Unless you are an employee of a tax-exempt organization, like a public school, you may be unfamiliar with a 403(b). A 403(b) is a type of retirement account explicitly designed for employees of public schools, like teachers and other tax-exempt organizations. This article will discuss what a 403(b) plan is, how it works, and how to maintain it. What is a 403(b) Plan? A 403(b) plan, also referred to as a tax-sheltered annuity plan or TSA plan, is a retirement plan offered by tax-exempt organizations, mainly public schools, and charities, for certain employees. Eligible employees work at: 403(b) plans are similar to 401(k) retirement plans. Both 403(b) and 401(k) allow employees to defer a portion of their salary into a retirement account. Also, employers may match a part of the employees’ contributions. The funds invested in a 403(b) don’t face taxes until withdrawal, which reduces your taxable income. However, 403(b) plans may also offer Roth accounts. Roth accounts differ from Traditional plans in that Roth funds are taxed before contribution. As a result, the funds grow tax-free (including earnings) with no tax payments required when the money is withdrawn and distributed. Understanding Your 403(b) Plan The 403(b) and 401(k) share the same limits on yearly contributions. The contribution limit for the 2025 tax year is $23,500. Also, like the 401(k), the 403(b) plan offers catch-up contributions for anyone 50 years of age or older. Catch-up contributions are $7,500, meaning that if you are 50 or older, you can contribute an additional $7,500 for a total of $31,000 for 2025. The sum of employee and employer contributions is limited to $70,000 (for 2025) or 100% of the employee’s yearly salary, whichever one is less. In addition, if your employer offers a 401(k) and a 403(b), you may contribute to both. Still, the total must be no more than the annual contribution limit. Like any retirement plan, there are clear advantages and disadvantages to the 403(b) plan: Maintaining Your 403(b) Plan If you are an employer providing a 403(b) plan, here is how you maintain and operate it: Takeaway Like any retirement plan, if you are eligible for a 403(b), you should decide whether it is right for you. If the program has low administrative costs and employer matching, it may significantly increase your retirement funds over the years. However, if the plan has limited investment options and high fees, you may be better off without it.

Are You Eligible for a 403(b) Plan?

View Resource Are You Eligible for a 403(b) Plan?
You are ready to make the jump from renting to buying a home. That is good news. The National Association of Realtors’ latest report for 2023 states that the median sales price of existing homes across the country stood at $387,600, which is a 0.03% percent decrease from the year prior. At the same time, borrowing money to finance a home is getting more costly, too. In December 2023, Mortgage News Daily reported that the average interest rate on a 30-year fixed-rate mortgage rose to 6.64 percent, which is a 0.26 point bump compared to the year prior. Homes have become less affordable, primarily due to rising interest rates, among other factors. However, you can still afford to buy your dream home within your ideal neighborhood. Before you buy a home, you want to make sure that you can afford the monthly mortgage payment. If you cannot, you will struggle to make your payments on time. Moreover, you could even end up losing your home to foreclosure. Can You Afford It? In general, mortgage lenders recommend that you purchase a home that is no more than 2.5 times your gross annual income, your income before any tax deductions. In general, if you make $50,000 a year, you would be able to afford a home that costs from $100,000 to $150,000. Of course, that is a relatively simple formula that doesn’t consider other factors. For example, you might make $50,000 but have few other debts. Maybe you do not have any credit card debt and are not burdened with student loan debt. You will be in a much better position to afford a more expensive home than someone making the same amount of money as you, but with overwhelming student loans and auto payments, and high credit card bills. What Your Lenders Will Give You Mortgage lenders will look at your entire financial picture to determine how much money to lend you. That includes both your monthly income and your monthly debts. Lenders rely on two ratios — the front-end and back-end ratios — to determine how large of a mortgage payment you can afford. The front-end ratio determines how much of your monthly income your mortgage payment — including principal, taxes, and insurance — takes up. Lenders want your mortgage payment to take up no more than 28 percent of your monthly income. The back-end ratio considers all of your debts, everything from your mortgage payment to your credit card debt to your student loans. Lenders want your monthly debt obligations to total no more than 36 percent of your gross monthly income. The Down Payment Of course, you can increase the affordability of your mortgage loan by coming up with a more substantial down payment. The more money you can put into a down payment, the smaller your mortgage loan will be, and the lower your monthly payment. Most conventional lenders today require that you put down at least 5 percent of your home’s purchase price. However, down payment requirements will vary based on your credit history and other factors. According to the National Association of Realtors, statistics for 2023 indicate that with more and more first-time homebuyers entering the market, down payments percentages have decreased, with home buyers putting down an average of 8 percent. For a house with a $200,000 purchase price, that would come out to a down payment of $16,000. If you take out a mortgage loan insured by the Federal Housing Administration, though, you will need a down payment of just 3.5 percent, depending on your credit score. For a house with a $200,000 purchase price, that comes out to a down payment of $7,000. Your Credit Of course, even if you can afford a specific house and have the money for a down payment, you might not qualify for a mortgage loan. That is because lenders today rely heavily on your three-digit credit score when determining who gets mortgage money and at what interest rate. Your credit score will drop if you have a credit history filled with missing credit card payments and auto loan payments. In addition, if you have filed for bankruptcy or suffered through a housing foreclosure, your credit score will plummet. Your score will also suffer if you have mountains of credit card debt. However, if you make wise financial decisions and pay your bills on time, your credit score should be solid. In general, lenders reserve their best interest rates for borrowers with FICO credit scores of 740 or higher. That is important when it comes to affordability. Your monthly mortgage payment will be lower if you have a lower interest rate. The best way to get a low rate is to go to your lender with a healthy credit score.

Home Affordability

View Resource Home Affordability

The idea of buying a first home is exciting. However, coming up with a sizable down payment can feel like an impossible task. That is especially true when many lenders desire 20 percent or more as a down payment. According to the National Association of Realtors, for Q3 2022, the median home price in the U.S. is $398,500.

Putting together a 20 percent down payment for even that average home would require substantial savings. Fortunately, just like you, there are options to help people make the necessary down payment to get the home you are dreaming of calling your own.

Low Down Payment Loans

The idea of buying a first home is exciting. However, coming up with a sizable down payment can feel like an impossible task. That is especially true when many lenders desire 20 percent or more as a down payment. According to the National Association of Realtors, for Q3 2023, the median home price in the U.S. is $387,600.

Putting together a 20 percent down payment for even that average home would require substantial savings. Fortunately, just like you, there are options to help people make the necessary down payment to get the home you are dreaming of calling your own.

Low Down Payment Loans

Quite a few government-secured loans are available that offer lower down payment options to consumers. They can help make the home-buying process more achievable for the average family. The three major low down payment loan programs available include:

Some borrowers may also qualify for conventional loans that allow them to purchase homes with as little as three percent down if they have sufficiently good credit scores. However, convention loans are not government-backed loans and often require higher credit scores than government-backed loans.

These lower down payment loans allow you to get into your home sooner, though there are a few drawbacks to consider before choosing this route as part of your down payment strategy.

  1. Mortgage Insurance
  2. Higher Interest Rates

Private mortgage insurance is specialized insurance designed explicitly for conventional mortgages. Its purpose is to protect lenders from defaults if you cannot make your monthly payments. With many traditional lenders, you can ask to cancel your PMI once you’ve reached 20 percent equity in your home.

For FHA loans, the mortgage insurance premium (MIP) is something you will pay for the life of the loan. However, many borrowers consider it a small price to pay for the benefit of homeownership years sooner, in many cases, than would have been possible otherwise.

Sources of Down Payment Funds

Depending on the lender, you have a wide range of opportunities to develop the down payment funds you need to buy your home. Ideally, it would come from savings, but with housing prices rising, more people need help to make more substantial down payments. For most loan programs, you can use any of the following resources to fund your down payment:

  1. Cash savings
  2. Money borrowed from or gifted by friends and family
  3. Borrow or withdraw from your 401(k)

While the last one has significant drawbacks in the form of penalties, fees, and taxes (not to mention the loss of that lump sum from your retirement savings),

Available Assistance Programs

In addition to low down payment loans, there are assistance programs that can help you get the down payment they need. Many of these occur on state and local levels combining substantial grants, zero-interest loans, and a combination of tax benefits and even lower interest rates.

The downside of the state and local down payment assistance programs often involves limited availability, maximum sales prices, and income limits for borrowers.

There are also programs available through non-profit organizations, employers, community foundations, and other resources that can assist you in making your down payment.

Takeaway

Ideally, you will have 20 percent to put down on the home you intend to buy. But, unfortunately, that isn’t always possible in today’s crowded and competitive real estate marketplace or if you are a first-time homebuyer. If you cannot save considerable sums of money to make a down payment, there are loan options and assistance programs geared to help. They include federal government-backed loans, state and local down payment assistance programs, friends, family, and your retirement fund. Use them wisely to get your dream home today.

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Down Payment Strategies for First-Time Home Buyers

View Resource Down Payment Strategies for First-Time Home Buyers
Does it make more sense to rent than to buy? That has been a long-running debate in this country. However, the question is flawed: There is no correct answer. There may be times in your life when it does make more sense to rent. However, there will also be times when buying is financially sound. The key is to look at your situation and the housing and rental markets before deciding which option is best for you. The fact remains, though, that most U.S. residents prefer owning. It sounds corny, but owning a home largely remains part of the American dream. According to the November 2022 Home Purchase Sentiment Index conducted by Fannie Mae, 57.3 percent of respondents think owning a home makes more sense. They cite protection against rent increases and the long-term investment value of a home purchase as important reasons.

The Markets

The fortunes of the housing and apartment markets are constantly in flux. One year, the housing market might see rising prices. Next, apartment rents might skyrocket. Before deciding whether it makes more financial sense for you to own or rent, make sure to consider market factors. The National Association of Realtors’ latest report states that the median sales price of existing homes stood at $389,500 towards the end of 2022. That is a 8.58 percent bump from the prior year. At the same time, mortgage interest rates have risen significantly. According to Mortgage News Daily, the average interest rate on a 30-year fixed-rate mortgage loan was at 6.13 percent at the end of 2022. The prior year rate was 3.26 percent. Meanwhile, apartment rents have been rising fairly steadily since 2011. At the end of 2022, the U.S. Median Asking Rent was at $1,334. A minor increase from the prior year’s median asking rent of $1,203. The average prices of owning a home and renting an apartment are vital factors to consider. Depending on where they stand, you might be more inclined to lean toward owning or renting.

Pros And Cons Of Renting

When does it make sense to rent? You might be better off renting an apartment when you are just entering the workforce or not having much ready cash. Renting makes sense for people who are more likely to move in a short period. That is often the case with people who are just starting their careers — they may be assigned a job in a new part of town or find a better position in another part of the country. In either case, you want to be able to move in a hurry. If you own a home, you will have to sell it. Selling a home can take months. However, you can move at the end of your lease if you rent. Renting also makes sense if you do not have much available cash. Most conventional mortgage lenders require a down payment of at least 5 percent of a home’s purchase price for those with excellent credit. A moderately-priced house of $200,000 will have a down payment of $10,000. That is a lot of cash to scrape together. So it might make sense to rent until you can save that down payment money. Renting might also be a better option when you have a low credit score. Lenders depend on your credit score for loan approval and interest rate determinations. If you have a history of missed payments and high credit card debt, your credit score might be low. Lenders reserve their best interest rates for borrowers with FICO credit scores of 740 or higher. If yours is far lower than that, you might not qualify for a loan. Moreover, it will be at a high-interest rate if you do. Then, it might make sense to rent until you can boost that score by practicing good financial habits. Renting also makes sense if you prefer the freedom of not maintaining your lawn or home. When the heat goes out when you rent, you call your landlord. When it goes out when you own a home, you call a contractor, which could cost a bit of cash. There are some disadvantages to renting, however. First, you are at the mercy of the landlord, who can steadily raise your rent each year. You will also never know if you rent an apartment directly under the noisiest family in your building. You also often have restrictions on painting and decorating your apartment. In addition, you will never build up equity when you continuously rent either.

Pros And Cons Of Owning

Owning a home also comes with its pros and cons. On the pro side, you build up equity when you own a home. As you pay down your mortgage loan, you gain access to your home’s equity. You can tap into that equity, often at low-interest rates, to pay down credit card bills, help cover your children’s college costs or fund a home renovation. Then, when it is time to downsize, you can sell your home and take the profits from the sale to buy either a less expensive, smaller house or condo or make a trip around the globe. Owning gives you that financial freedom. Owning also comes with tax benefits. Each year you can deduct the interest you pay on your mortgage loan. That brings a hefty deduction each tax season. While this is true for most home purchases, the 2017 Tax Cuts and Jobs Act altered individual income tax by lowering the mortgage deduction limit from $1 million to $750,000. When you own, you can do what you would like with your house. For example, you can paint your bedroom red, add a third bathroom or convert the space above your garage into a home office. The choice is yours. Owning, though, is not all positives. Depending on where you live, you will have to pay hefty property taxes. You will also be responsible for any repairs that pop up. With the possibility of leaking roofs, burst pipes, and sinking foundations, you can count on spending money on home repairs just about every year you own your residence. In addition, if housing values go down, you might end up owing more on your mortgage loan than what your house is worth. The decision to buy or rent is a big one. It is essential to look at your own financial and personal situations to make the right choice.

