Secure Your Future Retirement By Avoiding These Missteps in Your 40s

The following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

When you’re in your 40s, you may begin to feel a great deal of financial pressure.  Your children are growing up, and the expenses associated with that begin to pile up.  You may find yourself shelling out money for more expensive extracurricular activities, higher grocery bills thanks to your children’s endless appetites, car payments so your children can begin driving themselves, car insurance payments, and college tuition.

As if that is not enough to put a strain on your budget, this may also be the time when your aging parents need more support, both financially and physically.  You may be helping them out monetarily or helping them out physically, which may mean less time at work for you as well as less income.

This decade, more than any other, is the one where your choices can make or break your future retirement.  This is partly because if you make a mistake financially in your 40s, there is not much time to recover financially, unlike mistakes you may make in your 20s when you have four or five decades to recover before retirement.

In your 40s, be careful to avoid these financial mistakes:

 

Refinancing Your Home and Extending the Life of Your Mortgage

Refinancing your home for a significantly lower interest rate is a smart money move.  However, too often, people refinance to lower their interest rate, but then they also extend the life of the mortgage.  True, this can reduce your monthly payment, which may offer you financial relief now, but it can later wreak havoc with your finances and your target retirement date.

Let’s say you bought a house when you were 35, and you pay on the loan for 10 years.  You are now 45 and have just 20 years left on your loan; you would own the home free and clear at age 65.  This works out rather nicely as 65 is a time when many people retire.  However, if you refinance at 45 and extend the loan back to the original 30 year term to lower your payment and create some financial breathing room in your budget, your home won’t be paid off until your 75.  This can cause quite a strain in retirement.

Many people do not have enough money set aside in their retirement account to comfortably cover a house payment, especially as medical expenses typically increase as you age.

You may say that you won’t retire until the home is paid off, but you can’t always control that.  Sometimes medical issues make retirement come earlier than planned.

 

Taking Out a Home Equity Loan

When you feel a financial crunch, your first thought may be to tap the equity in your house by taking out a home equity loan.  After all, the interest rates are usually much lower than a loan you can take out at your bank or a credit card.  You can also extend repayment time, often to 10 or even 15 years, which is typically not available on a loan that you get from the bank.

However, if you’re unable to make your home equity loan payments, you can lose your house just as you could if you weren’t able to make your mortgage payment.  In addition, if your home loses value during the time you’re repaying your home equity loan, you may find yourself underwater, meaning you owe more on the house than the house is worth.  If you need to sell during this time, you would need to pay the difference between the current value of the house and what you still owe between the mortgage and the home equity loan, which is often tens of thousands of dollars.  Too often, people who are underwater are unable to even put their home on the market because they know they won’t be able to generate the money needed to pay off the house loan when they sell their house.

 

Taking Out a Student Loan for Your Child

When your child is ready to attend college, you may feel a natural instinct to help him.  College is expensive, and you may not want your child saddled with student loan debt.  However, there are plenty of alternatives to taking out student loans for your child.

First, let your children know, from the time they are in upper elementary school, that you will not be able to help pay for their college education.  (Does this sound too harsh?  Trust me, your children will be glad when you’re retirement age and have enough money to take care of yourself because you made saving for your own retirement a priority.  Your children will be glad that you are not their financial responsibility, especially when they’re just starting out.)

By letting your children know this early, they can pick local colleges that will be cheaper, they can apply for scholarships and grants, and they can save money themselves for college.

Yes, if you don’t take out loans for your children, they will probably have to take out student loans themselves.  Remember, they are the ones who may qualify for loan forgiveness based on their career.  That will never be an option when a parent holds student loans.  Also, children with student loans can choose an income-contingent based repayment plan; parents can’t.

The government takes very seriously defaulting on student loans and will recoup their money if you stop paying.  “Federal payments to borrowers who have not made scheduled loan repayments can be withheld to repay the loan, including tax refunds and Social Security retirement or disability benefits” (US News).

Finally, if you don’t take out student loans for your children and you’re doing well financially and saving enough for retirement, you can always choose to help your children pay down their student loans faster.

Simply put—don’t take out student loans for your children.  Just don’t do it.  You and your child will be glad you didn’t twenty years from now.

