Talking to Your Aging Parents About Their Finances

When meeting with many of my clients one of the most common worries of those planning for retirement is the uncertainty that comes with the possibility of having to take care of their parents at some point in the future. When digging deeper into the conversation it comes out that they actually do not fully know their parents’ financial situation or whether this is something their parents have planned for. Most of times where this is a concern, I find that my clients simply have not had a financial conversation with their parents. Most have never asked their parents how they want to be cared for in the future and what that looks like financially.

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Talking about money with anyone can be difficult, but it can be even more difficult having that conversation with your parents, especially if money was not a transparent subject growing up. For some families, personal finance is not an acceptable topic to discuss with others including family members. Should this be the first discussion you will have with your parents about their finances, the conversation may be a bit awkward and very uncomfortable, especially in the beginning. Talking to parents about money may be an intimidating conversation, but it is one of the most important conversations that you must have if you want to ensure their comfort without causing you financial hardship and frustration later.

Sometimes we make assumptions about other’s personal financial situations, but it is not until after an emergency happens that we realize our assumptions were not correct.  Here are a few considerations to plan a conversation and to make it easier on everyone.

Approach with understanding and empathy

Before starting any financial conversation, understand where you parents might be coming from. I have seen parents tell their children that they have taken care of everything and walked them through their plans, most often ecstatic that they took the time to ask and understand. At the same time, I have seen other conversations, where the parents had nothing left and were embarrassed to tell anyone, putting on the illusion that everything was okay, when they truly had no financial plan and have been living in fear for years, crossing their fingers that nothing would happen. No matter where your parents may be with their financial preparation, begin any meeting with love and empathy and with a wanting to understand.

Schedule a time

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Thinking about picking the right time to talk is important for a conversation like this. No one wants to sit down to a family dinner and be blindsided by questions about their finances. Avoid starting a conversation like this, “Hey Mom and Dad. Since the whole family is here at the dinner table, what do you have planned in case one of you needs assisted living in the coming years?” Unfortunately, there are far too many stories that seem to match this. No one wants to feel ambushed.

Instead, approach it like you would a meeting. Ask them if you they can set some time aside to have the conversation and explain to them why you want to have the conversation. Let them know you are concerned and that you want to ensure that you follow their wishes and that you all have a plan in place should something happen. You want to make sure that you are able to take the time needed to have a meaningful conversation free of distractions and time restrictions. It’s an important conversation that should not be rushed. If you have siblings, ask each of them if they want to be present during the conversation while ensuring that your parents are okay with that, as well. This will help you make sure that you have all the interested parties as part of the discussion.

Paint the big picture

The conversation does not have to be about money. It should be about understanding where they are now, what their plans are, and how they are going to get there. Explain to them that having this conversation is hard for you, as well, but you want to make sure that when the time does come you are respecting their choices.

When painting the big picture, use “Tell me about your …” statements and ask “What if …” questions, so that you gain a better understanding. Use statements like “Tell me about your retirement plans.” Ask questions such as, “What do you have in place in case one or both of you eventually need full time care.” The answers may surprise you.

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Should your parents be reluctant to talk about their finances, let them know your concern again. Let them know that should something happen, should one of them pass and the other has dementia that you do not want to have to make decisions for them, but would like to have all of the worst case scenarios ready to follow their wishes. If they still do not want to talk about their financial information, ask them to at least come up with a plan in writing with all of their financial information, where all of their checking, savings, and investment accounts are, along with copies of any needed legal documents, and insurance policies so that you will be ready to execute their wishes in an emergency.

No matter how the discussion goes remember to keep you emotions in check throughout the conversation, respect their thoughts and perspective, and always let them know that you want to understand what they want.

We simply cannot afford to make assumptions about our family’s finances. The burden and costs associated with lack of planning can negatively impact every member of the family.

How do you approach financial discussions with your parents? Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

What Is Inflation and How Does It Hurt Our Pocketbook

Every year in a normal economy you see the cost of almost everything around you become a little bit more expensive. This is inflation.

Inflation affects all of us. It can reduce the value of our savings, our earnings, and our purchasing power.

In simple terms, inflation is the general increase in the prices of goods and services over a given time.

The most widely used measure of inflation in the United States is created by the Bureau of Labor Statistics, the premier research division of the Department of Labor, which finds, creates, and publishes economic data. The Bureau’s report on inflation is called the Consumer Price Index (CPI), which is a measure of the amount of change in prices of a certain “basket” of consumer goods and services, such as costs for medical services, food, and transportation. Changes in the costs of these goods and services are usually measured over the past twelve months.  Below you can see the goods and services used to measure the CPI and the changes of the products over the last twelve months as of April 15, 2020.