Buying vs Renting a Home

View Resource Buying vs Renting a Home
You have found your dream home in the perfect neighborhood for you and your family. You have even determined that you will be able to afford the monthly mortgage payments that will come with this home. However, have you factored in the other costs of owning a home? Your monthly mortgage payment is just the start of the costs of owning a home. Property taxes, homeowners insurance, utility bills, home repairs, and, depending on where you live, homeowner’s association fees can all drive up the monthly costs of living in a home. Here is a look at these costs and what impact you can expect them to make on your monthly budget. Property Taxes When considering a home, be sure to review the property taxes. These taxes can add significantly to the cost of that house. Property taxes vary widely by state and county. According to data from the Census Bureau’s 2021 5-Year Estimates, New Jersey residents paid, on average, $8,796 in property taxes in 2023 on a home worth $355,700. Hawaii homeowners would pay $1,017 in median real estate taxes for the same home value. The national median average stood at $2,690. Many homeowners take out an escrow account with their mortgage lenders to cover their property tax payments. Under such an arrangement, lenders pay homeowners’ property taxes. Homeowners cover this by paying more each month when they write out their mortgage loan payments. That means if you have to pay $3,000 each year in property taxes that your monthly mortgage payment will include an additional escrow payment of $250 to cover them. In considering property taxes, it is best to remember that the 2017 Tax Cuts and Jobs Act put a $10,000 cap on the State and Local Taxes (SALT) deduction for federal taxes. Property taxes are part of that equation, along with income and sales taxes. Homeowners Insurance If you take out a mortgage to finance your home, you will also have to pay for a homeowner’s insurance policy. No mortgage lender will lend you money without one. It is a good idea to have homeowner’s insurance regardless. These policies can provide you with financial protection should your home be damaged or destroyed. It will also protect you financially from cases of theft or robbery. However, homeowner’s insurance also adds to the bottom-line costs of owning a home. The national average for your homeowner’s insurance policy is roughly around $1,383. The cost depends on several factors: If you own a larger home, you will pay more for homeowner’s insurance. If your home rests in an area prone to tornadoes, earthquakes, or other natural disasters, you will pay more, too. Utility Bills Depending on your lease when you rented, you might not have been responsible for paying utility bills. When you own a home, though, these bills — for everything from electricity and water to weekly garbage pick-up and gas — become one more monthly cost. These costs are not insignificant. For instance, according to the Energy Information Administration’s “Winter Fuels Outlook,” U.S. homeowners who use natural gas for heating will pay about $931 on average. An additional expense is what you will pay for electricity. The U.S. Energy Information Administration reports that the average home spends $146 per month on electricity. Of course, that amount varies by the size and location of your home. Hawaiians pay the most for electricity at $214 per month. Utah residents pay the least at $93. Before buying a home, ask what the average utility costs have been for the last two to three years. Sellers are under no obligation to share this information with you. Most, though, will. Don’t forget, then, to add these fees to your monthly cost of owning a home. Homeowner’s Association Fees If you buy a condominium, the odds are good that you will have to pay monthly homeowner’s association fees. You might also have to pay these fees if you live in a gated community or other housing subdivision where the HOA performs maintenance tasks. These monthly fees cover the costs of mowing lawns, shoveling snow, repairing cracking driveways, maintaining common areas, and other maintenance issues. Again, these expenses can be significant. Fees can range from $100 to $700 per month with roughly $200 on average, adding a high cost of owning a condo, townhouse, or single-family home. Home Maintenance The last big bite on your monthly budget is home maintenance. Ask anyone who’s purchased a home. Maintaining it costs money. One year the hot-water heater might go. The next, the roof might start leaking. Another year? You might need to reseal the driveway. Real estate giant Coldwell Banker advises homeowners to be prepared to spend from 1 to 4 percent of a home’s original cost on annual home maintenance. A house that costs $200,000 comes out to $2,000 to $8,000 a year. Again, that can be a significant drain on your monthly budget. Owning a home can be a wise financial decision. Try not to disregard the intangible benefits that come from ownership, however. Therefore, it is essential to understand the costs before you invest in homeownership fully.

Additional Financial Home Buying Obligations

View Resource Additional Financial Home Buying Obligations

You are ready to apply for a mortgage. Your question? Should you take out a fixed-rate loan or an adjustable rate?

As with most mortgage questions, there is no one correct answer. Instead, the right loan for you depends upon many factors, everything from how low or high average mortgage rates are when you are ready to apply for a loan to your family’s financial situation.

What is the best way to decide whether you should aim for a fixed-rate or adjustable-rate loan? Do the research.

The Basics

Before deciding whether a fixed-rate or adjustable-rate mortgage is right for you, you need to learn the fundamental differences between the two.

As the name suggests, the interest rate does not change with a fixed-rate mortgage over the loan term. So no matter whether your loan extends for 30 years, 15 years, or some other length of time, your interest rate will remain unchanged throughout the loan.

An adjustable-rate mortgage works oppositely. Your interest rate will change after a set number of years, often five or seven. Usually, the rate starts lower for the first few years and then adjusts to a new rate based on economic factors. The rate does not have to go higher after the adjustment period, but it usually does.

Benefits Of A Fixed-Rate Mortgage

Each loan type comes with its benefits. For fixed-rate mortgage loans, the advantage is obvious: There are no surprises with this kind of loan. You will know each month exactly what your mortgage payment will be. It will not rise or fall.

A fixed-rate mortgage loan is especially attractive when low average mortgage interest rates. That has indeed been the case over the last several years. Average interest rates on 30-year fixed-rate mortgage loans averaged about 6.66% percent in December 2023, which is a 0.38 percent increase from the year prior. Rates have increased exponentially due to inflation.

Fixed-rate loans currently make good economic sense for homeowners who want the lowest possible mortgage payment each month. However, taking out an adjustable-rate loan in such a rate climate might be a risk. After all, when an adjustable-rate mortgage loan adjusts in five or seven years, there’s no guarantee that interest rates will not be higher than they were this past year.

Benefits Of Adjustable-Rate Mortgages

Adjustable-rate mortgage loans make the most sense when average mortgage interest rates are high. Lenders can usually provide borrowers with a lower initial interest rate. After all, they can raise the rate later if rates rise to a higher level during the mortgage term.

If rates are high, then borrowers who take out an adjustable-rate mortgage loan will enjoy a lower interest rate for a set period, again, usually five to seven years. That can result in significantly lower monthly mortgage payments during this time.

However, there is a risk. After the adjustment period, your interest rate might jump by a fairly significant amount. Before taking out an adjustable-rate mortgage, ensure that you can afford whatever the adjusted monthly payment would be. You might be able to factor in future pay raises to help you make those higher payments if you believe that your income will grow over time.

Like all mortgage products, adjustable-rate and fixed-rate mortgage loans come with their pros and cons. Your best bet is to study both products carefully before making your choice.

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At First Federal Lakewood, we understand your unique needs. Whether you’re looking for personalized banking solutions, competitive loan rates, or expert financial advice, we have what you need!

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Fixed Rate vs Adjustable Rate Mortgages

View Resource Fixed Rate vs Adjustable Rate Mortgages

What makes more sense financially for you, a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage? Both loan types come with their positives and negatives. So how do you determine which loan type is best for you and your family? It is all about taking a close look at your finances.

The Differences

As their names suggest, the main difference between a 15-year and 30-year fixed-rate mortgage is its duration. If you make your regular monthly loan payments on time every month, you will pay off a 15-year fixed-rate mortgage loan in 15 years. You will pay off a 30-year fixed-rate loan in 30.

Another big difference comes with these loans: The average mortgage interest rate on a 15-year loan is smaller than it is on a 30-year loan. According to Mortgage News Daily, the average interest rate on a 15-year fixed-rate mortgage loan stood at 6.06 percent in December 2023. The average rate on a 30-year fixed-rate mortgage loan stood at 6.66 percent during the same period. Both rates faced large increases this year compared to the year prior due to inflation. However, you’ll note the rate on the 15-year loan is lower than the 30-year rate.

Does that mean that a 15-year fixed-rate loan is the best financial choice? Not necessarily.

Pros And Cons

The main benefit of a 15-year mortgage loan is that you will pay far less interest during the life of the mortgage. That can save you hundreds of thousands of dollars if you pay off your loan.

For example, if you take out a 30-year fixed-rate $200,000 mortgage with an interest rate of 6.66 percent, you will pay $262,691 during the life of your loan in interest. If you take out the same loan at the same rate, but for just 15 years, you will pay only $104,957 in interest over the life of the loan.

That saves $157,734 if you would have taken out the 15-year fixed-rate loan.

Again, though, that does not mean that the 15-year loan is necessarily the best choice for you and your family. Even though a 15-year mortgage comes with a lower interest rate, your monthly payment for such a loan will be higher than it would be with a 30-year fixed-rate loan. The reason? In a 30-year loan, the monthly payments are for an extended period.

Here’s an example: For that 15-year fixed-rate loan of $200,000 at an interest rate of 6.06 percent, you would face a monthly mortgage payment of $2,064 If you instead took out a 30-year fixed-rate mortgage loan of $200,000 at an interest rate of 6.66 percent, you would pay $1,655 a month.

The question, then, comes down to this: Can you comfortably afford the monthly payment that comes with a 15-year fixed-rate loan? If so, taking out one of these loans might be a better choice because you will waste less money on interest. However, if you cannot stretch your household budget to cover that 15-year monthly payment, a 30-year fixed-rate mortgage loan might be a better choice.

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15-Year vs 30-Year Mortgages

View Resource 15-Year vs 30-Year Mortgages

When mortgage rates are high — and in December 2023, the rate for a 30-year mortgage loan was at 6.66 percent, while the 15-year fixed-rate mortgage loan was at 6.06 percent — it might be best to refinance to a shorter-term mortgage so you can save tens of thousands of dollars.

When rates are high, just make sure that you can afford a higher monthly payment that fits within your budget.

The Burden of Mortgage Interest

Much of your payment goes toward interest when you pay your mortgage bill each month. In fact, during the earlier years of your mortgage, most of your monthly payments will be for interest.

Interest is essential and serves as the basis of the mortgage-lending industry. It is how mortgage lenders make their money and cover their risk when lending hundreds of thousands of dollars to homeowners.

However, mortgage interest can also cost homeowners hundreds of thousands of dollars during the life of their mortgage. For example, if you have a $200,000 fixed-rate 30-year mortgage with an interest rate of 6.66 percent, you will pay $262,691 in interest alone if you take a full 30 years to pay off the loan.

That is a lot of money spent on interest. However, if you took that same 6.66 percent loan and changed it from a 30-year to a 15-year term, you would pay just $104,957 in interest over the 15-year repayment period. That is a saving of more than $157,734 in interest payments.

The Challenge

Of course, the challenge of taking out a 15-year fixed-rate mortgage comes in the form of a higher monthly payment. Because the payback period for a 15-year loan is shorter than a 30-year loan, you will pay more each month. For instance, with a $200,000 15-year fixed-rate mortgage loan at an interest rate of 6.06 percent, you would pay about $2,064 a month. However, if you took that same $200,000 loan but a 30-year term, you would pay just $1,655 a month.

For many homeowners, the higher monthly payment that comes with a 15-year fixed-rate mortgage will price it out of their budgets, despite the interest savings such a loan brings.

However, the equation changes when mortgage interest rates are low from a historical perspective. For example, depending on your 30-year fixed-rate mortgage rate, you could refinance to a 15-year fixed-rate loan and enjoy the savings in interest while making a monthly payment that isn’t that much higher than your current one.

Low Interest Rates

Consider the 30-year fixed-rate mortgage for $200,000 at an interest rate of 6.66 percent. Again, the monthly payment for that loan comes to about $1,655. If you took that same amount and refinanced it to a 15-year loan with a rate of 6.06 percent — the average rate in late December 2023 –, your payment would be $2,064 a month.

That is just $409 more a month, or $4,908 more a year than you would have paid with your 30-year fixed-rate loan. That might seem like a lot but consider the interest savings. The 15-year fixed-rate loan at an interest rate of 6.06 percent would require you to pay a total of about $104,957 in interest if you took a full 15 years to pay back the loan. That is a lot less than the $262,691 worth of interest payments you would make with the 30-year fixed-rate loan at 6.66 percent interest.

If you want to reduce the amount of interest you will pay during the life of your mortgage, maybe it is time to investigate the benefits that come from refinancing to a shorter-term home loan. True, you will have to make a more substantial monthly mortgage payment. You will also have to review your household budget to determine if that mortgage payment will fit. However, you stand to save potentially tens of thousands of dollars in mortgage interest if it does.

While it is true that mortgage interest is how mortgage lenders and banks make their money, you should look to minimize what you pay out regarding interest payments. Crunch the numbers to see if a shorter-term mortgage loan makes sense for you.

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Should You Refinance Into a Shorter Term Mortgage?

View Resource Should You Refinance Into a Shorter Term Mortgage?
The sticker price of a college education can be shocking. Moreover, this sticker price is increasing every year. The College Board says that students enrolled at a private college during the 2023-24 school year will pay, on average, $41,540 in tuition and fees. Public, in-state students will pay $11,260. That is enough to frighten any parent. However, did you know that there’s a difference between the sticker price of a college education and the net amount that most students pay? Students with financial challenges can often dramatically reduce the cost of a college education. Even those students who do not fit in the low- or moderate-income range can significantly reduce their college costs by making less expensive choices. Net Price When it comes to paying for college, the net price is what matters. Net price is what students pay. Sticker prices are the tuition and fees that colleges advertise publicly. The difference usually comes from the automatic aid many colleges offer to low- or moderate-income students. Here are two examples. The sticker price for Stanford University for tuition, books, and living expenses comes to about $87,833 for the 2023-24 year, according to Stanford’s website. At the same time, a more “affordable” public university, Cal State Long Beach, advertises a sticker price of $28,396 for California residents. Both of those figures would price many families out of those schools. However, those figures are not the net prices. Once you factor in available financial aid packages, the net price of attendance can drop dramatically. For example, Stanford’s website reports that Stanford’s average Freshmen financial aid package is $61,793, making the net cost $26,040. On the other hand, Cal State Long Beach, according to CollegeData.com, has an average Freshmen financial aid package of $14,143. That means the net price for CSULB is $14,253. Too many parents do not understand the difference between the sticker and net prices. Unfortunately, The American Enterprise Institute reports that six in 10 families rule out some colleges because of their high sticker prices yet never take the time to inquire about these schools’ net prices. If you want to give your children a chance to attend the widest variety of colleges or universities possible, you will have to explore the actual net prices of these schools, not just their sticker prices. Saving Money by Making Different Choices Students can also save money on tuition and expenses by making different education choices. It might not make sense, for instance, for students to choose the ritziest private school available, not when it is possible to receive a quality education at other less-heralded universities or colleges. For instance, College Board estimates that students who enrolled at private colleges in 2023-24 would pay $56,190 in tuition, fees, and room and board. They also estimate that students enrolled at in-state public universities in 2023-24 would pay $24,030 in tuition, fees, and room and board. That is a considerable price difference. College Board shows how it is also possible for students to get a private college experience at a far lower price. Students just have to be creative. For instance, students who enrolled in a local community college in 2023-24 would pay $3,990 in tuition for the year. Many of these students will move on to attend a private college for their final two years. That is pricey, but it is far lower than these students would pay for four years of a private college. Parental Guidance Parents should offer advice to their children as they contemplate college. That is because tuition and fees are not getting any lower. College tuition and fees are not falling. According to CollegeBoard.org, over the last 30 years (1993-94 and 2023-24), in-state tuition and fees at public four-year institutions increased by $5,880, while private four-year institutions increased by $18,240. The board’s numbers also point to another fact: Parents who want to help their children pay for college need to start saving early. The sooner parents start socking away money for their children’s college education, the less painful the process will be. Also, the sooner parents and their children start researching financial aid, grant, and scholarship opportunities, the more likely they will be to save for college without falling deeply into debt.

