start small. Show your child how investing works by having them save a portion of their money so they can watch it grow over time. Allowing them to learn this way while they’re young will help prevent them from making costly investment mistakes when they’re older
  • Let your kids invest in something that matters to them. This will help them become more interested in how their money can grow over time
  • Have investing become a new family habit. Whenever your child receives money from an allowance, additional chores or even as gifts from friends and family, have them invest a portion of it as quickly as possible. Over time, saving and investing a portion of whatever income they receive will become second nature – which will pave the way for good financial decisions to be made throughout their lives

Teaching your children to be financially savvy from as early an age as possible will help prevent them from making the same money mistakes you may have made in your early adult years. If you would like to give your kids a head start by having them learn about investing and you’re unsure of how to go about it, contact us today.

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low-interest-rates

Use Low Interest Rates to your Advantage

Interest rates have been historically low for the past few years and the federal funds rate – which is what other interest rates are based on – is currently close to 0% and the Federal Reserve has mentioned that there are plans in place to keep it this low until at least 2023. 

When interest rates are this low, it provides you with the ideal opportunity to use them to your advantage. Here are some ways in which you can do this:

  1. Consolidate your Debt

if you’re unfortunate enough to be carrying balances on several credit or store cards, applying for and obtaining a debt consolidation loan can help get all of these repayments under control. Debt consolidation loans will often carry lower interest rates than those being charged on store and credit cards and you’ll also only have to worry about making a single repayment each month instead of juggling multiple installments. 

  1. Transfer Credit Card Debt

Should you not be keen on the idea of obtaining a consolidation loan, you may still be able to reduce the amount of money that’s being paid towards interest charges by using a credit card that has a lower interest rate. 

Some credit cards have introductory offers whereby you will only be charged interest after a predetermined period of time – and this can be anywhere between 12 and 18 months. If you’re confident that you’ll be able to repay your existing consumer debt within that time, this option could save thousands of dollars in interest charges. 

  1. Refinance Existing Loans

If you have an existing mortgage or student loan(s), now is the time to think about refinancing them wherever possible. Your new loan will carry a lower interest rate, which will save a fair amount of money over the long term. Whenever possible, see if you’ll be able to lock in the lower interest rate by means of a fixed-rate loan. 

  1. Purchase a Home

If ever there were a time to purchase a home, now would be it. While home prices have been steadily rising in some parts of the country, the historically low interest rates have made it easier than ever to purchase your very own piece of real estate. 

Before purchasing a home though, ensure that you’ll be able to comfortably make the repayments without going into debt if interest rates suddenly rise at a later stage. If possible, apply for a fixed-term mortgage to help prevent this from happening.

  1. Save or Invest More

Lower interest rates mean that you get to keep just a little bit more of your hard-earned money than before. However, if you want to use this windfall to your advantage, the best way to do so will be to place it into a savings or investment account. This will enable you to boost your savings without having to scrimp or save elsewhere in your budget. 

As you can see, there are several ways in which the currently historically low interest rates can be used to your advantage. If you’d like to learn more about investing any surplus funds you have, contact us today.

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retirement investments

Retire Financially Stress-free with these Investment Options

Although retirement is supposed to be the time where you can relax and enjoy the results of decades of hard work, this will only be able to be done successfully if the appropriate financial planning has been carried out ahead of time. While there’s no investment option that can be 100% guaranteed, below are some examples of savings options that will enable you to make the most of your golden years without having to worry about money all the time. 

Your Age is Crucial

Before jumping into any form of retirement-related investments, it’s essential that you take your current age into account. 

When you start nearing retirement age, you’ll need to ensure that investment choices lean more towards becoming more conservative and less aggressive or high risk. For instance, while in your 20s and early 30s, it’s still feasible to take bigger risks such as investing large sums in the stock market. However, upon reaching your 50s and early 60s, it will be better to work with safer options such as Certificates of Deposit (CDs) or immediate fixed annuities. 

Interest from Savings Accounts and/or CDs

In cases where interest rates are favorable, this can be another excellent option for making a safe investment towards retirement. However, it may not be possible to rely solely on this interest unless you also have a sizeable sum of cash invested in a savings account or CD because interest rates usually only reach as high as 3% on them. This means that for every $100,000 you have invested in them, you can expect to receive a mere $3,000 a year in interest – minus any account or brokerage fees that may apply. 

Bonds

When buying bonds, it means that someone else out there owes money to you and they will be paying you interest on a regular basis. When used alongside an already well-diversified portfolio, safer bonds like those issued by government and federal government agencies and other organizations that have proven to be financially feasible could provide you with an excellent source of retirement income. 

Immediate Fixed Annuities

If it’s a safer and more predictable investment option you’re after, immediate fixed annuities are a fantastic option. These will involve having a contract compiled upon purchase that will provide you with a specified and guaranteed amount of income over a specifically predetermined timeframe. Most of these will usually start paying out almost immediately – normally the month after purchase – and monthly thereafter. 

