Our top 3 tips on a variety of topics.
The national balance of student loan debt exceeded $1 trillion in 2015, a number that has many parents of younger children wondering how they'll ever help their kids pay for school as they struggle to pay off their own education debt. If you or your kids are starting to think about college funding, here are three of the top things you should know about student loans:
- There's a difference between federal and private, and it's not just who lends. The informally titled Obama Student Loan Forgiveness program, which includes the popular Public Service Loan Forgiveness rule, only applies to federal loans. You may be eligible for more aid through private lenders, but just know that if you run into difficulty in the repayment phase, the options are much more limited than the federal programs, like the Direct Loan Program.
- Try to pay your interest as it accumulates. One special provision of federal loans is that the interest doesn't accumulate until you go into repayment, which means you can save thousands of dollars by paying the interest as it is incurred instead of waiting until it is added at the end of the loan. If you can at all afford it while you're in school, try to pay the interest each semester.
- The PLUS Loans are not the students' responsibility. Aid award letters often offer parents the option to take out an additional PLUS loan if the federal subsidized or unsubsidized loans don't quite cover the student's tuition needs. Just be aware that when the student graduates, the parent will be on the hook for the PLUS loan, even if the family had an agreement that the student would pay. If he/she doesn't pay, mom and dad are on the hook and could see their credit suffer.
If you are in repayment mode but struggling with making the payments, federal loans have a variety of repayment provisions to help. There are also an increasing number of student loan consolidation companies out there as well, just beware that if you do consolidate your loan to lock in a lower rate, you forego any benefits that are available through the 2010 loan forgiveness rules.
If you're planning a backyard get together, here are three great ways to save money:
- Make it BYOM. Meat is often the most expensive part of hosting a BBQ, so save some money by asking guests to bring their preferred item to grill – you just supply the grill, chef, sides and festive atmosphere.
- Assign sides. If fall-off-the-bone ribs are your personal specialty, ask guests to bring a side to complement. Try to assign specific sides so that you don't end up with three tubs of potato salad and no corn on the cob.
- Give it a punch. Instead of individually bottled drinks, mix up a punch for the kids with mixer options for adults. If people prefer something else, let them know they're happy to bring their own.
Bonus tip: As you take advantage of bargains at the grocery store, track how much you're actually saving, then transfer that amount to your savings for a little boost. Even the little thing adds up!
The popularity of high deductible healthcare plans (HDHP), which utilize health savings accounts (HSAs) to pay out-of-pocket costs, has risen along with the cost of employer-provided health insurance. Here are three reasons an HSA plan might be the right plan for you:
- Your current healthcare costs are relatively low. If you're healthy and have no dependents, chances are you're not utilizing your insurance much anyway, so the lower premium of the HSA option could satisfy your healthcare needs, and your budget.
- Funds don't expire. Unlike flexible spending accounts (FSA), which require you to spend all the money in your account by the end of each year, HSA funds roll over year after year. This could enable you to build up a large savings account that would be available later in life when healthcare costs will likely increase.
- Employers incent employees to select the HSA option. Because HDHPs are less expensive, employers often make deposits into participants' HSA accounts as a way to encourage them to select that option. If your employee is willing to give you tax-free money to help defray your out-of-pocket healthcare costs, an HDHP can make sense, as long as you can afford the remaining costs up to your deductible.
BONUS: HSA accounts also allow you to save taxes on your healthcare costs, which can add up over time. Why pay taxes on medical expenses when you don't have to?
Insurance is one of those necessary money evils – no one likes spending their hard-earned money on it, but they are glad to have it when they need it. Here are the top considerations for three types of insurance you need to know:
- Homeowners/Renters Insurance. Pay attention to the amount of personal property coverage in your policy. Many policies default to $10,000, which is the maximum the policy would pay in case of fire or theft or other loss. That may be more than enough to replace items in your home today, but you may want to increase that value as your home (or your family) grows.
- Auto Insurance. The higher your deductible (the amount you pay out of pocket before insurance kicks in on a claim), the lower your premium will be, which is a great way to keep your car insurance costs low while still covering yourself against a total loss. However, should you need to make a claim, it's important that paying the deductible won't cause you unnecessary financial hardship. Make sure you have the amount of your deductible factored in to your emergency fund.
- Life Insurance. If someone else's financial life would be affected by the loss of your income, you need life insurance. For most people that means once they have kids, but that's not the only criteria. There are several types of insurance, so be clear on what type you need before you start shopping. It's also a good idea to know how much you need so that you can be sure the policy you're investing in is best for you.