The True Cost of a College Education

View Resource The True Cost of a College Education
It has become a big worry for most parents: How can they save enough money to help pay for their children’s college education? Students today can take advantage of many loans, grants, and scholarship opportunities to help them cover higher education costs. However, even with these financial tools, paying for college can be overwhelming. Simply put, college tuition continues to rise, far outpacing inflation. Also, many college students who have to rely too heavily on student loans leave college burdened with tens of thousands of dollars — or more — worth of debt. Fortunately, parents can take some measures to ease the financial stress that their children will face when starting college. It all comes down to creating a college savings plan early. College Costs Just how costly is college? The numbers are staggering. According to the College Board, a moderate budget — which includes tuition, fees, and room-and-board — for an in-state public university for the 2023-24 academic year came in at an average of $24,030. That is high. However, consider the moderate average cost of a private college simultaneously: That figure clocked in at $56,190. Those are the prices now. Depending on how long your children have before they reach college age, you can bet that the costs of attending college will have risen even higher. College tuition and fees are not falling. According to CollegeBoard.org, over the last 30 years (1993-94 and 2023-24) published in-state tuition and fees at public four-year institutions increased from $5,380 to $11,260, and private four-year universities increased from $23,300 to $41,540. According to the College Boards Trends in College Pricing 2023, for the 2023-24 school year, average annual cost increases varied based the type of institution: Should those trends continue, if your child has three years before they are ready for college, you can expect tuition to increase by a factor of 1.074. So, if the yearly tuition at your child’s favorite college stands at $20,000 today, you can expect it to rise to $21,474 in three years. Moreover, if your children will not be ready for college until ten years from now, you can expect that $20,000 tuition to rise to $25,353. Of course, this assumes that college costs will continue to rise at their current rates. That might or might not happen. However, as a parent, you must consider that college costs will continue to soar. It is the only way to ensure that your children will not be overburdened with student loan debt when they graduate. According to EducationData.org, the average student loan debt for the Class of 2023 was $37,338. It is not easy for graduates to get started on their new lives with those high student loan bills. Many will struggle to find jobs or work entry-level positions that don’t pay much. Moreover, it is a good recipe for long-term debt problems. Fortunately, saving for college does not have to be impossible for most parents. Start Early The key is for parents to start saving for college as early as possible. That way, parents will not have to put too much away every month. If your children are still in elementary school, for example, you can get away with stashing as little as $50 a month in a savings account devoted to your children’s college education. You can also take advantage of savings vehicles designed to help parents save for college. Some of these programs include the Coverdell Education Savings Account program and 529 College Savings Plans. Where do you find that extra money for college? Maybe you can cut back on eating out. If you take a lunch to work each day rather than hit the local fast-food restaurant, you could save $40 or so a week. Those are dollars that can go to your children’s college education. Maybe you can give up that gourmet coffee on the way to work or cancel subscriptions to magazines that you no longer read. You might also give up or reduce your cable-TV service. It is also never too early to begin researching potential scholarships and grants. These programs can take a hefty bite out of the cost of a college education. Scholarships today are not only available for sports or athletic achievements. Students can receive scholarships based on their skills in foreign languages, community service, or writing talents. Parents just have to research to find a scholarship program that fits their children. These seem like small steps, but they can add significant savings. The key is to start taking these small steps as early as possible. Saving for your children’s college education too late can make the task seem financially overwhelming. art taking these small steps as early as possible. Saving for your children’s college education too late can make the task seem financially overwhelming.

Saving for Your College of Choice

View Resource Saving for Your College of Choice
According to EducationData.org, as of August 2024, Americans owe $1.773 trillion in student loan debt. That is how profound the student debt problem in the U.S. has become. To put it in even more perspective, that is about $611 billion more than the total credit card debt in the U.S. of $1.42 trillion. The average student borrower has, on average, roughly $37,853 in debt, which affects 46.2 million Americans. Benefits of Community College Community college provides students with several options for career training and degrees. Here are some benefits of community college: Lower Fees and Tuition Regardless of your major or the college you attend, your first couple of years will primarily consist of the same type of classes. For instance, each freshman and sophomore will take: Attending a two-year community college allows you to take your basic classes and get them out of the way. At the same time, you will save a substantial amount of money. For example, Cuyahoga Community College’s website shows they have an in-state tuition of $17,322* for the 2023-24 academic year. That compares to $32,043* for Cleveland State University and $31,818* for Kent State University, the two largest state colleges, and $86,073* for tuition at Case Western Reserve University, a private university. *Tuition amount without financial aid. Going down the community college path will decrease how much money you will need to borrow when transferring to a four-year college. In addition, you will still be able to apply for financial aid and scholarships for community college, further lowering your attendance cost. Lower Living Costs After heading off to college, the costs you will need to consider will not be just tuition. You will also need to think about the additional costs of things like: If your school is in a different state, you will need to pay for a dorm room or apartment. However, if you attend a community college for two years, that means you may be able to live home and save yourself hundreds of dollars every month in utilities and rent expenses. While it might not be as exciting as living in a dorm room away from home, graduating with over $40,000 in debt is not that exciting either. Greater Flexibility Imagine paying a high price at a university and then realizing the major you initially chose does not prepare you for what you wish to do. Even though you can still change your major, it could turn out that many of the classes you have taken will not count towards your new major. This is a great deal of money down the drain. Going to a community college allows you to see how it goes for a little bit at a much lower expense than going to a four-year university. Explore various fields or classes to decide if your chosen major is the one you want to pursue after all. How Do You Save Money? College is costly, and not all families can save for a four-year college. Learn how a community college could help you bring costs down so you can save money: Transferring to a University An associate’s degree from a community college may be sufficient for you to pursue your chosen career. However, in many cases, you will need to further your education and obtain a bachelor’s and maybe even a master’s degree. Going to a community college for a couple of years and then transferring to a university has benefits for any education plan. Tuition and other fees are substantially lower for community colleges than private and public universities. If you have a target university in mind, make sure to research course requirements and whether the course work you take at the community college level is transferrable to that University. Most state higher education systems offer clearly defined transfer routes from a community college to a state university. Make sure your community college coursework meets their transfer criteria. Takeaway Community college can be the ideal choice to save money and decrease your dependence on a student loan. It is also a great way of easing you into college life and building successful learning strategies before transferring to a more costly university.

How Community Colleges Save You Money

View Resource How Community Colleges Save You Money
You look at your paycheck, and then you look at the tuition and fees that even the most “affordable” state colleges and universities charge. You cannot help but panic. How, you wonder, will you ever sock away enough money to help pay for your children’s college education? The bad news? College tuition and fees are not falling. According to CollegeBoard.org, over the last 30 years (1994-95 and 2024-25), in-state tuition and fees at public four-year institutions increased by $8,579, while private four-year institutions increased by $30,059. The good news? There are several financial tools available to parents who want to help cover the costs of their children’s college educations. Depending upon how early parents start investing in these tools — these savings accounts and trusts can help parents steadily build a nest egg that their children can tap once it is time to head off to college. The range of savings vehicles is excellent. However, it also represents a challenge: Parents will have to research their savings options carefully to find the right tool for them and their children. 529 Savings Plans One of the more popular college savings vehicles is the 529 savings plan that states across the country offer. These programs allow parents to invest after-tax dollars today that can grow on a tax-deferred basis over time. Also, withdrawals that pay for qualified education expenses can be tax-free in most cases. Even better, some states provide state income tax deductions for residents who invest in their 529 plans. One of the more popular forms of these plans is the Section 529 Prepaid Tuition Plan. Such plans let you buy tuition in today’s dollars. The state running the program then agrees to give you the equivalent amount of tuition in the future. Such plans are a way to give parents some control over rising tuition costs. Most of these plans come with lifetime investment limits. The limits, though, are high enough so that most parents will not have to worry about soaring past them: Many state 529 plans, for instance, allow parents to invest a maximum of $200,000. But, again, that is a level few will have to worry about hitting. There are some concerns with 529 plans, however. First, parents researching them should pay particularly close attention to fees. Many plans charge hefty administrative costs that can eat away at parents’ investments. Instead, parents should find a 529 savings plan that charges administrative fees of 1 percent or less of the assets they hold. Fortunately, because many states offer more than one version of the 529 plan, finding an affordable plan should not be overly challenging. The other challenge? Some 529 plans place strict limits on where children can attend college. If the child decides on attending school out-of-state, the parents could receive less money than they have saved because the school isn’t in the state that serves as the home base for the 529 plan. Again, research is the key. Parents need to ensure that any 529 plan they invest in provides flexibility. Children can change their minds about their preferred college several times. Parents do not want to see their college savings dwindle because of this. Coverdell ESA The Coverdell ESA plan offers parents another option for building college savings. These savings vehicles are often used as supplements to 529 plans or other savings vehicles because they only allow parents to invest a maximum of $2,000 in them each year. Still, there are plenty of positives with these plans. First, there is more freedom associated with Coverdell ESA plans. The funds in them can cover any cost associated with attending college. Parents can even use the money in a Coverdell account to pay the tuition costs for children attending kindergarten through 12th grade. Parents with more than one child preparing for college can transfer any unused funds from one Coverdell ESA to another. They can also use these remaining funds to start a new Coverdell account for another child. Coverdell accounts are helpful for tax purposes, too. After-tax dollars can be deposited in a Coverdell account and grow on a tax-deferred basis. In most cases, as long as you withdraw the money for a qualified education expense, withdrawals will also be tax-free. However, there are some limits. Single parents must have a modified adjusted gross income of $110,000 or less to contribute the full $2,000 in a Coverdell. Married parents must make a combined gross income of $220,000 or less to make a full contribution each year. Also, parents have to stop making contributions to a Coverdell once their children turn 18. If the child does not go to college, the funds in a Coverdell will eventually go to the child, even if they never go to college. That is a significant difference from 529 savings plans. Under those plans, parents can usually take the money back if their children decide not to attend college. UGMA/UTMA Plans Parents or grandparents can also set up custodial accounts available under the Uniform Transfers to Minors Act (UTMA) or Unified Gift to Minors Act (UGMA). These accounts allow parents or grandparents to invest as much as they would like each year and in total. However, these investments are not tax-free like the Coverdell or 529 plans. There are plenty of investment choices with UTMA or UGMA accounts, giving parents and grandparents more investment control over their dollars. The drawback? At either age 18 or 21, children take control of the money in these UTMA or UGMA accounts. Beneficiaries do not have to use the money to pay for college tuition or living expenses. They can instead use it to buy a new car or motorcycle. The money is theirs to do with as they want. It is easy for parents to let the sheer number of college savings choices overwhelm them. The three main options listed in this story, though, should provide at least a rough blueprint for how parents can sock away dollars for their children’s college education. The best way to handle college savings, though, is for parents to speak with a licensed financial advisor. Such a pro can help steer them through Coverdells, UTMA accounts, and 529 plans. With some guidance and research, saving for college does not need you to lose sleep.

College Savings Plan Options

View Resource College Savings Plan Options
Saving enough money to help pay for your children’s college education is a daunting challenge. Are you trying to save for your retirement at the same time? That makes a difficult task even more challenging. Fortunately, there are ways in which parents can save not only for their children’s college education but also for their retirement at the same time. It requires starting early, planning for the future, and making wise choices. Moreover, when the decision comes down to whether it makes more sense to pay for your children’s college years or fund your retirement? The choice should always come down to your retirement. Saving on Two Fronts College tuition and fees are not getting lower. According to College Board, the average cost of tuition alone for a private college has soared to $41,540, which is $1,600 higher than the year prior. However, when compared to private schools, state schools seem more affordable. For the 2023-24 school year, in-state students can expect to pay an average of $11,260 per year in tuition and fees at their state universities. That is a 2.5 percent increase from the prior year. Saving for retirement, though, is also a financial challenge. Though there’s no real consensus on how much you should save for retirement — several factors, including where you live, what you plan to do, and your health, will help to determine your need. According to Forbes, it is a good rule of thumb to assume that you should save 15% of the salary you have earned during a career of 40 years. So how do you do both? How can you save for your children’s college and your retirement simultaneously? Start Early The key is to start early. The sooner you start socking away money for both of these expenses, the better. For example, say your first child is in preschool. If you start putting away just $25 to $50 a month, you will have a substantial nest egg when this child is ready to go to college. The same rule holds when saving for retirement. If your company offers a 401(k) plan, contribute the maximum amount with every paycheck, even if you are still in your early 20s. Again, these savings will add up over the years. You can also work with your children to find ways to make their college educations less expensive. For example, do your children have to go to a private college for all four years? Maybe they can spend two years at a local community college before transferring to a private university for their final two. Perhaps your children can take extra classes during each semester to allow them to graduate early. You can take the same approach with retirement. Maybe you can work a part-time job to earn extra cash during your retirement. Perhaps you can downsize to a cheaper car or a smaller home to save money. Retirement First If you cannot save for both your retirement years and your children’s college education, it is better to funnel your limited dollars to your retirement. There are many reasons for this. Even if your children have to use student loans to fund their college education, student loan debt is far from the worst type of debt. Student loans come with low-interest rates and tax breaks. Students can also sometimes delay paying these loans back. However, if you do not have enough money for retirement? You cannot delay paying your bills in retirement, even if you do not have the cash available. Remember, your children have the rest of their professional lives to pay off their student loan debt. You will be much more financially vulnerable if you reach retirement age without enough savings. What if you need to pay high medical bills? What if Social Security and your savings do not provide enough cushion to afford your car payments, groceries, or utility bills? As you get older, your focus should be on preparing for your retirement. You want your retirement years to be enjoyable ones. You want the freedom to travel, spend time with your grandchildren or take up a new hobby. Unfortunately, you will not be able to do this if you have sent all your retirement dollars into your children’s college education fund.