A few alternative reliable and relatively safe forms of income that can be relied upon during your golden years can include real estate investment trusts (REITs), income derived from one or more rental properties, and in some cases home equity. If desired, you could even consider taking on part-time employment that will not only provide a little extra cash; it will help keep your mind and body busy as well. 

If you would like to find out more about making the right investment choices for your retirement, contact our team to schedule an appointment today. 

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kids-moving-out

Kids Moving Out? Ensure they’re Financially Prepared

Virtually everyone moves out of their parent’s homes eventually, and when your child announces that they want to become independent in this way, you’ll want to ensure that they will not only be able to do their own housework and other chores; it’s even more crucial for them to be prepared financially for this time of their lives. 

Below are some aspects your child should be made aware of with regards to making wise financial decisions after they’ve flown the coop. 

  1. Know how to Open and Manage Accounts

By this time, your child should have his or her own bank account – regardless of whether it’s at a physical bank or online. Teach them to keep a buffer amount in it that should only be accessed in case of a genuine emergency. This will help ensure that they don’t overspend or attract any late fees for bounced payments. 

It’s also important that your child know how to open and manage savings and/or investment accounts. This will help them to start preparing for retirement at the earliest age possible. 

  1. Learn how to Budget

Another aspect that’s crucial for your child to know is how to compile and stick to a realistic budget. When moving out for the first time, their budget should include rent, transportation (whether public or own vehicle is used), gas if they have their own car, insurance, food, utilities, clothing, emergency fund contributions and investment contributions.

  1. The Importance of Insurance

Paying for insurance may seem like a waste of money to your newly independent adult child. However, the importance of having health, disability and/or life insurance cannot be stressed enough – especially if your child can obtain these at discounted rates through their employers. 

Two other forms of insurance that are crucial include renters’ insurance and car insurance (if they own a vehicle). In the event of a fire or other disaster, having renters’ insurance will help cover the replacement of personal possessions that have been lost or damaged. 

  1. How to be a Savvy Shopper

Although you may have taught your child how to budget, it’s also a good idea to teach them how to shop in such a way that they get the most value for money possible – especially when purchasing groceries. 

Aspects such as planning meals around sale grocery items, buying non-perishable items in bulk and waiting for seasonal sales before purchasing clothing items can all go a long way in helping to stretch your adult child’s budget as far as possible.

While it may seem like a huge, complex world out there for your adult child to navigate without supervision for the first time in their lives, the truth is that learning how to manage money will be one of the most important skills they will ever need. If you’re unsure of how to get started with teaching your child about the basics of budgeting, saving and investing for their future, get in touch with our team today. 

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retirement-savings-tips

Having Realistic Retirement Expectations

Have you given much thought to what will happen once you’re no longer working? What pastimes or activities would you want to engage in? Will you enjoy finally being free of having to go to work every day or are you going to miss having the sense of purpose associated with full-time employment? 

Your overall happiness, wellbeing, and financial status are key points to think about at a time like this, and the tips below will go a long way in helping you set realistic expectations for this time of your life. 

  1. Don’t Assume that you’ll be Happy to Stop Working

Although everyone looks forward to the day they’ll be able to retire to some degree, not everyone is fully prepared for when they’ll wake up every day and not have to go to the office anymore. Several individuals work for many years, and suddenly having to give that up can leave them feeling empty or unfulfilled.

If you don’t stop to think about how you’ll deal with these feelings as they arise, you could find retirement to not be as enjoyable as you thought it would be. To deal with this, allow some time to think about these negative feelings and find ways to address them. For instance, if you were an accountant, consider providing your services to one or two of your existing clients each month. Over time, this will benefit you and your employer. 

  1. Know what you want from your Retirement

You need to spend a bit of time thinking about how you want your life to be after you stop working. Do you just want to relax at home or would you prefer to travel the country – or even visit other countries for part of the year? 

Knowing how you intend to spend your time is a crucial step in the retirement process, and being realistic about your financial situation, overall health and other mitigating factors will help you decide how much needs to be saved and invested beforehand to make your dreams come true. 

Keep in mind that it’s also quite normal for your retirement goals to change over time and as such, your savings and investment plans may need to be adjusted accordingly from time to time. 

  1. Get Started with Saving Now

Younger people seldom take the time to think about the amount of money they’ll need to retire, and when they do, they often make the mistake of thinking about the current cost of living – and forget to take inflation into account. When looking at how things have changed over the past decade or two, it’s safe to say that the level of inflation being experienced at the moment looks set to continue for quite a while longer. 

When planning your retirement savings, ensure that inflation is being accounted for; otherwise, you could find yourself struggling financially once you’re no longer working. Setting realistic expectations about your retirement right from the beginning will make this time of your life a lot easier to deal with. If you’d like to learn more about saving towards retirement, contact us today. 

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