Category12-month percent change, Mar 2020Category12-month percent change, Mar 2020
All items1.50%All items less food and energy2.10%
Food1.90%Commodities less food and energy commodities-0.20%
Food at home1.10%Apparel-1.60%
Cereals and bakery products0.10%New vehicles-0.40%
Meats, poultry, fish, and eggs2.30%Used cars and trucks0.10%
Dairy and related products3.70%Medical care commodities1.30%
Fruits and vegetables-1.90%Alcoholic beverages1.40%
Nonalcoholic beverages and beverage materials1.40%Tobacco and smoking products5.40%
Other food at home1.40%Services less energy services2.80%
Food away from home3.00%Shelter3.00%
Full service meals and snacks3.20%Rent of primary residence3.70%
Limited service meals and snacks2.80%Owners’ equivalent rent of residences3.20%
Energy-5.70%Medical care services5.50%
Energy commodities-10.40%Physicians’ services1.40%
Fuel oil-20.10%Hospital services4.40%
Gasoline (all types)-10.20%Transportation services-0.70%
Energy services-0.50%Motor vehicle maintenance and repair3.40%
Electricity0.20%Motor vehicle insurance1.10%
Natural gas (piped)-2.90%Airline fare-10.60%
12-month percentage change, Consumer Price Index, selected categories, March 2020, not seasonally adjusted
Information provided by the U.S. Bureau of Labor

The number given by the Consumer Price Index is essentially how much purchasing power your dollar is losing (or gaining) from one year to the next. In some years, the CPI is higher,  while in others it can be negative. Over the last thirty years the average inflation rate in the United States has been about 2.5%. If this were the rate year after year, this would mean that our cost of living would double roughly every 25 years.

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When inflation is positive or higher than expected, consumers and savers are in a losing position. While the cost of living is rising, the value of your same dollar and interest earned are falling behind what that dollar and interest value could have bought one year ago. The longer that time goes on the more that we are losing.

If you were to put $250.00 into your average savings account at 0.2% right now and let it compound annually for the next ten years you would have $255.56 at the end of that time. Yet, if you are spending $250.00 at the grocery store and the inflation rate was 5%, that same basket of groceries would now cost you $427.59. The money that you had sitting aside in a safe place actually lost $172.03 in value.

Inflation is one type of risk that can hurt our pocketbooks and eat away at our savings.

Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

The Magic of Compound Interest

Compound Interest is an important concept to understand in helping you build your wealth.  Understanding compound interest will help you understand why it is important to get the best interest and yield on your accounts. It’s not magic it’s math, and it helps you grow your wealth.

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Compound interest is what can make your deposits grow faster, similar to the “snowball effect.” When you roll a snowball down the hill, the snowball continues to grow upon itself and ends up growing so big it becomes a giant avalanche. Compound interest works relatively the same way, earning money on your initial deposit and on the interest that you earned, as well.  This cycle of compounding your investment and the interest that you earn leads to significant increases in the balance over time. The compounding of interest can happen in several manners depending on the compounding period, which can be measured daily, monthly, quarterly, or annually. In most cases interest is calculated on a monthly basis. This is typically the case with savings accounts and certificates of deposits (CDs). When shopping rates, look at the annual percentage yield (A.P.Y.), it is the true rate that takes the compounding into account on an annual basis.

In the example below, the initial deposit is $10,000 with an annual compound interest rate of 5%. The money is left in an investment account for fifty years. After the first year you have made $500 in interest and have a total amount of $10,500. That $10,500 is earning interest the entire second year and now you made $525 in interest with a total balance of $11,025. This happens year after year, and at the end of the fifty years you have $114,674 without ever adding to the principle investment.  That is the magic of compound interest.

Compound Interest AnnuallyTotal
Year 1$10,000 x 5% = $500$10,500.00
Year 2$10,500 x 5%= $525$11,025.00
Year 3$11,025 x 5% = $551.25$11,576.25
Year 4$11,576.25 x 5% = $578.81$12,155.06
Year 5$12,155.06 x 5% = $607.75$12,762.81
Year 10$15,513.25 x 5% = $775.66$16,288.91
Year 25$32,251.00 x 5% = $1,612.55$33,863.55
Year 50$109,213.33 x5% = $5,460.67$114,674.00

Compound interest works in your favor, especially when you are able to deposit funds and leave them to grow. Combining compound interest with periodic deposits to your account, perhaps on regular intervals, helps you build savings for your future even faster.

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Let’s take a look at the magic of compound interest while continuing to contribute to the principle of the investment. We can deposit the same $10,000, in the same investment account earning a 5% yield and compounding monthly. With this example, we add an additional $250 each month to the account. Compounding monthly we will need to divide the interest rate by twelve for the amount being paid on a monthly basis. Because we are earning a 5% yield on an annual basis, we will be earning 0.41667% on a monthly basis. After the first month we would earn $41.67 in interest and deposit an additional $250, bringing the total balance to $10,291.67. Doing this for next five years would result in having an account worth $29,832.11. After fifty years, the account balance would be $788,357.98 with a total contribution of only $160,000 ($10,000 initially and $150,000 in monthly deposits) over the fifty-year period.