 

Raiding Your Retirement Account

Once you start to amass a fair amount in your retirement account, you may be tempted to tap into that account when you hit a financial bind, which is likely in your forties.  However, there are significant drawbacks to raiding your retirement fund.

First, you lose the ability for the money you withdraw to continue generating interest and growing your nest egg further.

Second, you’ll need to pay a 10% penalty for withdrawing the money if you’re under the allowable age.

Third, the money that you withdraw will count as taxable income on your tax returns, so you’ll also need to pay taxes in addition to the 10% penalty.

Your 40s can be the time when you secure your retirement funding and can begin to plan for a relaxing, enjoyable retirement.  However, as you face dual financial stress in your 40s from increased financial needs from your growing children and your aging parents, you may feel pressure to find more money to infuse in the budget.  This pressure can lead to any of the above unwise financial decisions that can derail your retirement plans and lead you to a difficult financial position in your 60s and 70s.

How about you all? What financial moves do you suggest people in their 40s avoid to keep their future retirement secure?

How Millennials Are Avoiding Credit Card Debt

The following is a post by MPFJ staff writer, Toi Williams, who is a professional finance blogger for MarketBeat. She has backgrounds in personal finance, sales, and real estate.

Young Americans under the age of 35, who are often referred to as millennials, are increasingly avoiding credit cards and the debt that tends to come with them. Roughly 63 percent of millennials don’t have a credit card, versus only 35 percent of older adults, according to data from the Federal Reserve. The data also suggested that millennials are using credit cards less than people of a similar age did in the past.

The number of Americans under the age of 35 holding credit card debt has reached its lowest level since the data was first collected in 1989. According to the Survey of Consumer Finances, roughly 37 percent of American households headed by someone aged 35 and under held credit card debt in 2013. That is down nearly a quarter from immediately before the financial crisis that began in 2008. The level has not fallen as much for any other age group.

 

Reasons For Avoiding Credit Cards

There are numerous reasons for millennials’ avoidance of credit cards. Some young Americans say that they are avoiding credit cards because they have lived through the damage such debt caused during the financial crisis. Others say that they avoid credit cards because they do not trust the financial markets. Some watched as consumer and small business credit lines were cut off in the midst of the financial crisis.

Some millennials are dealing with much larger student debt loads than previous generations. The Project for Student Debt found that student debt increased an average of 6 percent each year from 2008 to 2012. According to federal data, the average American under the age of 35 now has $17,200 of student debt. That is 182 percent higher than Americans of the same age had in 1995. These burdensome student debt loads make it hard for them to take on any more debt.

Laws passed after the financial crisis also make it much harder for younger people to secure credit cards. The Credit Card Accountability, Responsibility and Disclosure Act of 2009, or CARD Act, mandated that borrowers must prove they have the means to repay the debt. The CARD Act also altered the lending landscape by restricting the ability of banks to market their products on college campuses. Today, many of the tents that credit card companies used to pitch all over college campuses to advertise their products have vanished.

Many young Americans believe the risks involved with debt outweigh the benefits. Credit cards offer the temptation to spend beyond one’s means. The idea with a credit card is you’re essentially putting money down that you don’t have and making a promise to repay it back with additional money for the convenience of having what you want right now. Some millennials simply prefer to pay for things as they go, without having to worry about paying a bill later.

Millions of millennials are using payment methods that do not involve debt for their purchases. Debit cards, which draw funds directly from a bank account, offer many of the same payment advantages as credit cards without the risk of accumulating debt. For online purchases, an app like Venmo or an online payment service like PayPal can be used.

 

The Consequences of Avoiding Credit Cards

Millennials’ avoidance of credit cards could prove detrimental in the long term, not just for them, but for the financial system as well. Historically, credit card use during the young adult years have made Americans more comfortable with making larger purchases with debt when they are older. Having a credit card also helped them establish a credit score, giving them more access to financial services later in life.

Having a good credit score is more important for this generation than previous ones because today, many more things are tied to credit scores. Credit scores are used to determine interest rates on mortgages and personal loans, may be used as a qualification for a rental home or employment opportunity, and may be used in the determination of insurance premiums. Those with low credit scores or non-existent credit histories find themselves paying more for the same financial services that others obtain at a much lower rate.