Choosing Between College and Retirement Savings

View Resource Choosing Between College and Retirement Savings
As families invest their savings in preparation for their children’s future K-12 or college tuition and expenses, 529 college savings plans can provide various tax and financial benefits. These benefits make 529 plans an essential tool for most college savings strategies. Most states offer two types of 529 Plans.
  1. College savings plans
  2. Prepaid tuition plans
Nearly every state in the U.S. offers one or more 529 plan. Further, you can use the funds invested in a 529 at any one of more than 6,000 eligible colleges and universities located throughout the country. Some private universities and colleges also provide prepaid tuition programs to allow parents to pay all or a portion of their child’s tuition at locked-in rates over time and in advance. However, these plan types do not enjoy the same tax benefits as 529 plans. Fees and Expenses According to the United States Securities and Exchange Commission (SEC), fees vary widely from one 529 plan to the next. Therefore, it is best to research these plans as those fees will impact the returns on your investment and, ultimately, the amount of money that will be available for your child to attend college when the time comes. Prepaid Tuition Plans Most prepaid tuition plans charge an enrollment or application fee with ongoing administrative expenses. The better you understand the terms and costs, the better you can determine whether it will be the right choice for your needs. Education Savings Plans There are plenty of fees you might need to pay with your 529 saving plan. They may include any of the following: These fees will vary according to your state’s regulations and the type of account you choose for your 529 saving plan. Work closely with a trusted advisor to better know the fees associated with 529 plans in your state and how those fees may impact the final amount you have to contribute to your child’s education. Restrictions The funds you contribute to 529 plans are not eligible for federal income tax deductions. However, interest is tax-free, so long as withdrawals pay for qualifying educational expenses. Most states, though—30 of them at the time of writing—offer state income tax deductions or tax credits for contributions on 529 plans. While the money you invest in a 529 plan is yours, and you can remove it at any time, you may have to pay income taxes on the earnings gained as well as additional penalties, some up to 10%. Currently, only 9 states offer prepaid tuition plans. They include: All 50 states offer a 529 savings plan. Interestingly, there are no income restrictions for participating in these plans. Individuals can make annual contributions of $18,000 to a 529 program in 2024 without incurring any gift tax repercussions from the IRS. The IRS evaluates and adjusts this limit each year. Limits are individually based, meaning both you and your spouse may make contributions of $18,000 each year. You can give more provided that you pay the appropriate taxes on the gift. An IRS ‘five-year’ rule does allow individuals to make a lump-sum gift of up to $85,000 without incurring gift taxes. However, you must spread that contribution over five years. 529 plans can be a helpful estate tax planning tool for a grandparent. They allow you to gift funds to grandchildren, sheltering them from estate taxes while ensuring that the funds go towards their grandchild’s education. The 529 savings plan offers greater flexibility and may be spent on a variety of things, including: The last two require students to attend school on a half-time basis, at least, and attend schools eligible for participation in the 529 programs. Prepaid tuition plans have rules that vary by state and program but typically cover tuition and mandatory fees for education (and exclude things like housing, food, and other room and board items). Impact on Financial Aid Each state has its own rules for treating funds held in 529 accounts when determining assets and financial aid eligibility. In most cases, however, participation in a 529 plan does affect your child’s eligibility for specific need-based financial aid. Also, having funds in a 529 account may impact the fitness of your younger children to receive tuition assistance for private school tuition. Now that you know more about 529 plans and the options available to you, you can make informed decisions about which, if any, of these programs best meet the financial and educational needs of your family.

An Overview of 529 Plans

View Resource An Overview of 529 Plans
From the minute you become a parent, you know how essential it is to start a college fund for your little one. And, indeed, starting a college fund while your child is still in diapers can help you reduce the need for taking student loans out, which can save you thousands in interest. Even if you have saved for tuition, room, and board, you still might encounter expensive surprises in unexpected areas. One of those might be the costs associated with applying to college. What Kind of Application Expenses to Expect Having to shell out for standardized testing and college application fees can take you by surprise. Add in the cost of college visits, and you could end up paying more than you had budgeted. For instance, there are fees such as: Methods to Minimize Expenses Some ways of minimizing your expenses are: Today, most colleges provide online tours so that you can learn the basics of campus life. But you might also want to look at things like campus social life, availability of financial aid, diversity, religious affiliations, and classroom and teacher ratios. Leveraging information that is freely available on the Internet may help you learn things about a school that might cross them off your list. Or it might help you focus on a core set of your most desirable schools. Also, since campus visits can be costly, you might want to hold off on a tour until the school has accepted you. It is an exciting time for students and parents to prepare for college. But, when you are surprised with fees you were unaware of, it can cause added stress. By understanding upcoming costs, it is easier to avoid or reduce some of the expenses. A little knowledge and research of upfront fees will save you money as you help your child get into their dream college.

Minimizing College Application Expenses

View Resource Minimizing College Application Expenses
There might come a time where you’ll be helping your children apply for financial aid for their college education. According to CollegeBoard.org, over the last 30 years (1993-94 and 2023-24), in-state tuition and fees at public four-year institutions increased by $5,880 and $18,240 for private four-year universities. The College Board estimates that students who enrolled in a private university for 2023-24 can expect to pay $56,190 in tuition, fees, and room and board for that school year. Those who enrolled in an in-state public university for 2023-24 can expect to pay $24,030. Those are sobering costs. The good news? There is a wide variety of financial aid available to help incoming students pay for the escalating cost of a college education. Parents will want to take any legal means necessary to help boost the amount of financial aid available to their children. That often involves sheltering assets and saving money in the right way. Fortunately, there are several steps that parents can take to maximize the financial aid that their children will receive. Arranging Finances The key is for parents to arrange their finances in such a way as to take advantage of the formula that goes into figuring how much aid is available to every incoming college student. It is essential here for parents to remain honest. Those who try to hide their income may face penalties from the federal government. The government wants to disburse money to those students who genuinely need it. Families that lie about their finances skew this process. However, parents can take plenty of perfectly legal steps to boost the odds that their children will receive a healthy amount of federal financial aid. First, parents should always save money in their names, not in the names of their children. That is because the federal financial aid formula uses a smaller percentage of parents’ savings in determining how financially well-off students are. As a result, parents who make the mistake of saving money for college in their children’s names can cost their sons and daughters a significant amount of aid. Parents can solve this problem by investing in prepaid or college savings plans in their names. They can do the same by investing their money in a Coverdell Education Savings Account. Next, parents should pay off as much of their consumer debt as possible, including credit card bills and auto loans. That is because the federal financial aid formula does not include consumer debt. That is unfortunate; many families are struggling with consumer debt. They would undoubtedly qualify for more student financial aid if the formula had this debt. As the formula stands today, though, it makes sense for families to funnel income away from their savings and use it instead to pay down consumer debt. That leaves families with fewer savings and will help them qualify for more student financial aid. It also has the added benefit of reducing consumer debt with potentially high-interest rates. Parents can reduce their income by maxing out their contributions to their employer’s 401(k) plan or by investing as much as possible into their IRAs. Again, this reduces parents’ incomes while increasing the odds that their children qualify for more financial aid. This step also comes with a financial bonus. By investing as much as possible into their retirement accounts, parents, while helping their children qualify for more aid, will also increase their chances of enjoying a financially secure retirement. Filing for Financial Aid When it is time to file for financial aid, parents should help their children fill out the Free Application for Federal Student Aid, better known as FAFSA. The good news? Parents can complete this form online at the home page of Federal Student Aid. The bad news? The form is a bit lengthy. Also, parents might be required to provide documents such as copies of their income tax returns and bank statements to back up their financial claims. Fortunately, any parents who have ever applied for a mortgage loan will be familiar with the drill of documenting their income. The FAFSA application, despite its length, is no more complicated than a typical mortgage application. The FAFSA will tell parents how much federal financial aid is available to their children. However, parents should be careful not to miss the deadlines for filling out these forms. This deadline changes year by year. Parents should fill out the application as early as possible. Doing so will give them more time to prepare if their children do not receive as much financial aid as expected. It will also help their children qualify for a few federal student aid programs that operate on a first-come, first-served basis. Types of Financial Aid The best types of student loans are federal ones. These loans come with the lowest interest rates and the most favorable loan terms. For instance, federal loans often give college graduates the option to delay repayment if they are struggling financially or have not been able to find a job. Some graduates might even be able to waive a portion of their student loan debt. Students who do not qualify for enough federal student loan dollars, though, do have an option: They can apply for private student loans. These loans do not take into account your financial need. They also don’t come with as favorable terms. They come with higher interest rates and may require a quicker repayment. It is why parents should always help their children fill out their FAFSA form: Federal student loans are a far more attractive option than private ones. Some students might also qualify for the federal work-study program. This needs-based program allows students to work part-time jobs to pay for their college education. Often, the work available will be related to students’ fields. Other times, the work comes in the form of community service. Parents struggling with saving for their children’s college education should start learning about federal and private student aid as early as possible. It is the only way to boost their odds of maximizing the amount of financial assistance that their children receive.

Maximizing Your Financial Aid Package

View Resource Maximizing Your Financial Aid Package
According to EducationData.org, for 2024, Americans owe $1.753 trillion in student loan debt. That is how profound the student debt problem in the U.S. has become. To put it in even more perspective, that is about $611 billion more than the total credit card debt in the U.S. of $1.142 trillion. The arguments have traditionally been that a college education is essential – that it is invaluable. But, unfortunately, people are graduating college with a debt burden that is just too big to shoulder and leaves them financially crippled. So what are the solutions students can consider to get the educations they need without taking on so much debt to receive it? The Growth of Student Loan Debt It is important to note how much student debt has grown over the last decade. EducationData.org reported that student loan balances average at $37,853, and overall, total student loan debt has significantly increased from $1.054 trillion to $1.753 trillion in the past decade. The rapid growth of college debt leaves you as a student or parent with few choices if you believe a college education is necessary. You can bite the bullet and take on the crippling debt, which will only grow even more over the next ten years. You can find ways to make college more affordable for you. Alternatively, you can go the slow and steady route to earning a degree by paying for your education as you go. Improving College Affordability Affordability is critical. It is important to note that some colleges cost more than others. The difference between private and state colleges is staggering for tuition alone. Even among state colleges, you can reduce costs, and your debt load, by choosing wisely and comparing prices ahead of time. There are other steps you can take, though, to reduce your total debt burden for college, including considering attending two years of community college before transferring to a university. You can save thousands, if not tens of thousands, throughout your education by starting at a community college for two years before transferring to a university to continue your education. You must work with both institutions from the start, though, to make sure your courses and credit hours are transferable to the university you intend to attend next. Tips on Avoiding Student Loan Debt These are a few additional steps you can take to reduce your need to take on student loan debt when attending college. It may feel like a sacrifice at the moment, but sparing yourself the burden of crippling debt while continuing to earn your degree may be one of the best gifts you give your adult self. Unfortunately, many of your friends, classmates, and coworkers are overwhelmed by the college debts they are shouldering.

Graduating from College Debt-Free

View Resource Graduating from College Debt-Free
The cost of a college education is not going down. According to US News, tuition and fees at an in-state public college averaged $11,011 for the 2024-25 academic year. That cost rose to $43,505 a year for a private college. Numbers like these are enough to send parents into shock. However, there is some good news: Parents can help offset the cost of tuition and fees by helping their children find scholarships. Scholarships are preferable to student loans for one apparent reason: Scholarship money is gift money. Students do not have to repay scholarships after they graduate. There are plenty of scholarships out there. Students do not have to be straight-A students or sports stars to qualify for them. Students and their parents just need to know where to find this money. Finding Scholarships How do parents find scholarships? Thanks to the Internet, the search for scholarship dollars is pretty straightforward. An excellent place to start is scholarship search engines such as Scholarships.com, CollegeBoard.com, and FastWeb.com. Parents and their children will have to enter relevant information to use these search engines, everything from students’ grade point averages to their extracurricular activities and interests. The search engines will then return possible scholarship opportunities. The more information parents and their children provide, the more scholarship opportunities these search engines will return. Using these types of search engines is just the start. It is also possible to find scholarship opportunities in a more old-fashioned way. For example, high school guidance counselors should have access to plenty of potential scholarships. In addition, guidance counselors might represent the best way for students to find smaller, locally-based scholarships. These scholarships, often offered by private companies or charitable organizations, rarely have large advertising budgets. Because of this, they can be challenging to find. However, guidance counselors will know about them, and these school professionals can help parents and their children see the right scholarship opportunities. Incoming first-year students might also find scholarships directly from the colleges they wish to attend. Many colleges offer scholarships. The best place to find out about them is at these colleges’ financial aid offices. The professionals working in these positions can fill students in on a wide range of scholarship and aid opportunities unique to their universities. Targeting Your Search Does your son or daughter already have a career in mind? If so, that can help you narrow down your search for a scholarship. Most professions boast a trade association. Moreover, these organizations often provide scholarships to students to bring talented youngsters into the careers they represent. For instance, your local realtor’s association might offer a scholarship for students interested in pursuing a career in real estate. Likewise, your state’s banking association might provide scholarship opportunities for students interested in working in finance. Search out these associations, call them and ask about the scholarships they offer. Unfortunately, local and state associations do not always provide the most lucrative scholarships — some provide gifts of just $500. However, every little bit helps when you are trying to help your child cover the costs of a college education. You can also uncover scholarships through good detective work. Go to your local library and scour community newspapers. These smaller newspapers often run stories highlighting local youngsters who have won scholarships. Look at the scholarships that these students are winning and the organizations awarding them. You might find an organization offering a scholarship opportunity that’s perfect for your son or daughter. Applying for Scholarships What if your children are not sports stars? What if they have never racked up straight-As? Don’t despair. There are plenty of scholarships out there for a wide range of students. The truth is organizations award scholarships based on a broad set of criteria. Some organizations award scholarships based on a student’s community involvement. Students who volunteer at local nursing homes, food banks, or homeless shelters have a good chance of qualifying for these scholarships even if they do not have a perfect academic record. Other organizations award scholarships based on religious affiliation or ethnicity. Moreover, the organizations passing out these scholarships vary widely, too. Businesses, colleges, churches, civic groups, and professional organizations award scholarships. Applying for these scholarships can take time and creativity. Many organizations will focus mainly on the student’s grade point average or extracurricular activities. Others, though, will require students to write essays, provide a resume listing their activities or provide recommendations from influential community members. Avoiding Scams Unfortunately, not every organization offering scholarship money is legit. Scammers have found new college students and their parents to be tempting targets for cons. Scam artists might entice parents and students with a lucrative scholarship offer. But, to start the process, all these parents and students have to do first is send an application fee — sometimes hefty — to them. What happens next? The organization behind the scholarship disappears, along with that application fee. Other scammers use the lure of scholarship money to harvest students’ and parents’ financial information, the first step to identity theft. Here’s a rule of thumb: Never apply for a scholarship that requires you to come up with an application, processing, or redemption fee. Legitimate scholarship opportunities do not expect students to pay for their awards. Students and parents should be wary, too, of organizations that suddenly contact them with scholarship offers. Most legitimate organizations offering scholarships do not have to search out students. The students come looking for them. If you unexpectedly receive a call or email message that seems too good to be true, the odds are a scammer is targeting you. The world of scholarships can be a daunting one for students and parents new to it. However, with a bit of research and much patience, parents and their children can often dramatically reduce the number of student loans their income college freshmen will need. That is something that will benefit children long after they graduate.