Saving $250 Per Month With Compound Interest MonthlyTotal
Month 1$10,000 x (5%/12) = $41.67 + $250$10,291.67
Month 2$10,291.67 x (5%/12) = $42.88 + $250$10,584.55
Month 3$10,584.55 x (5%/12) =  $44.10 +$250$10,878.65
Month 12 Year 1$13,276.02 x (5%/12) = $55.32 + $250$13,581.33
Month 24 Year 2$17,024.96 x (5%/12) = $70.94 + $250$17,345.89
Month 36 Year 3$20,965.70 x (5%/12) = $87.36 + $250$21,303.06
Month 60 Year 5$29,462.35 x (5%/12) = $122.76 + $250$29,835.11
Month 120 Year 10$54,812.29 x (5%/12) = $228.38 + $250$55,290.68
Month 300 Year 25$182,679.29 x (5%/12) = $761.16 + $250$183,690.46
Month 600 Year 50$784,837.82 x (5%/12) = $3,270.16 + $250$788,357.98

No matter how you choose to save for your future, the most important thing that you can do now is to open an account and start contributing to it on a regular basis, whether you’re starting a savings account, retirement account, or a standard investment account, this will allow you to take full advantage of compounding interest rates. The sooner you begin investing, the larger you balances will be when you reach retirement age. Compound interest rates will work in your favor over the long run. 

Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

How to Establish Credit

Most major financial landmarks in life, such as buying a car or a house, will require the use of credit, but when you have little or no credit, there are often more “no’s” than there are “yeses” from lenders. Starting to build your credit is not the easiest thing to do when there are more rejections than approvals, it is difficult to know where to start.

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When starting out, it is important to ensure that you are starting out clean. There have been several cases over the years that I have seen when someone who thought that they had no credit actually had some credit from a joint account they held with a parent or from years of student loans they have been paying. There have been those that have very bad credit riddled with collections from utilities or rent that went unpaid. The first thing you need to do is check your credit. There are several ways to do this but the easiest is to head over to www.annualcreditreport.com, which provides a free credit report from each of the three major credit reporting agencies once per year. You should verify that the information you find on your credit report is correct and accurate. If it is not, for instance, if you have fraudulent charges on your report, you will need to dispute the charges, most likely with both the creditor and the credit reporting agency.

Once you have an idea of what your credit looks like there are several ways to go about building credit.

Retail Cards

Retail cards, such as credit cards for department stores and gas companies, are often the easiest credit cards to obtain as they are limited to the retailer that you choose and usually come with lower spending limits, hence less risk for the issuer. However, these cards often come with high interest rates if you are not paying them off every month and carrying balances month over month, and they can have you paying much more for a product or service than it is actually worth.

Secured Credit Cards

One of the best ways to build or rebuild your credit is to start with a secured credit card. Secured credit cards are safeguarded by money you provide to the lender, usually in amounts of $300 or greater. This money is placed in a savings account and locked until the card is closed. The lender issues you a credit card with limits equal to the amount of money you provided. When charges are made to the card, monthly payments are still required and interest accruing. The initial secured payment that you provided the company is to be used only in the event that you default on making your payments, which would show negatively on your credit report, as well.

Many of the companies that issue secured credit cards have programs where they will evaluate your payment history on a regular basis and consider graduating you to an unsecured card when you meet their specific guidelines. The great thing here is that you are building credit and should not have to pay fees or undue interest provided you make the payments in full each month.

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Secured Loans

A secured loan can have several advantages, including helping you build your credit faster than you could with credit cards alone. The process is very similar to that of a secured credit card, where you provide the lender with cash in advance. For a secured loan, the security amount is usually $3,000 or greater. This amount is placed in a savings account that you cannot access until the loan is paid in full. In the meantime, the lender gives you a percentage of the held amount, usually around 90%, and you establish a set payment plan of a few years to pay the loan back in regular monthly intervals. One of the greatest advantages of this type of loan is that it will show as an installment loan, a loan for a fixed amount of money repaid over a set time period, when reported to the credit agencies. This will add to your overall credit mix and help you increase your credit score.

Going the way of a secured loan is in essence paying for the privilege to establish your credit. These loans also often come with a hefty interest rate or loan origination fees.

Become an authorized user

Another option and often one of the simplest ways to build credit, is to be added as an authorized user to a friend or family member’s credit card account. This allows you to associate your name and information with that of the credit your friend or family member is using. However, not all lenders report authorized users to the credit reporting agencies, so there is a chance that being an authorized user may not be helping you build your credit.  Before taking this approach, make sure the credit card company reports all authorized users to the credit reporting agencies.

This option may be risky, so use extreme caution if you choose to become an authorized user. In becoming an authorized user, ensure that you friend or family member uses their credit responsibly and always makes their payments on time. Should their account become delinquent or go to collection, that negative action will also reflect on your credit.  On the other hand, you need to practice responsible credit behaviors as well. Having a clear plan in place to inform the card holder of the purchases made and how you will reimburse your friend or family member for purchases is also important so that you don’t hurt someone else’s credit.

