A Road Map for Your Finances

Whether you are a recent college graduate or not, many of us get distracted by the tangibles that often times create financial obstacles. Along with these obstacles, we avoid many of solutions that prevent us from attaining financial freedom. I have identified several financial basics that all college graduates should undertake. Unfortunately, many college graduates procrastinate until they are in a financial position that forces them to begin to pay attention. Often times I find myself explaining these financial basics not only to college graduates but also married couples, parents, and even those individuals approaching retirement.

Regardless of your financial posture or where you are in the life cycle, I consider the following a financial “road map” to attain financial affluence.

1. Pay down debt: Student loans and credit card debt are just a few examples of the debt that should be paid down as soon as possible. These types of debt bear interest rates that range from 3.4% to as high as 25%. My rule of thumb is if you can’t earn more by investing, then pay down the debt. I hate to say it, but it is tough to earn 25% in any economic environment.

2. Avoid credit card debt: If you don’t know how, then don’t use it. It is tempting to use a credit card as a backup until you find yourself on a slippery slope. If you are going to use a credit card you should be prepared to pay the balance off on a monthly basis. Not having the tangibles your buddy may have is boring right? I assure you it isn’t nearly as boring as hearing the same friend complain about being broke many years later.

3. Be sure you are properly insured: People don’t go bankrupt because they pay too much in insurance premiums. They go bankrupt because they don’t have sufficient coverage. Carrying the minimum liability limits on your auto policy is not acceptable. Too often I hear people complain how much their auto insurance is costing them. In many cases an auto policy can be one’s greatest asset.

4. Avoid the short-term gratification: Yes, having a new BMW like your friend may seem appealing at first, but it can destroy your finances. A $500 BMW auto loan payment probably doesn’t make sense until you are earning well over $100,000.

5. Establish an Emergency/Opportunity Fund: Before you begin investing, you should have sufficient liquidity in the event of an emergency or an unexpected opportunity. This fund may turn out to be quite valuable. (See Rianka’s post on Emergency Fund).

6. Set your savings on autopilot: You should be prepared to set aside money from every paycheck you earn. Until you have, it will be difficult to reach the next level of your finances. As the old adage goes, “pay yourself first”.

7. Invest: Once you have a working budget and you’ve set aside money for an emergency or a potential opportunity, you can now begin investing. Ideally anything not consumed by your living expenses should be invested. I hate to say it but your checking account is only earning you 0.01%, if that. Storing $10,000 extra in your bank account isn’t doing you any good.

8. Other goals: Now that you are “paying yourself first” (i.e. retirement savings) on a continual basis you can begin saving for other goals. These types of goals include a new car, a trip, or the most common, a new house! Notice I said continual basis, this type of saving should be in addition to what you are already saving. It would not be prudent to buy your first, second, or any house with your retirement savings.

This “road map” isn’t anything new, but it is certainly ignored too often. I think we have all been in a situation where our GPS has taken us down the wrong path. I persuade you all to venture down the path mentioned above. How you get there will be entirely up to you, but I assure you that following these directions will ensure you arrive safe and sound. Don’t become grouchy now; be prepared to have a good time! This trip will be quite rewarding!

Andrew J. Miller CFP®

Should I Rent or Buy?

I have received this question a lot recently from friends who are itching to buy a home.  Of course this intrigued me to write a post about it - should you rent or buy.  Here are some of the things you should think about if you are in this situation.

But first… my experience - wooosaaaa.

Owning a home is a great feeling, but it also comes with a price tag.  No, I am not just talking about the price of the home I am talking about your sanity.  With the new laws in effect to ensure that another corrupt system of mortgage handlings will not happen again, it takes blood, sweat and tears to settle on a home.  Trust me, I know! You must have a stable income, proof that your income is actually earned, your debt to income ratio must be in a certain range, outstanding credit score/credit history, and the list really does go on!  It is insane to think this type of due diligence was not put in place before 2010; on the other hand, this is probably why the housing bubble finally burst! 

Although we almost walked away from settling on our home TWICE (and told them to keep the darn house) in late 2011 because of the documents, documents, documents, and more documents they requested, we are happy we stuck with it.  I said that to say this – if you are truly serious about purchasing a home you must have patience and pray that you do not go insane.  Settling on your home is like a part-time job – it was for us.