Finding Scholarships

View Resource Finding Scholarships
Parents can feel lonely when trying to finance their children’s college educations. But, unfortunately, college tuition and fees are not falling. According to CollegeBoard.org, over the last 30 years (1992-93 and 2022-23), in-state tuition and fees at public four-year institutions increased by $6,070 and $17,540 for private four-year universities. However, parents need to know that paying for their children’s higher education does not have to be a solitary affair. Parents have several tools that they can rely on to help cover these costs. Parents can rely on, at least partly, their savings. Alternatively, they can help their children receive grants or scholarships. Finally, though they require repayment, student loans can help ease the financial burden of paying for a college education. Here, then, is a summary of the tools that can help overwhelmed parents.

Savings

The best way for parents to help pay for their children’s college education is to rely on their savings. For many parents, though, this is unrealistic. Typically, they don’t have enough savings built up to cover the escalating cost of a college education. However, parents can significantly reduce the stress of funding a college education by socking away money early. It is relatively easy for most parents to put away $50 to $100 a month. However, parents who start saving early — long before their children hit high school — will find a significant nest egg available when it is time for their sons and daughters to go to college. Parents, though, need to be careful. It is good to help pay for their children’s higher education. However, it is not suitable for them to shortchange their retirement years. Unfortunately, too many parents funnel too much of their cash toward building college funds for their children. That can leave them without enough money for their retirement years. Parents who have to decide between saving for their children’s college education and providing for their retirement years need to take care of themselves first.

Grants and Scholarships

Grants and scholarships can be a big help to parents struggling to save for their children’s college education. These sources of funds are especially welcome because students do not have to pay them back. It is why many financial experts advise parents and future college students to seek out grants and scholarships before they worry about applying for student loans: Grants and scholarships, after all, represent free money. In general, grants go to students based on financial need. Scholarships typically go to students based on merit. For example, students might earn scholarships because they earned straight-As in high school. In addition, their achievements on the football field, debate team, or science club might help them earn scholarships. Scholarships and grants are available from several sources, from colleges to corporations, the federal government, state governments, and charitable organizations. For instance, many organizations offer scholarships based on students’ essay-writing skills. For example, the John F. Kennedy Profile in Courage Essay Contest provides up to $10,000 to high school students who submit essays about elected officials who have demonstrated political courage. The Coca-Cola Scholars Foundation provides 150 $20,000 scholarships, 150 scholarships ranging from $1,000 to $1,500, and 180 four-year scholarships of $1,000 to students who display leadership and excellence. In addition, Davidson Fellows Scholarship provides $50,000, $25,000, and $10,000 to students under 18 who have completed a significant piece of work in the field of science, literature, music, technology, philosophy, or math.

Student Loans

Student loans are often the last resort for parents. That is understandable: Every day, we hear horror stories of college students graduating with tens of thousands of dollars worth of student loan debt. The truth is, though, that student loans come with terms and interest rates that are far more favorable than you would find with any other type of consumer loan. Student loans come in two forms: federal loans, based partly on financial need, while private loans are available to all students regardless of need. Federal need-based student loans come with the lowest interest rates and best terms. On the other hand, the interest rates associated with private students loans can soar relatively high. These loans work much like other consumer loans: The loans help students pay for anything from college tuition to room-and-board, supplies, books, and meals. They do not have to pay back these loans until a set number of months after graduating from college. Once the loan comes due, graduates must pay back the money they borrowed in monthly installments, including interest. Graduates can often delay repayment depending on their financial situations and whether they have found a job. To determine how much federal loans their children can receive, parents must first fill out the Free Application for Federal Student Aid form, better known as FAFSA. Parents can find this form online. Once parents fill out this form, they become eligible for aid from the U.S. federal government, including assistance available from the Stafford Loan, PLUS Loan, Perkins Loan, and Pell Grant programs. Parents might also discover that their children are eligible for the Federal Work-Study program. Based on students’ financial needs, this program provides part-time jobs to students to help them cover the cost of attending college. In addition, students who do not qualify for federal work-study might be eligible for private work-study programs. No one said that financing your child’s college education would be an easy task for parents. As long as college tuition and fees continue to rise, helping to fund a college education will remain a financial struggle for many parents. However, parents should take comfort in that so many opportunities for financial help are available to them. The key is to start planning early. Those parents who start saving early for their children’s college education and who start researching financial aid opportunities at the start of the college selection process will be in the best shape once college beckons.

Financing a College Education

View Resource Financing a College Education
The Free Application for Federal Student Aid, more commonly known as FAFSA, is the gateway to most types of college financial aid. This application asks questions about the student and family’s financial situation to assess financial needs. The federal government, state governments, and individual schools use the information to determine your financial aid award. Am I Eligible For Financial Aid? Most students are eligible for at least some financial aid. However, you must have completed high school or the equivalent and enrolled in a degree-seeking program. You also must be a U.S. citizen, U.S. national, or eligible non-citizen with a Social Security Number. In addition, you must not be in default on previous federal student loans, and you must not have received any drug convictions while receiving federal student aid in the past. Some types of financial aid, like grants and subsidized student loans, are based on financial need. Therefore, your eligibility for these types of assistance will depend on the answers you provide in the FAFSA. However, other kinds of financial aid, like unsubsidized student loans and parent loans, are available to all eligible applicants, regardless of financial need. What Types of Aid Are Available? How and When do I Apply? You need to apply before each school year for which you want to receive financial aid. Fill out the application at FAFSA.ed.gov as early as January 1 of the calendar year in which the school year begins. The federal deadline for the application is June 30 at the end of the school year, although states and schools often have earlier deadlines. You will need a prior-year tax return and W-2 statements to fill out the application correctly. You will also need current bank statements and records of any other investments. If you are a dependent student, as most undergraduates are, you will also need your parents’ financial information. What Happens After I Apply? As soon as you complete your FAFSA, it goes into the processing stage. Each college you list on the FAFSA will receive your information the following day. Then, you will receive a Student Aid Report (SAR) via email about 3 to 5 days after you submit the FAFSA. The SAR will tell you your Estimated Family Contribution (EFC) if your application is complete. That is the amount the federal formulas determine your family should pay for this year of college. Your college will use your EFC to determine your exact financial aid award. If you did complete your application, the SAR would let you know what you need to do to finish it.

FAFSA and You

View Resource FAFSA and You
College graduates often leave their universities with an unwelcome burden — a significant amount of debt. It is important to note how much student debt has grown over the last ten years. According to EducationData.org’s latest report, student loan debt has increased from $1.24 trillion in 2014 to $1.773 trillion in 2024. And according to that same report, the average student loan debt is currently at $37,853. That means that the odds are good that college graduates will leave school with at least some debt to repay. It says, too, that paying back this amount of debt will be problematic for some graduates who struggle after entering the workforce to find jobs that pay decent wages. The good news is that there are options for graduates who cannot afford their monthly student loan payments. The bad news? Those graduates who ignore these possibilities could face serious financial consequences. Don’t Ignore It The worst move college graduates can make when their student-loan debt becomes overwhelming is to ignore the problem. It is tempting for students to ignore their late bills and hope that the problem goes away. However, it will not. Graduates who do not make their student loan payments on time could face severe financial penalties. They will also see their credit scores take a hit. That is terrible news: Lenders of all kinds — mortgage, auto, and personal — rely on these scores when determining who gets loans and at what interest rates. The borrowers with low credit scores will either not qualify for loans or credit cards or have sky-high interest rates for loans they can obtain. So what should graduates do if their loan payments become too much of a burden? First, they should call their lenders. That might be embarrassing, but lenders will often work with graduates to come up with a solution to their financial woes. Consolidation Many graduates choose to consolidate their student loans. Under consolidation, multiple loans get combined into one. That simplifies paying back these loans: Graduates now have to make just one payment every month. Consolidation can also lower the monthly payments of graduates because the process gives them up to 30 years to repay their loans. The downside? Graduates who increase the length of their repayment period will pay far more in interest during the life of their student loan debt. That is why loan consolidation is not always the best financial solution for college graduates. Postpone Some lenders might allow graduates to postpone their loan payments during unemployment or other financial crises. That gives graduates extra time to shore up their finances or find a better-paying job. The problem? Adding months to the lifespan of a student loan means that borrowers will usually have to pay more interest over the life of the loan. The best way to handle student loan debt is to pay it back as quickly as possible. Postponements instead make debtors spend more months paying back their loans. Payment Plans Another option for borrowers is to request a new payment plan from their lenders. Lenders might be willing to lower the money that borrowers have to pay each month. They might also help reduce the interest rate attached to the loan. Borrowers who took out federal student loans might qualify for income-contingent repayment plans. Under these plans, graduates only pay a monthly payment of a set percentage of their monthly incomes. Such plans are a boon for borrowers whose monthly incomes are low. Alternatives Graduates can also sign up for specific careers or programs to reduce the student loan debt they owe. For instance, graduates who signup for the Peace Corps can eliminate 70 percent of their student loan debt from Perkins loans. In addition, those who took out Stafford and consolidated loans can receive a deferment of up to 27 months. Graduates who sign up as volunteers for Americorps can receive nearly $5,000 to pay off their student loans after one year of service. Facing monthly student loan payments can prove stressful to recent college graduates. Moreover, graduates struggling to find good-paying work in their field will face even more stress when those student loan payments come due. However, students who want to overcome their debt will have to be proactive. There are options out there. It is up to graduates to do the research necessary to find the best ones.

Living with High Student Loan Obligations

View Resource Living with High Student Loan Obligations
Making monthly student loan payments is about as much fun as going to the dentist. According to EducationData.org, 62 percent of today’s college students went into debt after graduating with roughly $37,853 on average. Student loan debt totals at $1.773 trillion, a 5.4 percent decrease from the year prior. As tuition costs rise and student loan debt balances grow for new graduates, it might feel like paying off that student loan is something you will never get behind you. Strategies The good news is that you are permitted to repay your student loans at a faster rate than the maximum 10-year timeline that federal loans allow. In other words, there is no penalty for repaying them early. Additionally, following a more rapid repayment strategy would result in lower interest costs than if you conformed to the standard repayment term. These rapid repayment strategies will help you repay your student loans quickly so that you can move on with life without student loan debt weighing you down. Prioritize Payoff Concentrations Many people have multiple student loans with different repayment requirements, interest rates, and terms. As you put together a repayment strategy, you will want to examine all of your student debts closely and, while paying the minimum due on each student loan, you will want to prioritize repaying the debt that will cost the most first. That means you will pay the minimum balance on all other student loans while paying as much as you can on the one that carries the highest interest rate or least favorable terms. You will especially want to do this if you have any student loans with a variable interest rate. Paying those loans off early, before rates increase, should be a top priority. If you have high-interest-rate loans or massive student loan debt, the savings you stand to gain from this tactic can be substantial. However, once you finish paying off one loan, it is time to move on to the next – and then the next. Paying off each successive loan should be faster as you apply the monthly payment you made on a paid-off debt to the next one. Keep doing this until all student loans reach a zero balance. Consolidate Student Loans Consider consolidating your student loans if you have an excellent credit score and high-interest rate loans. Not only will that simplify the repayment process, providing you with a single bill to pay each month, but it can also substantially reduce your interest rate. Take Advantage of Your Job if Possible Some employers offer student loan assistance programs in their benefits packages. But, taking some jobs may actually qualify you for student loan forgiveness. There may be regional requirements or time of service requirements, but people working in the following professions may be eligible for forgiveness programs: Even if you qualify to have only a portion of your student loans repaid by someone else or forgiven, it can mean a massive reduction in your overall debt. In addition, loan forgiveness can help you repay your outstanding debt balance that much faster. Change Your Financial Circumstances Putting extra finances towards student loan repayment will have you pay off your debt in a shorter time frame, which is much quicker than sticking to the minimum payments for the next 10 or 20 years. Of course, making more money is not the only way to put more towards your student loan payments. You may also choose to cut unnecessary expenses from your budget and invest those savings toward eliminating your student loan debt. Easy starting places include the following: The key is to reinvest your savings into paying off your student loans faster. You will be surprised by how quickly the little things add up. Caveats There is one key point to remember before you dive too deep into your efforts to pay off your student loans faster. Be cautious of some government programs designed to ease the pain of student loan payments. They often provide you with the means to reduce your monthly payments, simplify your record-keeping, and only make one payment each month. However, that convenience typically comes at the high cost of extended repayment terms on your loan. Since the goal is to repay your student loan debt faster, not lengthen the amount of time you must continue to pay this debt, these government programs might not be your best choice. In addition, extended repayment periods often mean you will pay more interest over time. Quickly paying off your student loans frees up your money and attention for far more enjoyable pursuits. The strategies and tips above will help.

How to Quickly Pay Off Your Student Loans

View Resource How to Quickly Pay Off Your Student Loans
Are you saving enough for retirement? If you are like most U.S. residents, probably not. The Employee Benefit Research Institute’s 2022 Retirement Confidence Survey reports that slightly more than 7 in 10 works are confident in having enough saved to live comfortably in retirement. In addition, slightly more than half of workers report that the COVID-19 pandemic has not changed their confidence in their ability to live comfortably throughout retirement. However, roughly a third of workers that are less confident in their ability to save for retirement cites that inflation and the increase in cost of living are the reason. Despite all this, two-thirds of workers are still confident in their ability to cover basic expenses and medical expenses during their retirement. However, confidence in a comfortable retirement is also firmly based on whether survey respondents had a retirement plan in place. For example, 73 percent of workers are very or somewhat confident that they’ll have enough money to live comfortably in retirement, with 28 percent being very confident. The good news is that you can avoid falling into this ‘confidence trap’ by preparing yourself for retirement now. The key is to assess your retirement needs early by determining what lifestyle you want to live and how much money you need each year to afford it. Then start saving money as early as possible and learn the basics of the various retirement-savings vehicles available to you.