Have a Co-signer

If you’re having a hard time accessing credit for a purchase, you can ask a friend or family member to co-sign a loan. Similar to the authorized user option, you are using your friend or family member’s good credit standing to help you get approval for a loan; however, in this case, their credit now counters the risk to a lender on your behalf. In essence you are requesting this person to put their credit reputation on the line for you. Should you default on the loan, this person is now responsible for the full repayment of any outstanding balances and fees that may accrue. Any missteps on the repayment of this loan by you can negatively affect your co-signer’s ability to obtain financing in the future and can cause irreparable damage to their credit history and your relationship.

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Once you have a few types of credit under your belt, it’s important to carefully monitor your credit reports for changes, understand what is on your credit report, and know how your credit score comes together. This is a good way to monitor your credit-building efforts and see how these efforts are paying off in terms of building your credit while actively protecting yourself from fraudulent activity.

When starting out, it is imperative to begin making your payments on time as agreed from the beginning. Reports of late payments and other missteps will stay on your credit reports for up to seven years. A few late payments or an account that becomes a collection account when building your credit can cause you years of work and frustration trying to clean it up.

As you make payments you’ll progressively build your credit and it is possible to make significant progress on establishing your credit quickly. As building your credit is not quick project, incremental improvements month by month will provide you better financial options in the future.

Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

Understanding Your Credit Score

Your credit score can affect many aspects of your financial life.

The three main credit reporting agencies, Equifax®, TransUnion®, and Experian™, create and generate your credit reports. You credit score is a number, typically ranging between 300 and 850, that indicates how likely you are to repay your debts. The three major credit reporting agencies calculate your scores based on their own models, but these are not the scores that most lenders are looking for. There are several independent scoring companies, each with its own model for how they convert your credit report information into a score that indicates the level of risk that you may default to a creditor. Today, a vast majority of major lenders use the FICO® Score, a credit score created by the Fair Isaac Corporation, when making decisions on whether to lend to you. The score holds so much weight that it can affect the interest rates that you may pay on loans, your insurance rates, and even your ability to rent a home.

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Understanding your credit report and how your credit score is compiled is a good place to start. Let’s break down your FICO® Score, as it is currently the most widely used credit score format that the top lenders are using.

The Fair Isaac Company considers five categories when calculating your FICO® Score: your payment history, how much you owe, your length of credit history, the credit mix that you keep, and your new accounts.

Your payment history (35%) — Thirty five percent of your FICO® Score comes from how you have managed your past payments to your creditors. This section of the reporting will take into consideration the payments you have made to creditors. Creditors, including credit cards, retail accounts, installment loans, auto and mortgage loans and many others, report to the major credit reporting agencies and that information is used to tabulate your score. To maintain, improve and build your credit score, it is important to make your payments on time every time. This keeps your accounts in good standing and helps create more depth in your payment history.

Missing payments or making payments late will have a negative effect on your score. The more frequent the missed or late payments are, the greater the impact they will have to your overall score. Public records and collection accounts, such as bankruptcies, tax liens and civic judgements, can lower your rating in this category dramatically and can have serious long-term repercussions on your overall score.

Your payment history is the section given the most consideration in determining your score, and it is the most important factor a lender assesses when determining the level of risk it will undertake when issuing you credit.  

Amounts Owed (30%) — Thirty percent of your score is based on how much you owe your creditors. There are several factors that come into play in the amounts-owed part of the scoring. Simply owing money does not always negatively affect you score, though when your credit utilization ratio (the total dollar amount of revolving credit, usually credit cards and personal lines of credit, you currently owe divided by the total available credit limits of the accounts) is high, it can indicate that you are overextended and are more likely to default if you come into a financial hardship. 

For example if you have on credit card with a limit of $10,000 and owe $6,500 on that card you would have a credit utilization ration of sixty five percent. The higher your credit utilization ratio the great the impact it will have on your overall score. A good rule of thumb is to have a credit utilization ratio of thirty percent or lower.

Length of credit history (15%) — You can still have a high credit score if you haven’t had a long history of credit, but you’re doing well on all the other categories. Your length of credit history makes up fifteen percent of your total score. Typically, the longer you have had credit accounts the more positively this will impact your overall score. The average time that each of your accounts has been open will help to determine  your overall length of credit history.  Having a longer credit history provides more information to base lending decisions on for potential lenders.

Credit Mix (10%) — When it comes to credit mix, think about diversity. Having a variety of types of credit accounts can have a positive effect on your credit score. It is not necessary to have every type of credit account available, but a few different types of credit will show that you can manage a mix of account types. It will be okay if you are just starting out or do not have a variety of forms of credit. Your credit mix is ten percent of your combined FICO® Score.

