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?

5 Money-Saving Hacks for Your Student Loans

The following is a guest post. Enjoy! 

Taking out student loans can provide you with the opportunity to earn a degree, learn a trade, and improve job prospects. In other words, the benefits you’ll gain in the long run make borrowing well worthwhile.

What’s even better is that there are myriad ways to save money when you take out student loans, as well as when you start to pay them back. Here are some money-saving hacks every student should know about.

  1. Be frugal

It’s always best to borrow as little money as possible. There’s no shame in taking advantage of any student loan funds you’re eligible for, but the less you borrow, the less you have to repay down the road. Sure, it’s tempting to use your extra funds for a spring break vacation, but remember you’ll have to pay interest on that trip later on.

  1. Refi high-interest loans

When you apply for and accept student loans to pay for college, you may end up with a combination of both federal and private loans at a variety of interest rates. If you can, it’s best to pay off the high-interest loans first to avoid extra expense.

However, you might also consider refinancing your student loans. You just have to make sure it makes sense to do so. This means crunching numbers to see whether or not the savings you’ll enjoy are worth the expense of refinancing.

  1. Automatic payments

Many lenders offer incentives to borrowers that set up an automated payment schedule and allow funds to be automatically withdrawn from their bank account each month (or more frequently). To find out if you’re eligible for any discounts associated with automatic payments, simply check in with your loan service. Then there are companies like Ameritech Financial that help you to lower and refinance your student loan debt which is gaining a lot of popularity with recent college graduates.

  1. Paying on principle

There’s absolutely nothing wrong with paying the minimum on your loan payments every month. This is the required amount to avoid delinquency and paying it diligently is essential to improving your credit rating.

You may not realize, however, that you can also apply additional funds to the principle owed in order to reduce debt faster and shave some money off your interest payments over time. You just have to make sure to note that any extra you pay should go toward the principle so that it isn’t mistakenly applied to your next payment due (including interest).

  1. Taking advantage of applicable benefits

You may be able to take advantage of tax deductions based on your interest payments on student loans, so you should definitely discuss the prospect with your tax advisor or contact the IRS to ask if you are eligible.

You might also qualify for federal or state repayment forgiveness programs, depending on your major and where you live. In addition, many companies offer some form of education reimbursement as part of a benefits package. You may be surprised by the benefits available to you through government programs and employment opportunities, and all you have to do is look for them.

How to Go to Grad School without Taking out Student Loans

student-debt-my-personal-finance-journeyThe following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy! 

Have you wanted to go to graduate school but put the idea off due to the cost? According to FinAid.org, the average cost of a master’s degree for students can cost anywhere between $30,000 to $120,000. With the average student loan debt balance from undergrad being $30,000 (sometimes more),  it’s no wonder graduates don’t want to add to their burden even if more education could help their job prospects.

If you’re serious about pursuing a graduate degree and have a specific program and career path in mind, there are a few ways you can pay for your education without having to take out student loans.

Start Saving Up Ahead of Time

This method is simple. If you have a specific idea of which program you’d like to study and at which institution, you can estimate how much it will cost per semester and start saving up and preparing to pay for your education in cash.

It may take longer going this route but you won’t accumulate extra debt and you can go at your own pace. For example, if three classes cost $900 each, you can set aside $350 per month or whichever amount you feel comfortable with and enroll when you feel ready if you’re not in any rush.

You can also pick up an additional job to increase your savings so you can take courses at a faster rate.

See if Your Employer Offers Tuition Reimbursement

Some employers will actually pay for you to go back to school. This is common for MBA candidates and students who can earn their degree for little to no out of pocket expenses. There are a variety of programs your employer may help you pay for so your first step is to ask.

In order to receive the aid, you may need to meet certain requirements like having a high GPA, maintaining your status as a full-time employee, and agreeing to stay with the company for a certain amount of time after you complete your program.

While you’re more likely to receive assistance from your employer if your program of study directly relates to your job, up to $5,250 of funding they supply qualifies as a tax-free benefit.

Apply for an Assistantship or Work at the School

If you don’t have an employer who offers tuition reimbursement or assistance, you can try applying for a graduate assistantship or apply to any openings at the school if you are fine with working there. The typical GA works in a specific department of the school often doing work related to their program of study and they receive free tuition for the most part.