Fortunately, millennials don’t need to go into debt to get a good credit score. By paying off the credit card debt completely each month, they can still have good reports sent to the credit bureaus based on the open account. However, a survey by Bankrate found that only 40 percent of millennials with credit cards pay off their balances in full each month, compared with 53 percent of older adults. Millennials were also most likely to miss payments completely.

 

Finding a Good Credit Card

For millennials that do choose to use a credit card, picking the right card is key. Those just starting with credit cards should choose the card with the lowest annual interest rate without being distracted by offers for cash back or rewards. Until you have experience using the card, you will not know whether the rewards offered are worth it or even if you will spend enough to qualify for the rewards. You can always get an additional card with rewards after you have established your credit history.

Finding a credit card with a reasonable interest rate may be difficult for most millennials. According to Experian, the average millennial has a VantageScore of 628, which lenders largely consider subprime. Even for millennials with higher scores, the lowest available APRs offered on new credit cards topped 15 percent on average last summer according to CreditCards.com, marking a five-year high. These rates are expected to rise with future rate hikes by the Federal Reserve, as there are legal limits on certain card fees but no limit on APRs.

While choosing the best interest rate seems simple, it isn’t. Even after you have the card, it’s best to simply assume that the company can change your rate at any time for any reason. The key to ensuring that the rate stays as low as possible is minding the fine print and playing by the rules.

Be aware of when introductory offers end and what transactions they apply to. Review the information for all the fees that apply to the card, including annual fees, balance transfer fees, and cash advance fees, even if you don’t think you would ever use that service. There are many websites available online that will compile the information for several different cards into an easy to read format for comparison.

***Photo courtesy of https://www.flickr.com/photos/128185330@N03/17705922131/in/

How Reputable Financial Advice Can Help Grow Your Wealth

The following is a guest post. Enjoy! 

You can make a significant difference to your financial success by making use of the services of a good, independent financial advisor. Financial advisors help you make decisions that are tailored to your circumstances.

Perhaps, like most people, you feel you don’t need professional help. This might be fine in the short term, but could severely impact your success further down the line. All financial advisors, however, like all professionals offering services, are not equal.

Here is a list of questions that you can ask yourself when reviewing your current or prospective financial advisor:

Are they independent?

Financial planners are either tied agents or independent agents. Tied agents work for a particular product provider(an example of this would be a retirement annuity offered by a certain company) and may be incentivized to sell certain products. Independent agents earn no commission off of products they sell and do not work for a particular provider.

Independent advisors tend to be more objective and use their experience to create a path to your financial goals. They help you make sense of all the products that are available to you and can help you pick ones that best suit your financial needs and circumstances.

What are their qualifications?

All financial advisors are required by law to be licensed by the Financial Services Board or FSB. In order to get the license, an advisor needs to pass the regulatory exams and fulfill the Fit and Proper requirements defined by the FSB. These requirements include honesty, competency and integrity. All financial advisors need to prove to the FSB, on a continuous basis, that they are maintaining and developing their professional competency.

In addition to these basics you should enquire about the advisor’s academic or other credentials. Reading the disclosure document provided to you will give you an idea of all the products the financial advisor is licensed to recommend and advise on.

What is the fee structure?

Full disclosure and transparency are very important. It is best to that your financial advisor explains to you exactly what kind of fees you will need to pay and how they would work.

Fees are generally charged as a percentage of the value of an investment. There could be initial and ongoing fees, thus it is important to identify the costs. Some advisors use a different fee structure. They charge directly for advice provided, usually at an hourly rate. Any fees should not be charged or paid without an agreement upfront.

How can they help you grow your wealth?

Good advisors take the time to understand your needs and help to put a plan in place that reflects your financial goals and risk appetite. They can help you invest with more discipline and can offer rational guidance before your emotions lead you astray.

Investors often buy and sell investments or switch between products at the wrong time due to an emotional reaction to the market. This can potentially destroy the value of your investment. A financial advisor helps you to remain focused on your goals. They play a huge role in helping you grow your wealth. By growing and nurturing your relationship with a financial advisor you can rest assured that your investments are adjusted to your needs rather than your emotions.