New Credit (10%) – Last but not least, the final ten percent of your FICO® Score is made up by evaluating your new accounts and account inquiries. It has been shown that opening numerous new accounts in a short period of time can indicate a financial problem and may indicate a greater likelihood of future default. It is not just a new credit account that will impact you but also the credit inquiries. When you are shopping for new credit, the lender will report an inquiry regardless of whether they issue credit. These inquires will remain on your credit report for the next two years and can negatively affect your credit score for the next year. Consider this whenever seeking to obtain new credit.

 Knowing more about how your credit score is calculated can help you maintain or build a better score. Think of your credit score as a way of explaining your combined history of credit to a lender who knows nothing about you. Your credit score is simply a risk score, a risk of how likely you are to repay a lender. The higher the score the more likely you are to repay them. A lower score may indicate the opposite, and this can make it more costly for you to borrow money (riskier loans charge higher interest rates). Having a higher credit score can help you save thousands of dollars over the course of your lifetime.

In the case of credit scores, knowledge can be power. Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

Understanding Your Credit Reports

You credit can have a major impact on so many aspects of your life, and it is important that you know what is on your credit report and how to manage it. Understanding your credit can appear complicated and challenging; however, it can also be a powerful tool. In this three piece series we will go over understanding your credit report, understanding your credit score, and establishing your credit.

Our credit plays a big part of our daily lives. Sometimes we do not realize this until someone starts asking us about it. Our credit determines our cost of lending. Essentially, credit effects interest rates, the price and ability to obtain insurance, housing opportunities, and our ability to obtain certain jobs. While credit can and should be used to improve our financial well being, many people struggle with excessive debt obligations because of the mismanagement of their credit. Using credit wisely is the key to assisting you to a world of possibilities.

You should be checking your credit at least once a year from each of the three major credit reporting agencies: Equifax®, TransUnion® and Experian™. You should also check your credit report anytime you think that your information may have been compromised.  Each of your three different credit reports most likely will have slight deviations, but on the whole each should be relatively similar as most major lenders report to all three agencies while some of the smaller agencies and collection companies may only report to one of the three.

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To get started, you will need to pull your credit report from each of the three credit bureau reporting agencies listed above. You can access all three agencies at one time through sites such as www.annualcreditreport.com, which provide a free credit report from each of the three major credit reporting agencies. You can also get your credit report through many credit card providers, which provide monthly credit report tracking tools for free as long as you have an account with them. These programs vary by company and usually only provide access to one of the major credit reporting agencies, but they are useful tools for tracking and learning about your credit.

Once you have access to your credit reports it’s important to understand the information on them. Your credit report is typically divided into categories consisting of your Identifying information, credit inquiries, public records, and account information.

Identifying Information

                The identifying information on your credit reports is essentially all your personal information, including:

  • Name, known aliases, and previous names (these may include maiden names, other married names or nicknames; for example, if your legal name is Stephen but you go by Steve, then Steve will also be listed)
  • Social security number
  • Date of birth
  • Current and former addresses
  • Current and former phone numbers

The purpose of the identifying information section of your credit reports is to verify the information you have provided and to look for any warning signs or red flags regarding incorrect information. The information should be reviewed carefully to ensure that your identity has not been confused with someone with a similar name or a relative with the same name. You may be able to tell whether you have been a victim of identity theft.  Should you find a discrepancy in any of the information on your credit report you can file a dispute or an update to change it.

Inquiries

                In the inquiries section of your credit report you will find a listing of creditors and other companies that have requested your credit report over the past two years. There are two types of credit inquiries, soft and hard inquiries.

  • Soft inquiries are a result of companies purchasing or obtaining your information for promotional purposes or a current creditor checking your account on a regular basis.
  • Hard Inquiries are made when you have applied for credit through a financial institution. Close attention should be paid to any unauthorized hard inquiry as it could be a sign of identity theft. These inquiries can also negatively affect your credit score.

Public Records

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                The public record section of your credit reports will display financial activity such as foreclosures, bankruptcy, tax liens, and civil judgments against you. Ideally, you want this section to be blank as anything displayed in this section can penalize your overall credit score.

Account Information

                Your account information is where you will find the specific details of your account history. This will likely be the most significant portion of your credit profile. It is here that you will find the specific details of your credit history from current and past creditors. Each creditor will have their own section containing information regarding:

  • Payment history
  • Credit limit
  • Dates accounts were opened and closed
  • Most recent payment amount
  • Current balance

If the account has not been managed properly the account will reflect this in the history, including current or previous late payments, and cases where accounts have been closed by the grantor or even transferred to collection.