Rent

• Security deposit $

• No closing cost

• Lease payment and renter’s insurance

• Some or none utilities cost

• No Maintenance costs

• Rent may be lower than mortgage thus leaving you more to save

Buy

• Down payment $$$

• Closing cost  $$$$$

• Principle, Interest, Taxes and Insurance (PITI)

• Private mortgage insurance (PMI)**

• HIGH Utilities cost

• Maintenance costs

• Tax deduction for interest and property taxes

** If you do not put down at least 20% of the sale price or appraised value of your home you may have to pay PMI.  PMI allows you to obtain your mortgage with a lower down payment and your lender is now protected if you should default on your home.  In layman’s terms – you are paying an extra $200-$400 or more, for example, a month to your lender just in case you should default on your home.  You are paying extra money to insure yourself against yourself.  They look at it this way – you could not put down 20% on your home so who’s to say you will not walk away from the payments should an emergency happen that wiped your savings clean.  On the other hand, if you could put down 20%, you would have, and it also shows you have some cash reserves (disciplined savers).  

PMI does not last throughout the term of your mortgage (15 year term or 30 year term).  Once you pay down the mortgage and have at least 20% equity in your home – it should stop.  I say “should” because you have to call your lender and let them know.  This is why it is so important to constantly improve your personal financial knowledge.

This is definitely not all you should know when considering purchasing a home, but it is a start!

Let’s chat! 

What was your experience with purchasing your home? (I hope it was better than mine!) 

Are there any tips for those considering purchasing a home that you would like to add? Please comment below!!!

Have a great day!

Rianka D. 

Just the Beginning…

Often times the first question a financial professional is asked is “if I were to purchase any one stock, what would it be?”  The answer to this question, regardless of what it may be, it is wrong.  People tend to believe personal finance = investing.  That is not where this process begins. The processing of financial success begins with a basic budget. Yes, I said budget. Trust me, a budget is not nearly as scary as people perceive it to be.  Your budget can be sexy.  Call it what you want; cash flow analysis, a spending plan, or any other expression. The reality is they are all synonyms.

Statistically speaking, people breakdown when the word budget is mentioned.  It is scary, difficult to track, and time consuming.  A budget does not have to be strict but rather it can be used to create opportunity.  This “monster” can be tailored to fit your lifestyle.

A budget is simply a tool; just as investing is a tool. These are just a few of the components that assist in wealth accumulation and financial independence.  One of the biggest misconceptions about this industry is you have to be wealthy to invest.  Notice, I said misconception!  I once met a couple that over the course of their careers averaged $50,000 in combined income.  The husband was a small business owner and his wife was a part-time assistant for a professor.  At retirement they had accumulated over $2,000,000.  Did they give up the tangible items along the way?  Some, but not all.  Did they enjoy life along the way? Absolutely!  If you asked them today how they did it, they would tell you it took a little time on the front end.

It starts with paying yourself first! At a minimum, participate in your companies retirement plan to receive their match.  If you haven’t already read Rianka’s “We All Love Free Money” post, I encourage you to do so.  Start by saving 10 percent of your income.  If you have sufficient funds to cover an emergency and you are working towards your financial and retirement goals, you can quite literally spend the rest.

This is not a process of hoarding cash and waiting until retirement to use it.  To be successful we enjoy life now but still address our future financial needs.

Unfortunately society encourages us to compete with the Jones’. I am here to tell you…Mr. and Mrs. Jones just filed for bankruptcy!  I encourage you to take control of your cash.  I assure you, once you have, it becomes easier and easier.  Again, that is the first step to financial prosperity.  Rianka has provided some excellent free resources; I challenge you all to use them!

Andrew J. Miller CFP®

Passionate about Personal Finance

Among the many reasons why I love my profession is that  there are so many passionate and supportive people that have the same goal as I do.  My goal  is to inform you, the avid GFN reader, about personal finance.  We want you to prosper in all avenues dealing with your finances and it all starts with knowing what you don’t know.  Among those passionate and supportive people is my good friend Andrew Miller, CFP ®.  Andrew has the same passion and enthusiasm as I do with trying to help you gain knowledge in all topics dealing with your personal finance (insurance, retirement, investment, taxes, and estate planning).  Andrew will be contributing his professional knowledge about personal finance on Golden Finance Nuggets from time to time.  As the saying goes, two heads are better than one, and I want to make sure you receive the best information possible.


Thank you, GFN readers, for your continued support and encouragement.  You are truly the reason for this blog.  Please keep the comments and questions coming. 


Lastly, please share this blog with your family and friends.  Save it as a bookmark on your web browser and check back weekly.  Knowledge is power! 

Have a great week! 


Rianka D.

Homeowners Insurance Unveiled Part 2

As stated in part 1 of Homeowners Insurance Unveiled, this type of insurance is extremely important to understand.  Yes you purchase the insurance because you have to in order to finance your home through a bank, but please do more than just going with the motions.  Invest some time into learning about your specific insurance policy.

Check out my previous post which discuss homeowners insurance coverage A-C.

Coverage D: Displacement from Home

If you are displaced from your home due to a covered loss (such as a fire), this coverage will reimburse your hotel stay, restaurant, and other living expenses you may incur while displaced from your home.  The amount of this coverage varies.