Where can you find a financial advisor?

Trust is very important in this relationship, therefore a good starting point for your search for an advisor would be to get a recommendation from someone whose opinion and judgment you can trust. Another option would be to consult the Financial Planning Institute of Southern Africa (FPI) for help.

5 Ways to Earn Extra Money Fast for the Holidays

The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy! 

The holiday season is winding down. While the holiday time is an exciting time to relax and spend time with family, it can also be quite stressful on your finances due to all the costs associated with the holidays.

Many people spend hundreds or even thousands of dollars on purchasing holiday gifts, decorations, hosting and attending parties and events, and so on.

Nothing stings more than getting into debt this time of year. One thing you can do to avoid spending more than you earn over the next few weeks is to find ways to earn more money to cover the increased expenses over the past few months.

Here are 5 ways to earn extra money fast to either prepare for or recover from the holiday season.

 

  1. Get a Seasonal Job

 

Earning extra money through a seasonal job is a good idea if you are worried about stretching your budget for the holidays.

Seasonal jobs tend to provide a consistent income (even though it’s temporary) because business usually picks up during the fall and holiday seasons.

Many businesses like Amazon.com will be looking for online customer service reps this holiday season to assist shoppers and answer questions about purchases, shipping inquiries, and more.

This positions with Amazon range from $12 – $15 per hour on average and can last up to 6 months or longer if you leave a lasting impression and they need to take on a regular employee.

You can also try working as a seasonal associate at busy stores like Target, Walmart, K-Mart etc. Or, try getting holiday-themed gigs like doing photography at the mall or decorating store fronts.

 

  1. Test Websites

If you’re looking to earn some extra money from home, you can test out websites during your spare time and offer your honest feedback.

UserTesting is a popular website that pays people to review other websites and blogs.

Testers get paid $10 for each 20-minute review and they just answer simple questions and record their first impressions and experience navigating through the website.

It’s not a ton of money, but it will add up once all those unexpected holiday expenses start trickling in.

 

  1. Sell Items Online

If you’re buying new gifts for people in your family, it’s the perfect time to clean out your home by selling items you no longer use.

You can sell items online via Amazon, Ebay, or Craigslist, or you can sell them directly to buy-back consignment shops.

If you have old clothes, movies, furniture, children’s toys etc. there are many small stores that may buy them back from you if they are in good condition. Plato’s Closet, Once Upon a Child, Clothes Mentor, and Disc Replay are all national chains and there are plenty other options depending on where you live.

If you don’t have many consignment shops in your area, stick to selling your items online for better results.

 

  1. Become an Uber or Lyft Driver

My husband recently started driving for Uber and he loves it. His car is older (a 2006 I believe) and we live in the suburbs but he still gets a decent amount of trips and his side income is currently helping him be able to afford holiday expenses this year.

Uber also pays drivers every week, so if you get started now, you can get paid a few times before Christmas.

One of my friends recently quit a job he didn’t like to drive for Uber and Lyft. Lyft drivers also get paid weekly and Lyft allows drivers to receive tips. According to Lyft, around 60% of passengers tip.

No matter which rideshare option you choose, you can enjoy flexible work and drive to earn money whenever it’s convenient for you.

 

  1. Babysit

If you have friends, family, and neighbors who may be busier over these next few weeks, consider offering to babysit for them. Couples love date nights and since daycares aren’t open in the evening, you can market your services better around that time.

Making a profile on Care.com or Sittercity.com will also help you land clients.

If you can’t or don’t want to watch kids, consider babysitting pets by walking dogs or keeping an eye on them when their owners are out of town.

You can advertise your services in your neighborhood and I always recommend Rover.com which is a site that connects pet sitters and dog walkers with owners who are in need of the service.

If you need extra money to recover from the holidays, you can earn money quickly by trying any of these ideas.

The key is to get started so you know how much you need to earn.

How about you all? How are you earning extra money to recover from the holidays?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/76657755@N04/7027602839/in/

How My Mom Went From Dirt Poor Single Mom to Comfortably Retired

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

When I was a kid we were always struggling for money. I remember my parents having “discussions” about money and how to work things out so the bills got paid. When I was 11, my parents divorced and what was “financially struggling” turned into “dirt poor” as my dad’s income now was shared between two families.