Assessing Your Retirement Needs

The Retirement Confidence Survey also reports that 60 percent of workers have began to receive information from their employers regarding their projected monthly income in retirement. Not calculating how much you’ll need is a worker’s biggest mistake as their retirement years draw closer. If you do not know how much money you will need to live the lifestyle you want in your retirement years, you are far less likely to save enough money each month to reach these goals. The amount of money you need to save each month will vary depending on your goals. For example, your savings needs will differ depending on whether you want to travel the globe after retirement or prefer to spend your post-work days visiting your grandchildren who live less than an hour’s drive away. Know, too, that your health will play a significant factor in how much you will need to live comfortably after retirement. If you or your spouse require a considerable amount of medical care, your savings, no matter how much insurance coverage you have, will be more likely to dwindle at a faster rate. Most people rely on three sources of funding for their retirement years: Combining these three funding streams must equal or be larger than the amount of money that you determine you need each year to live comfortably in your retirement.

Starting Early

The best move is to start saving for retirement as early as possible. The later you wait, the more difficult it will be to save enough. In their article Penny Saved, Penny Earned, Vanguard Group researchers Maria Bruno and Yan Zilbering show how vital saving early is. According to their research, investors who saved 6 percent of their salaries in a portfolio split evenly between stocks and bonds starting at age 25 enjoyed a median portfolio balance at retirement of nearly $360,000. That figure fell to $237,000 for investors who waited until 35 to start investing and $128,000 for those who waited until age 45. The message here is simple: It is never too early to save for retirement. Those workers in their 20s and early 30s might be especially well-suited for saving for retirement. Setting aside retirement money once children, mortgage payments, and auto loans enter the picture becomes more challenging. However, young workers who get into the habit of saving early for retirement will be more likely to continue their savings even as their monthly expenses rise.

Retirement-Savings Vehicles

If you have decided to boost your retirement savings, the good news is that you have plenty of financial vehicles to choose from when saving for your retirement years. While pension plans are becoming rarities, many workers do have the option of participating in their company’s 401(k) plan. If your company offers such a plan, you will be wise to participate and contribute as much of each paycheck as allowed. The more you save each month, the more comfortable you will be in your retirement years. An Individual Retirement Account, better known as an IRA, is probably the best known of these vehicles. If your employer does not offer a retirement plan, you can deduct your contributions to a traditional IRA from your gross income. That pays off at tax time; you will pay lower taxes because your reported income will be lower. However, your contributions to an IRA are not deductible if you have a retirement plan at work. You can start withdrawing money from an IRA at the age of 59-and-a-half without paying any penalties. When you withdraw money from a traditional IRA, though, you will pay taxes. A Roth IRA operates differently. The contributions to a Roth IRA are never tax-deductible, but the earnings on these contributions grow tax-free. Meaning, you end up paying taxes when you contribute money to a Roth IRA, but you do not pay them when you withdraw it. You can also withdraw money from a Roth IRA before turning 59-and-a-half and not pay any penalties. There is one thing that both Roth and traditional IRAs do have in common: The money you deposit in both types of IRAs will grow tax-free. IRAs are a significant source of retirement savings. However, investors can also earn retirement income through such savings vehicles as stocks, bonds, and annuities. The best plan is to rely on several types of retirement savings vehicles. That way, if one type does not perform well — say the stock market falters — your other vehicles can help cushion the blow.

The Basic Principles of Retirement Planning

View Resource The Basic Principles of Retirement Planning
A strong economy, coupled with a rising stock market, provided steady increases in the average 401(k) account between 2010 and 2020. That trend seemed to continue in 2021, however, account balances began to shrink due to market volatility and inflation in 2022. According to a 2022 Fidelity Q3 Retirement Analysis, the average 401(k) balance decreased by 23% from $126,000 in Q3 of 2021 to $97,200. In addition, the average IRA balance went from $136,000 in Q3 2021 to $102,000 in Q3 2022. Most workers know that there is little that they can do to improve the country’s economic performance, and predicting the stock market’s performance is a challenging task. What workers know they can do is to focus on their retirement savings strategy. With the proper focus, your retirement years can be comfortable, allowing you to travel, spend time with your grandchildren or take up new hobbies. However, this will not happen if you spend these years worrying about money. Fortunately, you can boost the odds of a happy retirement by avoiding some of the most common retirement savings mistakes.

New Workers

Not saving early enough: It is easy to forget about planning for retirement when you first start working. After all, you have other expenses — rent, maybe a mortgage, furniture, clothing — that you need to cover. With that said, those who start saving early for retirement will end up with significantly more money in their retirement years. In their article Penny Saved, Penny Earned, Vanguard Group researchers Maria Bruno and Yan Zilbering show how vital saving early is. According to their research, investors who saved 6 percent of their salaries in a portfolio split evenly between stocks and bonds starting at age 25 enjoyed a median portfolio balance at retirement of nearly $360,000. That figure fell to $237,000 for investors who waited until 35 to start investing and $128,000 for those who waited until age 45. Not maximizing the match: If you work for a company that offers a 401(k) program, you need to participate in it. These programs provide a relatively pain-free way to build your retirement savings over time. Don’t make a mistake many young workers make, though: Maximize your employer’s match. You will miss those extra dollars when retirement arrives if you do not. Running up debts: It is easy to run up credit card debt. However, remember, it is not easy to comfortably retire when carrying a heavy debt burden. Begin wise spending habits — only charge what you can afford to pay back when your next credit card statement arrives — at a young age. They can save you a world of financial pain as retirement nears.

Middle-Age Workers

Borrowing money from your retirement accounts: Borrowing money from your retirement accounts is a terrible financial decision. You will sometimes pay severe tax penalties to withdraw funds early from these accounts. Even worse, though, is the toll early withdrawals take on your future savings. If you remove money from your retirement accounts, these dollars do not get a chance to grow at a compounded rate. As a result, you will end up with far less money at retirement age. Putting college before retirement: It is natural that many parents want to help their children pay for their college educations. However, remember this: Your children can take advantage of student loans and grants to get through college. They then have their entire lives to pay back their college debt. If you spend your retirement dollars to help fund your children’s education, though, you will face severe financial consequences once you stop working. Not diversifying: The best way to save money for retirement is by creating a diversified portfolio of stocks, bonds, and other savings vehicles. This way, if one savings vehicle suffers — the stock market crashes, for instance — your other investments will remain strong. But, unfortunately, too many investors put all their dollars into one type of investment, either incurring too much risk or not enough.

Nearing Retirement Age

Underestimating medical expenses: Too many people think they will remain healthy throughout their retirement years. Unfortunately, that often doesn’t happen, and not planning for medical expenses can prove a costly mistake. Fidelity estimated that most retirees should expect to pay roughly $315,000 in medical costs during their retirement years. Underestimating their lifespans: We are living longer today. That is good news. However, it also means that you will want to save more money for retirement. Don’t mistake thinking that your retirement will be a relatively short one. If you leave work at age 66, you might have 30 years of retirement living to fund. Retiring too early: Full Social Security benefits kick in at age 66.The longer you put off retiring, though, the higher your annual benefits will be. If you can keep working, it makes financial sense to push off retirement as long as possible.

Retirement

Withdrawing too much too early: Once you retire, don’t make the mistake of withdrawing too many dollars from your retirement savings too early. Instead, financial planners advise that retirees follow the 4 percent rule: Only withdraw 4 percent of your retirement savings each year.

Retirement Planning Mistakes to Avoid

View Resource Retirement Planning Mistakes to Avoid
The Employee Benefit Research Institute’s 2022 Retirement Confidence Survey reports that 7 in 10 workers are at least somewhat confident in their ability to live comfortably in retirement. There’s been an increase in worker confidence comes from an increasing belief that they will have the ability to handle one of the basic expenses in retirement — their health care. But that also means that 3 in 10 workers are not confident that they will have saved enough. If those currently in the workforce follow the same path, they will face a painful reality when they reach retirement age: Social Security provides far from enough income for people in their retirement years. Those who do not save enough will spend these years worrying about paying their bills. The truth is, retirement is not inexpensive, even if you do not have a mortgage to pay or significant credit card debt. Consider medical costs. The Fidelity Retiree Health Care Cost Estimate found that a couple retiring in 2022 at age 65 with no employer-provided health care coverage will need $315,000 in savings to fund out-of-pocket medical expenses during their retirement years. The good news? Even if you have been lax in saving for retirement, you can still take steps to increase the amount of money available to you after you quit working. Here is what you should be doing at every stage of your working life to save for retirement.

Just Getting Started

Admittedly, it is not easy to think about saving for retirement when you are just getting started on your job. However, there are specific steps you can take today to boost the odds that you will have enough money to enjoy your retirement years. Step one? Participate in your company’s 401(k) plan if it offers one. Moreover, participate completely; max out your regular contributions. You will not miss money that is deducted from your paycheck automatically. However, you will undoubtedly appreciate it once you retire. Next, invest in a traditional or Roth IRA or a combination of the two. That allows you to save money for your retirement years on a tax-deferred basis. The other important step to take at this stage? Practice sound financial habits. You do not want to enter your retirement years burdened by credit card debt. The less consumer debt you generate during your 20s, the better off you will be as retirement nears.

Mid-Career

Again, debt remains a significant factor in how enjoyable your retirement years will be. So do everything you can to pay off your debts as you move closer to retirement. Paying off your credit card debt is a must. If you can afford it, you should pay off your mortgage, too. Not making monthly payments in your retirement years will prove a significant financial relief. The mid-point of your career is also the time to start drafting a financial plan for your retirement years. Discuss your goals for your post-work life with your spouse. For example, do you want to spend most of your time with your grandchildren? Do you want to travel the globe or take regular cruises? Maybe you want to take up golf. Your goals for your retirement years will impact how much money you will need for this time of your life. Armed with this information, you can sketch out a rough figure of how much you will need to save to reach your retirement goals. If you have not yet opened IRAs for you and your spouse, do so now. Be sure to contribute regularly to these accounts. Every bit of money you save now becomes critical as retirement nears.

5 to 10 Years Before Retirement

The Internet can help you determine if you are on track to have enough savings to support the lifestyle you desire during retirement. Use an online retirement calculator to determine how prepared you are for your retirement. That is also an excellent time to evaluate your savings vehicles. You should maintain a diverse portfolio, investing in bonds, stocks, and other savings vehicles. However, this is an excellent time to move more of your savings to lower-risk investments. That will protect these dollars as your retirement years draw near. It is essential to learn about Social Security during this time, too. You do not want to retire too early; this will diminish the amount of Social Security income you receive each year. In fact, the longer you can put off retiring — if you are healthy enough to work — the better financially off you will be. Not only will you draw more income to support your retirement years, but you will also boost the amount of Social Security benefits you receive each year. It is also best to practice living on your new income before finalizing your retirement. You might find that you have underestimated how much money you will need during your retirement years.

After Retiring

Once you have retired, you need to be cautious about how much money you withdraw from your retirement savings each year. Many retirees follow the 4 percent rule, meaning that they only withdraw 4 percent of their savings each year of retirement. That is a sound financial plan to take.

Retirement Planning Checklist

View Resource Retirement Planning Checklist
Over the past several years, there has been a significant rise in gig workers and the number of affiliated companies that utilize them. According to MBO Partners, there are 64.6 million Americans who participate in the gig economy, which is roughly a 26% increase from the year prior. Being classified as a gig worker does not necessarily mean gigging was a person’s primary income source. Still, it could be substantial enough to report earnings. The gig economy workforce includes freelancers, self-employed consultants, contractors, on-call, temporary workers, and others in similar employment situations. Self-employment is an attractive career path for many individuals. Still, unfortunately, it does not come with a built-in retirement plan.

What Are My Options?

When you are a member of the gig economy, it is imperative you are proactive and set up your own retirement fund. As a gig worker, you typically have no other third-party or employer to rely on to set one up for you. However, taking control of your own retirement savings need not be frustrating or overwhelming. Here are a few options:

Dealing with Taxes

When you were a full-time employee, you were used to getting a W-2 form from your employer each year. Now, because you are a gig worker, freelancer, or sole-proprietor, you will receive a 1099-MISC form (most likely) unless you have made under $600. Depending on the type of freelancing you are doing, you might receive both a 1099 and W-2. You will also have to pay your estimated taxes each quarter too, or you could face late fees and a large bill at the end of the year when you file your tax return. You may be able to qualify for some type of monthly payment plan if you wind up owing more than you pay when tax season hits. You pay your taxes directly to the IRS as an independent contractor. Therefore you might be surprised by extra individual taxes. When you are employed, your employer covers half of your Medicare and Social Security taxes, or 7.65%, combined. However, when you are self-employed, you are responsible for paying the full 15.3% of Medicare and Social Security taxes.

What Insurance Do I Need?

If you do not have health insurance, this should be your first priority in the self-employment world. If you do not have health insurance, a severe medical condition or injury could require you to dip into your retirement savings. High medical bills also often lead to personal bankruptcy. If you cannot be on a spouse or parent’s plan or extend your COBRA coverage from a previous job, you will have to obtain your own health insurance. To do this, you can visit HealthCare.gov and choose from various plans in your area. You might also find a cost-effective health plan group via freelancers’ unions or professional organizations. Shop around to find the most affordable plan that will fit your needs. You could also open up a Health Savings Account (HSA). This will offer you a tax-advantaged way of saving for your health care costs. However, many individuals don’t realize HSA money can also be used for non-health-care expenses once you have hit the age of 65. And there would not be any withdrawal penalties on it either. However, for you to open an HSA, you will need a high-deductible health plan.

Takeaway

It can take some advance planning and creativity for a gig economy worker to reach retirement goals. Begin saving today to build your own nest egg using your tax refund. You can significantly impact your future with a little sacrifice now.

Gig Worker Retirement Strategies

View Resource Gig Worker Retirement Strategies
American workers who have retirement plans through their employers should take advantage of them. Without a solid retirement plan, security in retirement is uncertain. According to the U.S. Bureau of Labor Statistics, 69 percent of private industry workers have access to some form of retirement plan. While some retirement plans are better than others, that leaves a third of workers in the U.S. without access to an employer-sponsored retirement plan. That also means those workers will not have financial stability when they retire. Luckily, there are other options for retirement savings besides the traditional 401(k) and 403(b) accounts. For example, workers can still save for retirement using a payroll deduction IRA.