Understanding how to read your credit report is a start, but you need to know your rights and resources, as well.  The Federal Trade Commission, which protects consumers by preventing unfair, deceptive or fraudulent practices in the marketplace, enforces the Fair Credit Reporting Act and Accurate Credit Transactions Act, with which the credit reporting agencies must comply. Accordingly, you have the rights to:

  • Be told if information on your credit report has been used against you, such as being declined for credit or employment due to information obtained from your credit report.
  • Know what is on your report and having free access to your credit report annually. You also have the right to view your credit reports should you believe that you are a victim of identity theft or fraud, and if you are on public assistance or unemployment.
  • Request to see your credit score, though you will have to pay for it.
  • Dispute incomplete or inaccurate information, though the credit reporting agency must investigate should your dispute be frivolous.
  • Have inaccurate, incomplete or unverifiable information corrected or deleted by the credit reporting agency within 30 days of being notified, though they can and will continue to report should they confirm that it is accurate.
  • Remove most negative information from your report after seven years and remove bankruptcies that occurred more than 10 years ago.
  • Limit access to your report to those with a legitimate business interest .
  • Privacy regarding credit reports, wherein a credit reporting agency may not provide information to employers without written consent.
  • Opt out of “pre-screened” offers of credit and insurance by calling the nationwide credit bureaus at 1-888-5-OPTOUT (1-888-567-8688).
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Another great resource for understanding you rights is the Consumer Financial Protection Bureau. They regulate the offerings and provisions of consumer financial products and services under the federal consumer financial laws. This is a great site to visit for additional information that will help you to become a better informed consumer of financial products and services, such as lending and how it relates to your credit.

Your credit reports are a record of your borrowing history and how you have managed your financial obligations. Knowing how to read your credit reports is an important step in helping yourself understand how to better utilize your credit to help you succeed financially and ensure that you are protecting yourself from identity theft and fraud.

Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

Protect Yourself From Financial Fraud: Five Ways to Start Protecting Yourself Today

Protecting yourself from financial fraud is not the easiest thing to do, but it is an important part of saving yourself a lot of time and headaches down the road should your financial information ever be compromised. The fraudsters and scammers are getting better and bolder in their approach to taking your money, using phone calls, skimmers, and hacking.  Cybersecurity issues are becoming a daily struggle for businesses; thousands of customers’ information can be compromised in a matter of seconds, including yours. The more often we make our information available, such as through purchases with retailers and other companies for goods and services, the greater the risk having our information being stolen. It is important to take the necessary steps to protect yourself from financial fraud.

There are several ways to protect yourself and your information from financial fraud. Here are five ways you can start protecting yourself today:

Review and monitor all of your accounts regularly

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                Take the time to log in and review all of your cash and credit accounts on a regular basis. Monitor the transactions that are coming through your accounts. A general rule should be that the more you use an account, the more that you should be monitoring that account to help you catch fraudulent charges quickly. The longer that you wait to review your account transitions, the better the chances of a fraudulent charge going undiscovered.

Sign up for alerts on all your accounts

                Almost all financial institutions offer account security alerts that will allow you to receive text messages or emails in real time based on specific scenarios under which you would like to be notified. Some examples include logging in to your account from an unknown computer or device, charges outside your normal spending habits, and low balance alerts. Currently many financial institutions offer security alerts for account usage from outside your geographic area. For example, should your account have a transaction in New York while you are at the gas station in Los Angeles, security alerts can notify you via text and email of the discrepancy and ask whether you made the purchases and allow you to reject fraudulent purchases immediately.

Never use debit cards for online purchases

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                No matter how safe you are using your credit card or debit card, there is no way to be absolutely certain that you can avoid credit card fraud all of the time. You can limit your exposure to fraudulent charges by paying with the right card. Most major credit card issuers offer 24-hour fraud protection and identity theft assistance to catch fraudulent transactions as quickly as possible and limit interruptions to your credit card use as possible. Most credit card providers also guarantee the cardholder will not be liabile should a fraudulent transaction occur. However, should you be using your debit card that is attached to your checking account and your information is compromised, the accounts that you use to pay your bills could be drained before you realize the fraud is happening. A Regulation E claim can be filed with your financial institution to dispute such charges, though this can take several days or weeks to be resolved, leaving you without money to pay your bills in the meantime.

Change your account passwords on a regular basis

Your passwords are an important link between accessing your finances and keeping you financial data safe. Changing your passwords frequently reduces your risk of exposure should there be a breach with one of the companies you use or should you unintentionally provide it to a fraudster.  Changing your password regularly means that even if an old password is discovered, it will no longer be useful.

Also, do not use the same password for different logins with different companies, should someone gain access to your information they would be able to use it on other sites including but not limited to your email.

Check your credit

You should be checking your credit at least once a year from each of the three major credit reporting agencies: Equifax®, TransUnion® and Experian™. You are entitled to one free credit report from each of the three major credit reporting agencies every year for your review.  This does not entitle you to a credit score, which will come with an extra cost. However, many credit card providers provide monthly credit report tracking tools free for as long as you have an account with them. These programs will vary with every company but are a useful tool to track and watch your credit profile.

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There are also credit monitoring services, which, for a monthly charge, alert you instantly of all activity relating to your credit, provide all updates from your creditors, and even lock your credit completely. Assisting in detecting suspicious activity early can help identify unauthorized queries and prevent financial fraud or identify theft.