Dad faithfully paid his child support obligations, which covered the $250 house payment and gave us an extra $50 to live on. To say that things were tight was an understatement. There were many times when we had bare cupboards and threats from the power company to turn the heat off in the dead of winter if the bill wasn’t paid. I remember my mom calling and begging my grandma to borrow her the money to pay the heat bill. I remember not being able to afford new clothes. We shopped at thrift stores and only bought what we absolutely needed. I remember wearing $2 canvas tennis shoes while all the other kids were wearing Nikes and Converse.

Today my mom is retired and financially comfortable. Not rich, but comfortable. How did she turn things around for herself and her family? Here are five things she did to get free from being dirt poor and to create some financial stability for herself.

 

She Taught Herself Valuable Skills

When my parents divorced, mom didn’t have her driver’s license and had no valuable skills for obtaining a job. When she went down to the welfare office to apply for financial support, she saw that they had opportunities for job training and took full advantage of them. She went to classes on how to interview. She bought an old used typewriter at a neighborhood garage sale and brushed up on the skills she’d learned in typing class in tenth grade, even though she hadn’t touched a typewriter in over fifteen years.  She did what she needed to do to make herself marketable to the workplace.

 

She Learned to Live Within Her Means

When mom first was managing our home and family on her own, we were always short at the end of the month. There were a few months when there wasn’t any food until the welfare check came in a day or two later, and credit cards weren’t an option for a single woman in the 1970’s. Free breakfast and lunch at school fed us kids, but mom would just go without.

Our financial situation changed when someone gave my mom a common sense piece of advice: Pay the bills first and learn to budget the rest and live within your means.

This sounds so simple but it was new information to the woman who had always let her husband manage the money. She began meticulously budgeting and made sure we always had enough to eat and live on. It wasn’t fancy, but all of our needs were provided for. Mom budgets meticulously to this day.

 

She Made Saving a Habit

Even though my mom’s income was always smaller (her max pay before retirement was $17 an hour) she always, always saved something each month. She contributed to the 401(k) plans where she worked and put a little bit in savings each month. At the time, the small amount she was putting away each month didn’t seem like much, but it grew over the thirty years between her divorce and retirement and she’s still living on it today.

 

She Learned to Persevere

Mom went through LOTS of tough times in her life after the divorce. She suffered for years from clinical depression. It takes her awhile to learn new skills, so there were many jobs that fired her due to her lack of ability. But no matter what obstacles came her way, mom got up, brushed herself off and moved on. She did her best not to allow failure or discouragement keep her from achieving.

 

She Redefined “Comfortable”

My mom’s life now is not comfortable by many people’s standards, but she has her priorities in order so that her minimal income (about $750 a month via social security and a smaller sized investment fund) is managed in a way that makes sure the bills are paid but allows for some fun too. Mom’s “fun” these days includes her weekly bowling session with her husband, her brother and sister-in-law. They take advantage of the senior bowling rates and then her and her husband (they have totally separate finances and split all of the bills) split a meal at a local restaurant. She gives herself sixty dollars a week to cover gasoline and other incidentals, entertainment and clothing costs, and gift purchases for birthdays and Christmas. She rarely spends all sixty each week, putting the leftovers in an envelope so that when more expensive weeks come she has the cash to cover them. She doesn’t take vacations or live in a fancy house. She has the same bedroom set and coffee tables she’s had for thirty years.

Comfortable to my mom means she’s able to stay retired and spend her free time with family and friends. She doesn’t at all feel like she’s missing out because of her tight budget. Instead, she’s grateful for all that she has and is happy to have a warm home and loved ones to share her time with.

Mom isn’t wealthy by any stretch of the imagination, but she has all that she needs and a little bit more, and that is perfectly enough for her. She’s learned to look at the positive in life and be grateful for all that she has, and that kind of attitude makes life a whole lot more comfortable, regardless of one’s money situation.

How about you all? Have you ever struggled financially? What did you do to overcome?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/ktoine/7976828799/in/