What is a Payroll Deduction IRA?

Payroll Deduction IRAs are individual (not employer-sponsored) retirement accounts. Typically, employees fund their IRA by having automatic deductions from their paycheck, hence the “payroll deduction” plan. In addition, employees can set a dollar or percentage amount that transfers to their retirement account from each paycheck. Workers can use a Payroll Deduction IRA to fund either a Traditional or Roth IRA. Similar to other individual retirement plans, the payroll deduction account may provide many low-cost investment options. In addition, payroll deduction IRAs are an excellent option for employers that can’t offer a traditional retirement plan. The payroll deduction IRA ensures employees can save for retirement.

How Do Payroll Deduction IRAs Work?

Typically, payroll deduction IRAs are set up with a financial institution. Once you determine which institution to use, you will pick either a traditional or Roth IRA. The main difference between the accounts focuses on when you pay your taxes for your contributions. Traditional IRA contributions are tax-free and only paid upon withdrawal. Meanwhile, Roth IRAs charge taxes on your contributions; however, you do not pay taxes upon withdrawal. Once you establish your account, you can set up your automatic payroll deduction. You can choose either a percentage of your paycheck or a set dollar amount. For example, if each of your paychecks is $5,000, you can have 10% deducted and sent to your IRA account. With this method, you will have $500 deducted each pay period and transferred directly to your IRA. Otherwise, you can choose a fixed-dollar amount to contribute every paycheck instead. Keep in mind that there are limits to how much you can contribute each year to an IRA. Your payroll deduction choices should consider these limits. You will quickly see the growth of your payroll deduction IRA account over time.

IRA Tax Benefits

IRAs come with certain tax benefits too.

Using Your Payroll Deduction IRA

Thankfully, simplicity and ease of use are attractive benefits of a payroll deduction IRA. You need to establish the account and set up your automatic payments so that you don’t have to worry about making contributions yourself. As you work and earn more money, you will see the overall growth of your account, which will eventually support you during retirement. In addition, payroll deductions do not require government filings like employer-sponsored plans. It is important to note that payroll deduction IRAs have the same contribution limits as other IRAs. In 2023, The maximum contribution limit for all IRAs for an individual under 50 is $6,500 and $7,500 for those over 50. Once you retire, your contributions from your payroll deduction IRA will be accessible so you can maintain your financial security well into retirement. However, employees who withdraw contributions before 59 1/2 will be subject to an income tax and 10% penalty.

Explaining Payroll Deduction IRAs

View Resource Explaining Payroll Deduction IRAs
For most people who have jobs in the U.S., Social Security contributions are automatic. It is not something you need to worry about because your employer takes care of it on your behalf. When you are self-employed, though, this is not the case. You alone are responsible for your taxes and your Social Security contributions. Here’s what that means for you.

Social Security for the Employed

People who work for a traditional employer have one significant tax benefit beyond essential record-keeping benefits. That is the fact that the employer and employee share the Social Security tax burden – each paying 6.2 percent on your earnings and each paying 1.45 percent of earnings as taxes into Medicare. These payroll taxes are taken out of your paycheck before you even have an opportunity to know they are gone. In many ways, that takes some of the sting out of paying these financial obligations paycheck after paycheck. In 2023, Social Security tax is assessed on the first $160,200 of income, while Medicare tax has no limit for income. Also, individuals who make more than $200,000 and married couples who make more than $250,000 will pay an additional 0.9 percent in Medicare taxes.

Social Security Responsibilities for the Self-Employed

On the other hand, self-employed people must shoulder this particular burden alone since you serve as both the employer and the employee in this arrangement, which means that you bear the full force of the Social Security and Medicare taxes. The current contribution you make is 12.4 percent and 2.9 percent, respectively. As with employer tax rates, you will only pay the Social Security tax on the first $160,200 of your earnings, while Medicare tax applies to your entire income for the year. The total tax burden for self-employed people earning $160,200 or less is 15.3 percent. While there are many legitimate business expenses you can deduct to reduce your overall income and Social Security tax liability, there is a great deal of debate over whether or not it is in your best interest to do so. Since Social Security is about ensuring some degree of financial security upon retirement, some feel paying the maximum possible amount now will serve you better upon retirement. Unfortunately, that means ignoring the expense deductions and paying the higher rate. However, that is not always the best way to go about it because Social Security bases the benefits on your income during the 35 working years in which you earned your highest income. That means that if you are making less being self-employed than in other parts of your career, you will want to minimize income. On the other hand, if you are earning on the higher side, you will want to report the higher income level and pay more in taxes now in return for more substantial benefits when you retire.

Business Expenses Impact on Amount Due

There are various expenses your business has that are allowed as deductions. That means you can subtract those costs from the income you would otherwise receive to reduce your self-employment tax obligations. One thing to remember is that 6.2 percent, or half of your social security taxes, are also deductible from your total income as a business expense. That means you subtract that amount from your taxable income and only pay taxes on the difference.

Report Earnings

If you are self-employed and earn $400 or more, you must report your earnings via the Schedule SE (Form 1040). That form will tell you if your earnings are subject to self-employment tax. However, most self-employed independent contractors or sole proprietors will use Schedule C or C-EZ forms. Social Security taxes can be pretty complicated. Therefore, it is a good idea to work with an accountant to determine your best long-term strategy for these payroll taxes.

Social Security and the Self-Employed

View Resource Social Security and the Self-Employed
When you file for Social Security benefits or Supplemental Security Income (SSI), your lifetime earnings determine the amount of your monthly retirement benefit. However, this number is not static for the rest of your life. Your social security benefits will increase over time to keep pace with “inflation” or the cost of living. In other words, your retirement benefits will be affected by an annual process, referred to as the cost-of-living adjustment, or COLA. Congressional legislation authorized cost-of-living adjustments in 1973 and put it into practice in 1975. With these adjustments, SSI and Social Security benefits stay current with inflation to help retirees keep pace with their living expenses. Before 1975, only legislation led to changes for social security benefits.

Impact of COLA on Social Security Benefits

Cost-of-living adjustments are made based on measurements of inflation. When inflationary pressures are present, Social Security benefits adjustments get made in subsequent years. If there are no measurable changes, no COLA is applied. Because COLA depends on inflation, an increase does not occur every year. However, Social Security benefits will be increasing in 2023. Beginning with the December 31st, 2021 benefit, payable in January 2023, and continuing until the next COLA in October 2023, a COLA increase of 8.7 percent will be reflected in the SSI payments made to Social Security benefit recipients. As an example, if you received $1,586 in monthly Social Security benefits last year, and this year’s COLA is 8.7 percent, your monthly benefits for the coming year will be $1,724 ($1,586 x 1.087).

How COLA is Calculated

Cost-of-Living-Adjustments uses the Consumer Price Index (CPI), the official measurement of inflation used by the U.S government. The Consumer Price Index measures the prices of over 80,000 services and goods. Cost-of-living adjustments are made based on the CPI as specified by the Social Security Act. Specifically, Social Security adjustments use the CPI’s Urban Wage Earners and Clerical Workers (CPI-W) measurement. The Bureau of Labor Statistics calculates CPI-W’s monthly.

Issues with COLA Calculation Method

There are several concerns with how the Social Security Administration (SSA) estimates the average cost of living adjustments. First, the index the SSA uses only accounts for 32 percent of the total population’s spending habits, even though a newer index can evaluate 87 percent of people’s purchasing habits. In addition, the 32 percent represents a younger “wage earner” demographic, which is different than seniors or the elderly who receive social security benefits. Second, the CPI measurement used for determining Social Security benefits adjustments does not consider shifts in consumers’ spending habits when prices change. As an example, increases in the price of gasoline may transition consumers to use mass transit more regularly. The CPI does not reflect that spending shift. As a result, inflation’s impact might not be as meaningful, and it might not be needed to alter benefits. Third, some say the current method does not account for costs, such as out-of-pocket health care costs, that affect seniors the most. Therefore, they feel price indexes should be changed to more accurately measure senior spending. Congress has not instructed the Social Security Administration to derive a more accurate CPI to date. However, Congress can base COLAs on different measurement methods in the future. Since the Social Security Act may be nearing the point of needing a revamp, changing the way to calculate COLA is possible and could be part of any reform package.

How Cost of Living Adjustments are Calculated

View Resource How Cost of Living Adjustments are Calculated
You are nearing retirement age and wonder how much money you can expect from the federal government in Social Security benefits each month after leaving the workforce. The short answer? The amount of money you earn while working determines your monthly benefits. Of course, it is not entirely that simple. The Social Security Administration also factors inflation and other formulas to determine your final monthly benefit. The length of your working career and how early you retire will also impact your monthly benefits. Here’s a closer look at what goes into determining the amount of money you will receive each month:

Your Income

When determining your monthly benefits, the Social Security Administration considers your 35 best working years — the years in which you earned the most income. It is important to note that the Social Security Administration might not use all of your earned income during these years when calculating your monthly benefit if you are a high-wage-earner. In 2023, for instance, every dollar that you earn above $160,200 will not count for Social Security benefits purposes. You will also face income limits if you take Social Security benefits and continue to work between the ages of 62 and your full retirement age. Full retirement age is somewhere between the ages of 65 and 67, depending on your birth year. In addition, if you have not yet reached your full retirement age and earn more than $21,240 a year in 2023, then $1 will be deducted from your benefits for every $2 earned over $21,240.

The Calculations

The Social Security Administration takes the average of your 35 highest-earning years to determine your monthly benefit. That figure adjusts for changes to average worker wages since the period in which you earned your money. That is known as adjusting or indexing workers’ earnings. This step makes sure that your future benefits reflect the rise in the standard of living that occurred during your years of working. The Social Security system is also progressive in that lower-wage earners receive a higher percentage benefit than higher-wage earners do. This is because the system returns a higher percentage of pre-retirement earnings to a lower-wage worker than a higher-wage worker. The Social Security Administration uses all this information to create your AIME or averaged indexed monthly earnings. Eventually, the Social Security Administration calculates your Primary Insurance Amount or PIA. That is what you will receive each month from Social Security.

Retirement Age

However, the retirement age significantly impacts the amount of Social Security benefits you receive each month. So, if you retire too early, you will earn less each month in benefits. As of 2018, the earliest age to begin collecting Social Security benefits is 62. However, if you start receiving your benefits at this age, you will receive reduced monthly benefits. There’s a reason for this: The federal government figures that you will be collecting your monthly benefits for a longer time if you retire at age 62. So monthly benefits are reduced for early retirees to make sure your payments equal out over your lifetime. How much of a reduction will you face by retiring early? According to the Social Security Administration’s website, primary wage earners can expect to receive just 70 percent of their total monthly benefits if they retire at age 62 instead of 66 or 67. In addition, the spouses of primary wage earners will take an even more significant hit; they can expect to earn just 65 percent of their total monthly benefits if they retire at the age of 62. The message seems clear: It makes more financial sense to begin collecting Social Security payments at or after full retirement. But, of course, even this matter is more complicated than it seems. For instance, if your health is poor, you might not live a long life after retiring. So collecting benefits early on might make sense. Also, if you are out of work and can’t find a new job, it might make more sense to collect benefits earlier rather than later. As you near retirement age, be sure to check for the Social Security benefits statements that the government has sent you since you turned 25. These reports list the amount of income you have declared each year and provide an estimate of how much Social Security money you can expect to earn each month, depending on the day you retire.

How are Social Security Benefits Calculated?

View Resource How are Social Security Benefits Calculated?
The traditional view of retirement is changing, and it is changing quickly. For example, retirement was when you could travel or spend long days with your grandchildren. These days, however, increasingly, retirement still involves some amount of work. The good news? Research suggests that working at least part-time in your retirement might be right for you, both financially and physically. The key depends on what work you do and how you save the extra money you earn while taking on a part- or full-time job during retirement.

Need to Work or Want to Work?

The unfortunate fact is that many retirees have no choice but to work, at least on a part-time basis, during their retirement years. That is because these retirees have not saved enough money to live comfortably during their retirement. Levels of optimism and confidence from retirees that their retirement will remain financially secure have been steady, while retirees who feel very confident continue to increase. According to the 2022 Retirement Confidence Survey conducted by the Employee Benefits Research Institute, 73 percent of workers remain positive towards their retirement, with 28 percent very confident. However, the same study showed that 24 percent of retirees are not too confident or not confident at all in the financial security of their retirement. In other words, many U.S. residents will need to work longer if they want to face a comfortable, happy retirement. Of course, there are plenty of reasons people would want to work during their retirement years. For one thing, the world of work has changed. Fewer people are making a living doing manual labor. As a result, retirees can work longer if work mainly involves sitting in front of a computer screen or making telephone calls. A June 2014 report by the Society for Human Resource Management (SHRM) references the new ‘retirement workscape.’ In this workscape, retirees will continue to find satisfaction from work even after they retire from their primary career. The SHRM report outlines four different phases of the retirement workscape: Pre-retirement involves taking meaningful steps to prepare for their post-retirement career. Many human resources departments are even engaging employees who are getting ready to retire to explore ways that they might be able to continue work. Again, flexibility and finding work that is motivating are the key factors. Once the retirement decision occurs, most retirees want to take a little time off or have a career intermission. That gives them the ability to relax, recharge and retool. Typically, this career intermission lasts about 2.5 years. Re-engaging in the workforce lasts for about nine years on average, according to the SHRM report. However, that re-engagement comes with a new balance between work and leisure and a greater emphasis on flexible careers. Finally, the fourth phase allows retirees to rest, relax, socialize and travel. That is the traditional view on retirement for most people. However, such traditions are changing or facing postponement to a later retirement stage.

Impact on Other Retirement Income

Financially, working longer will offer better protection for your other sources of retirement income. The extra monthly income you generate from work can help cover your insurance, grocery, and medical-care costs. That will reduce the need to tap into your retirement savings. That extra income may allow you to hold off collecting Social Security benefits until later in life. Remember, the longer you wait to begin receiving Social Security, the more significant your monthly benefits will be. (This holds until you hit the age of 70. After this point, your monthly benefits will no longer increase.) Choosing to work after you hit retirement age is an important decision. However, in suitable cases, doing so might provide you with the financial and health benefits that could make your retirement years better.