Take the time to protect yourself and others, know how to recognize the top scams, and report suspicious activity that could be financial scams and fraud to your state consumer protection offices.

Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

Finding The Right Checking Account For You

Picking a checking account seems like an easy process. With so many financial institutions pleading for your attention there have never been so many options. From your local neighborhood credit union, big banks, small banks, and even completely online banks, the choice is yours, and there is almost no wrong decision. With all these choices, however, picking the right checking account for you and your family’s individual needs can be overwhelming and confusing.  With only slight differences between the institutions and so many types of accounts available to us now, there are a few things to consider in order to choose the right account for you. The key to choosing a checking account for you is to narrow your options by financial institution and then by the services you need or will need in the future.  

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Start your journey by narrowing down your options. Review your prospective banks and credit unions reputations. Consider how these institutions treat their customers through different review platforms like the Better Business Bureau, their geographic footprint, and the ease of access to your money such as through free world wide ATM’s. Once you have a few institutions in mind, review the services that they provide, keeping in mind your financial goals and priorities, as well as the institutions’ discounts, incentives, and fees.  

It will be useful to know a little more about discounts and incentives. Many financial institutions offer discounts to customers when their business also banks with them or when they set up direct deposit, maintain higher balances, or have a combination of products and services, which may include direct deposit, multiple accounts, investments, and/or loans. Sometimes incentives and discounts include fee waivers or favorable interest rates.

It is also important to understand the fees that could be accessed to your checking account and how much each of these fees may cost you. Some of the most common fees that are accessed to checking accounts include:

Overdraft fees: These fees are charged when a payment or withdrawal exceeds the available balance in your account and when the payment or withdrawal is covered by the bank despite the lack of funds.

Monthly service fees: These fees are charged when you do not meet one or more of the minimum requirements outlined in your contract. These can include, but are in no way limited to, a required direct deposit, a stated number of debit card transactions, or a select number of products or services required with the financial institution.  

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Minimum balance requirement fees: These fees may be assessed every time the account drops below a certain dollar amount or when the average monthly balance falls below a specified amount.

These are not the only fees out there but only a few of the most common fees associated with checking accounts. It is important to know what fees could be charged prior to entering into a contract with a financial institution and how to avoid them.

Your checking account should be used only to hold the money you are using for paying bills and making your daily transactions. Any excess money that you have sitting in your checking account is money that is not working for you. You may qualify for additional discounts on your checking account by also opening a savings account adding to your overall average balances. At the same time, putting the rest of the money that you’re not planning on spending into a savings or money market account will provide you with instant access to your funds while also allowing your money to grow. Even with interest rates at an all-time low, your money can grow more if you separate it from your everyday checking funds. Plus, as you see your savings grow you may be more inclined to rethink  and forego unnecessary purchases.

It’s important to know all that you can about your account when you open it. It is also important to pay close attention to the emails and letters that you may receive about changes to your account. Just because you fully understood what you signed up for doesn’t mean that the financial institution won’t change the terms and conditions at some time in the future.

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When it comes to our finances, each of us is unique. Take the time to educate yourself and find the best account for meeting your needs, and talk with your financial representative to help you find the best fit.

Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

Demystifying your 401(k), IRA, and Roth IRA

With so many options and so much noise when looking at different retirement programs let’s take a look at demystifying the three of the most common types of retirement accounts. Not so fun facts: According to Northwestern Mutual 1 in 3 Americans have less than $5,000 in retirement savings with one in five having no retirement savings what-so-ever.  Most advisors will recommend that during retirement you will need seventy to eighty percent of our preretirement earnings to maintain our current way of life before entering into retirement. The largest consideration of that number is if you have your home paid for or not. To avoid working, literally, for the rest of your life it is important to know where you can put your money to help you prepare for the golden years ahead.  

Traditional 401(k):

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The most popular form is a “defined contribution” retirement plan, more generally speaking this is a retirement plan where the employee, employer, and or both parties contribute a specific percentage or dollar amount of their income towards the employee’s retirement. Contributions are excluded from the employee’s gross income on a pre-tax basis, that is before taxes are accounted for on your check, and grow tax deferred until the funds are withdrawn during retirement, so you do not pay taxes on the money until you start collecting your retirement.

This should be the first place that you place your money when this option is available to you as part of your employer’s benefits, plus you will have the money come directly out of your paycheck and that is making savings automatic and easy for you.  On top of that, most employers offer a match of a certain percentage of your income and you should always contribute enough to participate in the full match. Let’s repeat that, if you are not able to contribute the maximum amount to your 401(k), contribute at least the amount that your employer is matching. If you are not participating to the full match you are giving up free money. For example, if you are making $48,000 per year and your employer matches 3% per check, getting paid twice a month at $2000, your employer is giving you $1,440 per year as long as you are putting at least that much in your 401(k) as well. Over time those funds will compound and grow.