At my particular university, the GAs received free tuition as long as they were attending school at the main campus. If they decided to take a class at a different campus, they would have to pay an extra delivery fee that would not be covered by their tuition wavier. GAs also don’t earn much since the role is sort of a step up from an internship, but most do receive a stipend along with the tuition wavier so if you aren’t employed or are willing to try the position out in order to save money on your education costs it may be worth it.

If there aren’t any GA positions available, see if you can work in another department of the school as a regular employee. Employees often receive a tuition discount at minimum which can significantly cut the amount of money you’ll have to spend on classes.

Apply for Scholarships

Finally, you can apply for scholarships. This is something I wish I would have done more of in undergrad. If you want to avoid student loans and the negative affect they can have on your finances, it’s worth it to go the extra mile and submit a few essays and applications in order to get some scholarships. You just need to know where to look.

There are many scholarships available just for graduate students and you can start your search by looking on your college’s website or seeing if they have a scholarship office. There may be a few opportunities you qualify for based on your grades or program of study. You can also search for private scholarships online on sites like Scholarships.com, Petersons.com, DoSomething.org, FastWeb, and CollegeBoard.

If you’d like to take your search a step further, reach out to your employer or private organizations in your area to see if they offer any scholarships for graduate students. If your employer doesn’t offer tuition reimbursement, they may be willing to offer you a scholarship instead. The more scholarships you apply for, the better the outcome will be.

Explore All your Options

Student loan debt can be a hassle to pay back. Therefore, your best option is to avoid it at all costs. If you are eager to go back to school, set a timeline detailing when you’d like to enroll in classes, explore all your options to save money on tuition, and start setting aside money now.

How about you all? Have you gone to graduate school? How did you pay for it?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/donkeyhotey/6304808136/

How to Help Your Children Cut College Costs

college-my-personal-finance-journeyThe 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.

Does the idea of helping your children with their college expenses bring thoughts of fear and intimidation?

If it does, you’re not alone. According to this Gallup poll, college funding worries were parents’ top money concern in 2015, with a staggering 73% of parents admitting the fact that they are indeed concerned about how they’re going to help their children pay for college.

College funding is a serious issue these days. This Forbes article tells us that the average cost for a 4-year public college is $28,000 a year.

Got your sights set on a private school? If so, you can plan on spending an average of $59,000 per year for your child to attend.

So how can parents help ease the burden of college costs for their children? Here are some ideas that can help parents contribute to their kids’ post-secondary education without compromising their own financial futures.

Enroll Your High-Schooler in a Dual Enrollment Program

Many states offer dual enrollment programs for high school students. Dual enrollment programs allow high school students – generally juniors and seniors – to take college courses as a replacement for similar high school level courses.

These courses help students earn college credits during their high school years. The best part about these programs is that the courses are usually paid for by the state in which the student resides.

Taking advantage of dual enrollment courses can help your child to cut down significantly on college costs and graduate with completed college courses already under their belt.

For more information on dual enrollment courses in your state, check out this website.

Utilize a Community College

Many students these days are completing their first two years of college at a local community college. This allows them to get a couple of years of college completed at a lower cost, while still graduating from the public or private college of their choice.

Here’s a tuition cost comparison in our state (Minnesota) for community, public and private colleges:

  • Community College: $179.71 per credit
  • Public/State School: $470.77 per credit (for residents)
  • Private College: $1,195 per credit

As you can see, the costs to go to a public or private college in comparison to a community college can vary greatly.

Therefore it’s easy to see that thousands of dollar per year can be saved for those who choose to complete their general courses at a community college and then transfer over to a public or private college for the remainder of their college education.

*Note: It’s important to remember that not all community college credits transfer to all public and private colleges. Therefore parents and students should research the transferability of community college credits to the public or private college of their choice before enrolling in a community college for completion of their general courses.

Get Educated on Financial Aid Options

There are thousands of financial aid and scholarship options available for students eager to earn a college degree.

Most colleges have departments specifically devoted to helping students track down financial aid options and scholarship options, however it’s important that parents and students do some research on their own as well.

This U.S. News article shares the 5 best places to find college scholarships and grants.

Let Your Kids Live at Home During the College Years

By offering to let your kids live at home rent-free during the college years, you open up a world of money-saving options for them.

First, they can avoid the heavy cost of dorm fees or housing rental. Second, they’ll have on-site meals available free of charge.

Third, they can take online courses from home that are generally much less expensive than on-site courses.