Coverage E: Personal Liability

This type of coverage protects you and your covered family members against lawsuits.  Lawsuits are more common than you may think.  For example, if you have a dog and it maliciously bites your neighbor – they could sue you.  If they sue and you do not know you have this type of coverage you may end up selling the house in order to pay to settle the case.  Ok, I am being extreme here, but I am trying to get this point across to you - read your policy!  

Also, it is recommended by professionals to take out additional personal liability coverage if you have a swimming pool on your property as it is considered a hazard.  Little kiddos are attracted to pretty swimming pools - accidents happen all the time.  

Coverage F: Medical Expense

This type of coverage is vital if someone is injured on your property.  This type of coverage will pay for the person’s medical expenses, up to your policy limit, if the injured person does not want to sue.

~~~~~~~~~

Be aware that your deductible must be satisfied first before your insurance coverage will kick in.  For the example I gave in part 1 (your iPad was stolen), yes it may be covered, but you will probably not want to make a claim on this incident if your deductible is $1,000 as the cost of an iPad is typically $600.

Speaking of deductible - just in case you are looking at this word with a perplexed look on your face, a deductible is the amount you have agreed to pay the insurance company before they will hold up their end of the bargain, i.e. your insurance coverage.  Usually, the higher your deductible the lower your premium.  If you have a $500 deductible for your homeowners insurance, you should consider increasing it to $1,000.  This gesture may lower your premium substantially.  You will never know unless you ask!

This also circles back to the emergency fund! – click and read EMERGENCY FUND POST - It brings me joy when personal finance intertwines with everything.  $1,000 may sound like a lot of money to give to your insurance company BUT if you are properly prepared this will be one less stressor in a crisis.

If you acquire new property that is fairly expensive you may want to update your homeowners’ policy.  Also, try to make it a habit of updating your home inventory checklist (covered in part 1) at least once a year.

Make sure you check out the previous post – Homeowners Insurance Unveiled Part 1.

Source

I hope this post is helpful!

Rianka D.

Homeowners Insurance Unveiled Part 1

As a homeowner, this type of insurance is the silver lining to your monthly mortgage payments.  Buying a home is by far the biggest purchase most people will make in their life time.  With that said, you want to make sure your home is properly insured with adequate insurance coverage.  


I know, I know… insurance is never fun to read about but if and when there comes a time when you need it, you want to be prepared.  For example, did you know if your iPad is stolen it may be covered under your renters or homeowners' policy? Ah ha… see you are learning something, keep reading. 


I do not want to overwhelm you in one post, so to make it an easy read I will break up this stimulating topic into two posts.  This first post will cover homeowners' coverage A-C and the follow up post will cover homeowners' coverage D-F.  

Below are standard examples of each type of coverage. 


Coverage A: Structure of your home 


Covers damage done to the structure of your home due to a hurricane, hail, lightening or fire.  These events are called “covered perils”.  Note that flood and earthquake coverage is excluded from standard homeowners' insurance policies. 


It is recommended to purchase enough insurance to cover the cost of rebuilding your home.  Keep in mind that this amount is not the market value of your home nor does it include the value of the land you home is built on.  This amount is solely the cost of building your home from the ground up.  


For example: If it cost $300,000 to rebuild your home but the face amount of your policy is $250,000 – you are under-insured.  How will you know if you are under-insured? Call and talk with your insurance provider.
  
Coverage B: Other structures 


This coverage insures the structures not attached to your home such as a shed or fencing.  Typically the insured amount is 10% of the face amount in coverage A.  In this example, the coverage amount will be up to $25,000.    


Coverage C: Personal Property 


This coverage insures your personal property that is stolen or damaged due to a covered peril such as a fire, hurricane, etc.  This includes household content (furniture, clothing, electronics, etc.).  The amounts for this type of coverage greatly varies.  If you have items such as engagement rings, wedding bands, or expensive electronics in your home you may want to consider purchasing an additional policy also known as a “scheduled endorsement”. Why? Well because your standard policy may only cover up to $2,000 for stolen jewelry.  Therefore, if you own a necklace that is valued at $5,000 your insurance may not completely cover this lost.   


The best housewarming gift you can give yourself and your family is a home inventory checklist.  (Owning a home is great, isn’t it? Don’t answer that! Haha.) 


Click this link to retrieve HOME INVENTORY CHECKLIST (Thank you, State Farm).  If you do not want to write down everything you own you may want to consider creating a home video of each room in your house.  This checklist or video should be kept outside of your home just in case of a total loss to your home.  


I think this is enough insurance talk for now.  Part two will soon follow and will cover homeowners' coverage D-F. 


Have you filed a claim for coverage A, B, or C due to a covered loss?  




Rianka D.