For the 2020 tax year the IRS limits of contributions to your 401(k) plan are capped at $19,500 and $26,000 for those 50. The difference over 50 is called catch-up contributions, and regardless of how much you have saved, that limit is available for all individuals over 50 participating in their employer’s 401(k) plan. It’s important to remember that even a little bit of savings helps and if your employer is offering a 401(k) plan, participate.

IRA:

IRAs were made to encourage individuals with earned income to save for retirement in addition to other retirement plans they have. Also known as traditional IRA accounts, all deposits made to your IRA are made on a pre-tax basis and grow tax deferred until the funds are withdrawn during retirement, age 59 ½ or older, similar to that of your traditional 401(k) plan. The funds placed into an IRA account are still available to you should you not wait to retire however, there is a ten percent additional tax penalty for early withdrawal prior to age 59 ½ with a few exceptions.

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For the 2020 tax year the IRS limits of contributions to your IRA are capped at $6,000 or the amount equal to your taxable compensation for the year if less than $6,000. However if you are age 50 or older you are eligible to add an additional $1,000 “catch-up” deposit to your annual contributions. The good news is this year as of the 2020 tax year, there is no longer an age limit on making contributions to your IRA as long as you are still having earned income, however you must begin taking minimum required distributions the calendar year in which you turn 70 1/2, you are born before July 1, 1949 and 72 ½, if you are born after June 30, 1949.

There are several different choices in investment vehicles within your IRA depending on what type of account you opened and your risk profile. Most banks and investment institutions have basic IRA savings accounts or CD’s where your retirement money can sit in FDIC insured accounts or brokerage accounts that will allow you to invest. Whichever way you choose is right for you, but please seek the advice of a professional and educate yourself in your choices.

Roth IRA:

A Roth IRA allows the same contributions amounts as the traditional IRA. The total maximum amount that you can deposit to your IRAs, traditional and Roth is capped at $6,000 and $7,000 for those 50 and older total combined.  

The difference between the two comes in the timing of the tax benefits. Opposed to the traditional IRA pre-tax dollars that lower your taxable income this year growing tax deferred, the Roth IRA is funded with post taxed dollars that are not taxed at the time of withdrawal during retirement.

Roth IRAs have no required minimum distribution at any age at this time, but there are limits to the income that you make to if you can contribute. The income eligibility as of the 2020 tax year if single, head of house has income limits of less than $124,000 and if married filing jointly less than $196,000. This is a great vehicle for your money as well when saving for retirement, especially if you believe that your taxes will increase in your retirement years.

Not one or all of these are created to be your only tool for retirement, remember saving now will allow you to enjoy retirement latter. Saving as much as you can now will give your funds more time to grow, taking advantage of compounding interest and market growth.

Regardless of your approach, tell me how it is going and let’s start a better money discussion. 

Put Your Returns To Use

It’s that time of year again and with returns coming in the millions every day so are those returns being sent back to you. With the average return at $3,200.00 so far this year as of February 28th, according to the IRS.gov, what can you do to get your best return on investment with your tax return?  However you approach your tax situation, if you are getting something back this year you should view the money as an unexpected windfall that you were not expecting and put the money to use for you.  Three great strategies include:

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Paying of your high interest debt:

The more debt that you carry, the more money you are taking away from your future self, if that is six months from now or forty years, if you are carrying balances month over month you are depriving yourself of future resources.  Using this year’s tax returns to pay off your high interest debt should be your number one priority. Not only will paying off your higher interest debit provide your future self more financial stability, it could help improve your overall credit score by reducing your revolving available or credit utilization. With a better credit rating you can help yourself to lower loan rates in the future as well. 

Funding your emergency savings fund:

In basic financial advising we learn that clients should establish an emergency savings fund equal to three to six months of their living expenses.  Savings for your emergency fund is one of the most important concepts in financial advising.  Too often, an individual’s finances are ruled by their emotions and biases, we often overlook the boring future of saving for a rainy day when we can get instant gratification (something now). Unfortunately, no one can predict when an emergency situation might pop up, from the car breaking down to a medical emergency of yourself or a loved one; and if you don’t have the money set aside you may have to charge the expense on high interest credit cards or shuffle other bills around so that you can get back to work to pay those expenses off. Putting your taxes towards your individual emergency saving fund is a great idea.

Contributing to your retirement:

Funding your retirement each year is probably the most important thing your can do for your future self financially. Since you are treating your tax return as an unexpected windfall, using that money to contribute to your retirement will have your future self reflecting on how smart you truly are. While rates of return may fluctuate on your retirement account, the sooner you start, the more your money will compound, leaving you a bigger pile of money when the time comes to retire. With so many different types of retirement plans available to you it is important to do your research and talk with a professional advisor or your accountant when starting out to help find the right plan for you. 

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Keeping your long term goals in mind when making financial decisions is imperative, how you plan and prepare for your future is essential to creating a better outcome. Create and follow your budget and set your goals.

Regardless of your approach, tell me how you approach you taxes and your returns. Start a conversation and lets have a better money discussion.