“But what about the ‘college experience’?” you might ask.  Although the college years can be great years for personal growth on-campus, you can also help your child to grow personally when they live at home during the college years.

By making house rules clear (even dorms have house rules) but allowing your child some personal and financial independence and responsibility, you can ensure they experience personal growth even while living at home.

By taking advantage of the four options above, you can work with your children to get creative about reducing the college cost burden yet still give them the benefit that a college degree brings to their working world.

How about you all? What are your tips for reducing college costs?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/76657755@N04/7027599019/

Options for Out of Control Student Loans

student-loans-my-personal-finance-journeyThe following is a guest post by Paul Smith.  He is an attorney with an interest in personal finance.  He blogs at insideconsumerfinance.blogspot.com.

Are your student loans out of control? If so, you have a number of options to assist you in getting your student loans back under control. Some involve taking advantage of some repayment options that many people are not aware of, while others involve temporarily suspending your obligation to make payments to allow you to get your personal financial circumstances under control. Finally, simply communicating your situation, particularly if you are having financial difficulties, to your loan servicer will also often go further than you think.

Are You Taking Advantage of all Available Repayment Options?

The first and most important question to ask if your student loans are out of control is whether you are taking advantage of all of your potential repayment options. All federal student loans offer a variety of repayment plan offers, including what are called income based or income contingent repayment. Income based repayment (IBR) is a program in which your required payments are pegged to your income; payments cannot constitute more than 15% of your discretionary income based upon the amount you owe, your monthly income and your family size. (The rate is 10% for those who first borrowed after July 1, 2014). The one drawback to IBR is that your payment is readjusted every year based upon your income as reported on your previous year’s taxes. Income contingent repayment plans are also based upon your total student loan debt, family size and income. With income contingent repayment plans, the maximum payment is 20% of your discretionary income or the amount you would pay over a 12 year loan term, whichever is lower.

Contact your loan servicer for further information and they will provide you with the necessary forms to apply for these three repayment programs.

Forbearance or Deferment May Be Appropriate for You

Most federal student loans also offer options for either forbearance or deferment. Forbearance means that your obligation to make payments is suspended for a certain period of time. One caveat to forbearance, however: interest does accumulate during any period during which you are on forbearance and most loans, including federal student loans, provide that all accumulated interest will be capitalized (i.e. added into principal) at the time that you are taken out of forbearance and put back on a payment plan. Forbearance is not automatic, but lenders are often happy to work with you in order to keep your loans current. Deferment is similar to forbearance but is available for specific enumerated circumstances, such as if you are experiencing financial hardship or are unemployed/unable to find employment, whereas forbearance is at the discretion of the lender and can be for any reason.   Interest is also capitalized at the end of a deferment period. Deferment can extend no more than 3 years, while forbearance cannot extend more than 12 months at any time.

If your student loans are private, your options are more limited. Very few private student loans offer the type of flexible repayment options such as IBR or ICR that are available to those with federal student loans. In addition, not all private student loans offer forbearance or deferment for borrowers either. To the extent that forbearance is available under your private student loan, there may be fees or penalties associated with having your loans placed in forbearance status.

Private Loan Borrowers Have Much Fewer Options, Unfortunately

If you do have private loans, your best bet is to contact your servicer to explain your situation. Servicers are often extremely willing to work with you because, even if you cannot make your required payment, something is better than nothing from their perspective. It costs them money to place you into collections and they will generally do everything they can to avoid having to do that. And if they decide to sell your debt completely to a debt collector, it will be for less than the face value of the debt, so it is in their interest to keep you from defaulting on your student loans.

To the extent your payments are completely unaffordable, you may also consider whether refinancing might make sense. Both federal student loans and private student loans can be consolidated, although private student loans cannot be consolidated into any federal consolidation loan.

Finally, failing all the above, it is always worth a telephone call to your servicer to explain your situation and see if they will work with you.

Need Further Information?

If you need more information, there are some wonderful organizations out there which assist borrowers who are having difficulty with loans or whose loans are in default. Student Loan Borrower Assistance at www.studentloanborrowerassistance.org, which is a resource offered by public interest law firm the National Consumer Law Center, and American Student Assistance www.asa.org, a non-profit organization which provides information on managing your student loans, including all of your available options in the event you run into trouble with your loans.

How about you all? Are your student loans out of control? How have you been able to get a handle on them?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/jakerust/16608691510/