Insurance isn't fun or sexy, but it is a key part of being financially prepared. Make sure you're protected and revisit your insurance needs annually.
A key part of your ability to take out a loan, whether it’s to buy a house, a car or even just to sign up for a new mobile plan, is your credit score. FICOTM is the most widely used scoring system, so it’s important to understand how it works. Here are the top 3 things that affect your score, in order of importance:
- Payment history – Any lender wants to know that you pay your bills on time, so this is the most heavily weighted part of your score. Pay all your bills on time, every month for the biggest boost to your score.
- Amounts owed – This includes your credit utilization (are you close to maxing out on your cards?) as well as how many different accounts you hold carrying a balance. A high number of accounts with balances or using too much of the credit available to you can be a signal that you’re overextended. Try to keep balances less than 30 percent of the total available credit (or pay them off entirely!).
- Length of credit history – You know the saying, “Time heals all things?” That applies to credit scores too. The longer you’ve actually been using credit, the better off you are, although having a short history won’t ruin your chances of getting credit if the rest of your history is good. That doesn’t mean you should run out and start charging everything on a credit card, but having a card and using it occasionally shows lenders that you have the ability to re-pay what you’ve borrowed and hey, isn’t that really all they want to know?
Here are the three most important questions to answer before you start shopping for life insurance:
- Do you actually need life insurance? If there is anyone you care about whose life would be drastically altered financially if you passed away, then the answer is yes.
- What are you insuring? Do you want the insurance to pay off your mortgage? Pay for your children's college education? Be enough to replace your income? That determines how much you need. Try this calculator to find your specific amount.
- How long do you need it? Most people only need insurance to pay if they pass away before their kids are out of college. That means a term policy for approximately 30 years. If you want it to last your whole life and pay out no matter what, then you're looking for whole or permanent insurance. That type is more expensive, but can be the right solution for you in certain cases.
Most insurance agents will present you with several different options - don't be afraid to ask as many questions as you need to feel like you fully understand how it works. To learn more about life insurance, check out these articles on 360finlit.org.
Don't let the phrase "estate planning" scare you away from getting certain key documents in place. You don't have to be a millionaire to need these three important items:
1. Healthcare directive. Also known as your living will, this shares your wishes on whether you would want to be kept on life support. Each state has different laws, so the easiest way to complete this form would be to search your state's name and the phrase, "healthcare directive." You should be able to print off a simple form with a checkbox, then sign it and make sure your doctor has a copy.
2. Powers of attorney. These documents give someone else the ability to handle your affairs in case you're unable to do so. The most common type is the durable power of attorney, which lets the person you name (which could be a spouse, parent, sibling or even your best friend) do things like pay your bills and sign your name in your absence. Keep in mind that these aren't just for when you're laid up in the hospital - they can also come in handy if you're out of the country and need something taken care of back home, including moving money. Additionally, a healthcare power of attorney lets you say who makes your health decisions (beyond the life support question) in case you're not able.
3. Last will & testament. If you pass away without a will, your state has laws that direct how your assets i.e., stuff that's worth money, including money) will be distributed. Even if you're not married or you don't have kids, you need a will. It not only makes your wishes clear, it makes life easier for those left behind.
Check with your employee benefits department - many companies offer preparation of these forms as a benefit. While they are just the basics and would need to be updated by an attorney should your life get more complicated, they are a great start!
When it comes to choosing how to invest your savings, there are three factors that will determine whether you choose stocks, bonds, cash, or a mix of all three. Check out the main factors here:
1. Time Horizon: The sooner you will need the money, the less risk you want to take. For goals that are five years out or less, stick to cash. For long-term goals like retirement, education for a newborn or other milestones 10 years out or more, you can afford the risk of stocks. And for in between? A mix of bonds, cash and maybe a little stock, depending on the goal and exact timeline.
2. Risk Tolerance: How do you feel about the possibility of your savings losing value in the short term in return for a higher probability of growth in the long-term? For more on this trade-off, check out Feed the Pig.
3. Comfort Level: In other words, are you a hands-off or hands-on investor? If you like to watch the markets and be involved in the choices, you may want to choose your own mix of different funds and stocks. If investing is a mystery to you or you just don't want to have to make the choices, then Target Date Funds can be an easy way to set it and forget it. To learn more about the different types of funds, check out this article on 360 Degrees of Financial Literacy.
Of course there are many other nuances when choosing the best investments for your goals, but knowing these factors can help narrow down the choices and help you overcoming investing inertia. Now get out there and make your plan today!