Financial Strategies

Table of Contents

• Budget Strategies
  • Are you walking the talk?
  • Are you counting the cost?
  • Are you weighing the alternatives?
  • How do you plan for big changes in your income or expenses?
• Loan Strategies
  • Are you monitoring your Score?
  • Can you make your debts tax deductible?
  • Why do you want a bi-monthly mortgage payment plan?
  • What is the easiest way to pay off a single credit card?
  • What is the least expensive way to pay off more than one credit card?
• Retirement Strategies - What if you cannot save enough money?
  • Harvest your home equity
  • Work a couple years longer
  • Do you have a windfall coming?
  • Consider working part time in the early years of retirement
  • Keep your living costs low
  • Manage your investments through retirement
  • Consider taking out a reverse mortgage later in your retirement years

We all have goals but many times we do not handle our money in a way that works toward accomplishing our goals. Write down your goals and then print out a copy of your budget and income plans. See if you are putting money toward your goals or not. Maybe good intentions get replaced by impulsive spending. Maybe you are putting your money where it is too easy to withdraw it. In truth talk is cheap and saving is hard. Make sure you manage your money in a way you can accomplish your goals and also put the money where you cannot get to it easily. Consider direct depositing goal related savings into money market type funds held at a brokerage house.

When you plan for large purchases are you counting the cost to see if you can actually pay for it or are you just taking on more debt in order to get what you want? These days it is very easy to get financing to pay for things we want. But, getting financing and actually paying for something are totally different things. In order to avoid debt and increase the control you have over your money establish goals for major purchases and then establish a savings plan to save money so that you can pay cash. Also keep this in mind, when you are ready to buy something, you will still be able to find it on sale!

Life is full of choices and the decisions we make can determine how our future will be. When we make a choice of saving toward two goals, we generally will make the best decision if we weigh the benefit, costs and external support of each. An example is; do I save more for retirement or more toward college funds for my children. Most would save more toward college costs. But if you consider: there are many sources of grants, scholarships and low cost government backed loans to help with college costs and corporate pensions and social Security are in trouble, you might make a different decision. Both of these goals need to be funded but we should balance the savings we add to each in light of the benefits, costs and external support each has. Retirement will come one day and many kids will go off to college so both need to be funded. Weigh your alternatives carefully.

When you get a raise how do know what to do with it? If you are having a baby how do you plan for the additional costs? What if you want to buy a new home how to you figure out how to fit that in your budget? People must plan for changes in income and expenses because in life change is guaranteed. Simple Home Finances Budget toolkit provides a way to model changes for your current income and budget plans and then implement those changes in your income and budget plans when you want to.

When you were in school you got a report card, that report card informed you on how well you were doing in school, it helped show you where you needed to concentrate more of your effort. As an adult you also have a report card it is called your Credit Score. This report card tells you how well you are handling your finances. The higher your Credit Score the better you are handling your money. This score affects the cost of the loans you take out. The lower your score the higher the loan rates you will pay. You can improve your Credit Score by; paying your bills on time, paying off loans, maintaining little debt, completely avoiding credit card debt and maintaining at least 30 percent equity in your home. A good Credit Score is between 700 and 800.

If you have too much debt and are looking for a way to reduce your monthly payments and convert all that interest into tax deductible interest you may be able to do just that, if the equity you have in your home is greater than 30%. Consider rolling your credit card and installment loans into your mortgage or a home equity loan. It may lower the interest rate you pay and make all that interest tax deductible. One note though, most people can only do this once so in the future you will need to avoid getting yourself into debt and avoid credit card debt all together. Simple Home Finances Loan Workbench uses existing loans you are managing in Loan Management and evaluates the impact of consolidating them into single loan such as your mortgage or a new home equity loan.

Do you want to pay your house off sooner? You can do that using a Bi-Monthly Mortgage Payment plan. With this plan you make 2 payments every 4 weeks, which equates to one additional monthly payment a year. What is wrong with that? Nothing until you get into a month where you need make a third mortgage payment and may not have the money. So what is the alternative? You can achieve essentially the same results by dividing your mortgage payment by 12 and then pay the resulting number as prepayment (You can model this in SHF Mortgage Management toolkit). With prepayment you should see how much you can fit into your monthly budget. Prepaying enables you to plan a way to payoff your mortgage and avoid the sudden shock of making an extra mortgage payment 2 months out of the year.

Paying off a Credit Card requires two things, a payment plan and the discipline to stop charging against that credit card. If you have the discipline to stop using the card then the easiest and most effective way to pay it off is to take the current minimum payment say $100 and make that same payment ($100) every month. By doing this you treat that credit card as if it is an installment loan. If you consistently make that same payment every month your credit card can pay off quickly. If you want to pay it off faster then make a larger payment. Simple Home Finances Loan Management toolkit gives you a way to treat your credit card as an installment loan and will project how much time you have left and what impact prepaying can have on the number of months remaining and the total cost.

If you have more than one credit card and want to pay them off without a consolidation loan then you should first consider paying off the loan that you are able to pay off the fastest. Now this is probably not what your financial guy would tell you, he would probably say payoff the card with the highest interest first. But, this likely what will cost you more because typically the number of months you make payments adds more cost than the interest rate alone. So if you can pay off one card in a relatively short period and then when you finish paying that card off you add that payment to the payment you make on the next loan you can payoff in the shortest time you can ultimately payoff your loans faster and save more money than just paying off the highest interest cards first.

We all will retire eventually and many are not saving enough, so what can we do to help ourselves? First save what you can. Second your home is likely your largest investment. Once your kids are gone downsize to a smaller, less expensive home as soon as you can. This will lower your costs and give you the opportunity to save more money every month. Try to pay cash for the home and if there is money left, invest it. If you cannot pay cash try to get a mortgage payment that will enable you to pay it off by the time you retire. You will likely still have a lower house payment to go along with lower utilities and taxes. Save your excess income for retirement. When you retire, consider downsizing again in a location you truly want to retire in. This time make sure you have no mortgage and again save the excess equity for retirement.

Working a couple more years does two things: it allows you to put more money away and it allows your savings to grow and this makes the biggest difference to your retirement savings. The beautiful thing about this is it is easy for most people to do.

Many of us have some type of inheritance coming our way. Plan on investing the money by reducing your costs such as in paying off debt or by adding it to your savings.

Retiring is a major change and it may require that you make an adjustment. Ease into that change and get a benefit at the same time by working part time in the early years of retirement. This can have a positive impact on your finances as well as the quality of your life.

In retirement rethink the need for a big house or expensive car. Consider a lower cost of living that gives you the most freedom to travel and spend time and money on family. Thinking small and simple will serve you well in retirement. Control what you can because things you cannot control, like health costs, can take a big bite out of your retirement savings.

Interest is one of the great wonders of the world and the higher the return the better. So keep some of your money invested for higher returns during your retirement years. Seek a financial planner to help diversify your savings and protect and grow your nest egg. If you can improve your post retirement return by one percentage point it can greatly impact the money you have available later in retirement.

A reverse mortgage can provide tax-free income at a time when you may not have enough in savings. It can be in the form of a monthly amount similar to a pension or a lump sum amount or a credit line. It is paid by the equity in your house. This is a great choice for people who need money and have a lot of equity in their home. You do not need to pay back this money it will be paid for when your house it sold. You do not need to move out of your house either. One caveat is by doing this you reduce the inheritance your children will get because you are borrowing against the equity in your house.