Working in Retirement

View Resource Working in Retirement
Retirement is something you may have been looking forward to for quite some time. You may have been saving for it since you began working with the hopes of leading a comfortable lifestyle once you are no longer officially bringing in a consistent and well-earned weekly, bi-weekly or monthly paycheck. However, a few complications, such as people living longer than expected after retirement and the upheaval in the market that took place during the Great Recession, may have put a few wrinkles in your plans. That has left many people looking for ways to supplement their retirement incomes, perhaps just like you. The good news is that there are plenty of opportunities available for you to do just that. First, however, you must make sure you do not cross specific lines with Uncle Sam, or you could face a few unexpected and unpleasant penalties for doing so. Here’s what you need to know to avoid making costly missteps while supplementing your retirement income.

Income Limits in Retirement

According to the Social Security Administration (SSA), income limits mainly apply to Social Security Benefits for people who are not yet at full retirement age. Full retirement age is the age at which you qualify for 100 percent of your social retirement benefits each month. For many years, that age had been 65. However, if you were born after 1943, your retirement age is at 66, which then slowly increases until it hits 67, which then applies to those born after 1960. If you have not yet reached full retirement in 2023, your annual earning limits are $21,240. Therefore, any earnings above that amount will result in a decrease in your monthly retirement benefits. For those who will reach full retirement age in 2023, limits on earnings in the months leading to that date are $56,250. For this purpose, the SSA only considers earnings for the one month before your full retirement age. This includes income from the following: It does not include income from the following, though: Once you reach full retirement age, you have no limits on your earned income and will continue to receive your full benefits.

Opportunities for Generating Retirement Income

Generating income during retirement is more manageable than you might believe. Most retirees do not need to rely on a full-time salary. Instead, some are only looking to supplement their incomes, make their funds last longer, or afford a few desirable luxuries during their golden years. That means you do not need to embark on a new career to make ends meet, though you could enjoy a nice part-time income or turn a hobby into a little extra cash. These are a few ideas you might want to consider for retirement income. There are nearly endless opportunities to earn money during retirement to supplement your income or fund your dreams.

Benefits of Working in Retirement

Oddly enough, the benefits of working in retirement are far more than financial. While some people initially decide to work during retirement for economic reasons, many keep working throughout retirement for deeply personal reasons. These are just a few benefits you can experience by working during retirement. However, the bottom line for some people is that they enjoy working and wish to continue doing so. Of course, there are financial benefits to consider for working during retirement. Many of these are too big to be discounted or ignored. That is especially the case for retirees concerned that their nest eggs are not sufficient to meet their needs and expectations. That includes reasons like the following: Retirement does not mean you have to sit at home and take up knitting, not that there’s anything wrong with that. Many of today’s retirees are more energetic and active than ever before. Sometimes, that requires a little creative financial planning before retirement, and at other times, it might mean you want to continue earning well into your retirement. But, it is your retirement, so do what you please.

Supplementing Your Retirement Income

View Resource Supplementing Your Retirement Income
Levels of optimism and confidence from retirees that their retirement will remain financially secure have been steady, while retirees who feel very confident continue to increase. According to the 2022 Retirement Confidence Survey conducted by the Employee Benefits Research Institute, 73 percent of workers remain positive towards their retirement, with 28 percent very confident. However, the same study showed that 24 percent of retirees are not too confident or not confident at all in the financial security of their retirement. Into which segment of this statistic do you fall? Will you run out of money during your retirement? If so, what can you do about it? The good news is that you can take steps to boost your odds of enjoying a retirement free of money stress. However, you must first identify whether you have saved enough for retirement to do this. Moreover, if you have not, you must then take the sometimes challenging steps to change your negative financial situation.

Determining if You Have Enough Savings

Before determining whether you have saved enough for retirement, you must calculate how much money you need each year. Financial experts say that most retirees will need anywhere from 70 percent to 85 percent of their annual pre-retirement income to live comfortably after leaving the workforce. That varies, though, depending on the lifestyle you wish to live during your retirement. If you want to travel the globe with your spouse, you will need more money each year than you would if you are looking forward to relaxing with your grandchildren. Likewise, if you want to help your children buy their first house, you will need more savings than if you are planning to spend your days catching up on all that reading you missed while working. At the same time, you need to calculate which of your expenses will change after retirement. For example, you might no longer have to make a monthly mortgage payment. That is a positive. However, you might also need to spend significantly more on your health care. That is a negative. Maybe you will drop life insurance and disability coverage or do away with one of your cars. Next, you need to estimate how long you think you will live after retiring. That, of course, is no easy task. In general, though, people are living longer today. It’s not unusual to live into your late 80s or beyond. Depending on when you retire, then you might have 25 years or more left to live.

If You Don’t Have Enough

After making these calculations, what if you determine that you have not saved enough for retirement? First, don’t panic. It is scary to come to grips with a potential lack of retirement funds. However, once you know you are in financial trouble, you can take steps to change your fortunes. For instance, you might choose to sell your home. That can provide you with an immediate infusion of cash. Besides, if you downsize, you will have to spend less time and money on maintenance, lawn care services, and snow-plowing companies. Again, that can add up to significant savings. You might also consider moving to a more affordable community. By living with lower gas, groceries, and other regular expenses, you can reduce the monthly strain on your retirement savings. Another key to a financially happy retirement? Reduce as much of your consumer debt as possible. You do not want to take credit card debt with you into your retirement years. Make sure, then, to do everything you can to pay off your high-interest-rate credit cards before you leave the workforce. Working longer is another strategy. If you can work past your full retirement age — whether that age is 66 or 67 — you will have more time to pay off debts and sock away savings. You will also boost the size of your monthly Social Security benefit. The longer you work — until the age of 70 — the more significant your monthly benefit will be. You might also choose to take on a part-time job after you retire. This extra income can help you cover necessary expenses and avoid dipping into your savings. Finally, you might have to adjust your expectations for your retirement years. You might not be able to take a cruise each year. You might not be able to help pay for your grandchildren’s college education. Remember, your priority during your retirement is to make sure you have enough money to last until your death. Only by focusing on your finances will you meet this goal.

Have You Saved Enough for Retirement?

View Resource Have You Saved Enough for Retirement?
Most people preparing for their first baby are shocked and even dismayed to learn just how high childcare costs can be. According to Care.com’s 2023 Cost of Care survey, weekly childcare rates for the care of a single child range from $736 for a nanny down to $229 for a family care center. In between, parents can expect to pay $275 for after-school sitter and $284 for a daycare center. Analyzing Your Needs Costs for childcare will vary significantly across the country. Areas that feature a higher cost of living will also often have higher prices for childcare. The reverse is often true. The fact remains that childcare costs are significant expenses for families seeking quality care for their children while at work. Families with more than one child feel the pinch a little harder, especially if both children are under the age of four. That can be one of the most frustrating aspects of being a parent. You want the best life possible for your child and understand that often requires two incomes to provide. However, you want your child to have the best possible care as well. That takes money, too. Explore the costs of daycares in the area combined with the services they provide to the families they serve. Decide which facilities meet your needs and manage to address your concerns for your child’s safety and quality of care. Then, find the price that meets your needs best and does not add to other monthly budgets or commuting expenses. FSAs and Tax Credits Flexible spending accounts, FSAs, like a dependent care account, allow a single parent to set aside $3,200 tax-free each year to pay for childcare or $6,400 for a married couple. While it will not cover all the costs, by any stretch, of childcare for the year, it can help ease the sting. Additionally, child tax credits allow you to deduct up to $2,000 per year per child – up to $4,000 per family for childcare expenses. One thing you should note, though, is that while you can use both the FSA and a tax credit, FSA funds are applied first and count toward the tax credit. Making it More Affordable While we all recognize that nature often has a way of bringing us plenty of surprises, the best first step is to plan the growth of your family. Have childcare costs in mind well ahead of getting your new bundle of joy into the world. That is especially the case when considering second or third children. Some things you can do that will help with these expenses include: Steps like these can go a long way toward helping you manage the costs of raising your child in those first crucial years. Getting More Mileage from Your Child Care Dollars Small steps like these can yield significant results for your childcare budget and your efforts to manage childcare expenses.

Managing Your Child Care Expenses

View Resource Managing Your Child Care Expenses
As economic conditions improve, unemployment rates are showing a decline. According to the latest data from the Bureau of Labor in November 2023, the unemployment rate reached 3.7 percent. When you find yourself returning to work after unemployment, it can feel like emerging from a challenging period. There are essential details to address before fully embracing the return to work. Here are vital steps to consider as you transition back into the workplace after an extended unemployment period. Closing Unemployment Benefits When you receive unemployment compensation during your period of unemployment, it’s crucial to inform your state authority about your return to work. Each state has specific policies and procedures for individuals rejoining the workforce, and failing to provide this information promptly may result in penalties or fines. Reestablishing a Daily Routine Having been away from the workplace, whether returning to a familiar office or joining a new organization, your work environment may have changed due to various considerations. Establishing a daily routine before you officially start can be beneficial: Building these habits before your return can make the transition smoother, considering that others may not adjust as seamlessly. Managing Stress at Work In the current context, stress levels may be high for various reasons. As you re-enter the workforce, it’s essential to anticipate and manage stress for yourself and others. Here are some tips: Minor adjustments can significantly impact stress levels. By being mindful of your well-being and that of your colleagues, you contribute to a more positive work environment. In conclusion, whether you approach your return to work with excitement or apprehension, addressing these considerations beforehand can facilitate a smoother transition. Focus on managing unemployment benefits, easing into a work routine, and minimizing stress for yourself and those around you, aiming for a thriving and harmonious return to work.

Employed Again? Do These Things First

View Resource Employed Again? Do These Things First
Most people do not want to start their marriage off with unnecessary debt. Yet, in 2022 in the U.S., the average wedding cost was $27,000, according to The Wedding Report. If you’re thinking of going on a honeymoon, you’ll probably spend even more than the average amount. $27,000 is a significant amount of money and can alternatively go towards a downpayment on a new home, an emergency fund, money for retirement, or even a few vacations in the future. Because the cost of a wedding can be so high, you’ll want to consider your budget and how much you want to spend. Comparing your and your partner’s special day with the extravagant weddings of friends or relatives isn’t necessary or helpful. Instead, it is best to figure out what’s within your means and plan accordingly. Developing a budget and planning around it will help reduce any unnecessary expenses, help save money, and ultimately, keep your financial stress to a minimum.

Building a Wedding Budget

To start determining the cost of your wedding, try making a list of your expenses– everything from the venue to catering to music and entertainment. When building your budget, it is best to consider the number of people you plan on inviting. For example, smaller weddings mean a smaller venue and less money to spend on food and drinks. On the other hand, larger weddings will require a larger budget. Putting a limit on your budget will make the process easier. Once you’ve researched venues, food expenses, decor, and whatever else you need, add up your totals and compare them to the limit. If you exceed your limit, try to see if you can cut back on some expenses. For example, you don’t want to sacrifice the size of your wedding; however, you can decide to have your ceremony on a less expensive date. If you still have difficulties funding the wedding, consider asking for help. Your parents, friends, and family members may be able to help you with the cost of the wedding.

Establishing Goals

You always want to try and be on the same page as your partner and have similar expectations regarding the wedding. Effectively communicating will help make your first major financial decision together go smoothly. Money can add pressure to a relationship, so starting your marriage without financial burdens will help relieve stress. When building your wedding budget, ensure you and your partner communicate your goals. Establishing this foundation will make it easier when making decisions regarding wedding expenses. For example, suppose you’re someone who enjoys international travel every year. However, having a more expensive wedding may deter that goal by potentially draining your savings and leaving you and your partner in debt. Effectively communicating with your partner regarding both of your dreams will help your decision-making process regarding your wedding expenses.

Understanding Needs and Wants

Understanding each other’s needs and wants will help you decide on your wedding. For example, if you and your partner agree on having a larger wedding, you can go for it. Once you start making these decisions, moving on to the next should be easier. Assigning value to how much you want or need something may help. For example, you may want to reconsider music and entertainment to afford the larger wedding. Instead of paying for a band, you could ask a friend to DJ the event for you. Try making a wedding playlist and having your friends and family members add songs.

Takeaway

Budgeting is crucial for planning a wedding, and having excess debt is not an ideal way to begin your marriage. Developing and sticking to a budget based on open conversations between you and your partner will help ensure less stress. In addition, having a realistic budget will ensure that you and your partner’s marriage won’t start with any additional financial burdens.

Budgeting For Your Big Day

View Resource Budgeting For Your Big Day
Having a strong password is vital to your cyber security. Passwords are most secure when they combine letters, numbers, and symbols; some sites even require you to use passwords with a minimum number of characters and combinations that include upper and lower case letters, numbers, and special characters. Specific passwords that are just words, like “password,” for example, make it much easier for hackers to break into your account than if your password was something like “T9&vH*!2”. Along with choosing a strong password, it is crucial to have a different password for each site/username. If your passwords are all the same and a hacker breaks into your social media account, for example, they will have a much easier time breaking into your other accounts, like your email or online bank account. However, the problem with having several long, complex passwords is that they are hard to keep track of, and you may be unable to get into your online site or account because you have forgotten or misremembered a password. Luckily, password managers can solve the headache of trying to remember every password or the trouble of locating that scrap of paper with all the passwords you squirreled away in your junk drawer. What is a Password Manager? A password manager is a program or service, sometimes referred to as a password vault, holding all of your passwords in an encrypted digital locker on your computer or cloud. For example, a password manager could keep login information, such as usernames and passwords, for your social media accounts, email, work or school accounts, and more. Using a password manager allows you to create long, complex passwords without worrying about how you’ll remember each one. Are Password Managers Secure? Most cyber security specialists agree that password managers are the safest way to store your passwords. Despite this, Security.org states in their 2023 Password Manager report that 1 in 3 Americans use password managers. As mentioned, password managers allow you to choose solid passwords because you don’t have to worry about remembering them with a password manager. In addition, password managers are highly secure because they are encrypted using industry-standard encryption, like Advanced Encryption Standard (AES). Many password manager programs provide site and password breach alerts, security questions and answers, and two-factor or multi-factor authentication—some even facial and fingerprint recognition. AES 256-bit is a standard cipher (i.e., system for encrypting and deciphering data) used by many password manager services. It is so secure that even the US military uses it. It would take many decades to break this cipher so that a forceful cyber attack would have almost a zero percent chance of success. Advantages and Disadvantages Below are some general pros and cons of password managers. Advantages to Using a Password Manager: Disadvantages to Using a Password Manager: Takeaway Password managers are a very secure way to protect your passwords and are much easier and safer than remembering or keeping track of all your passwords without a manager. Also, using a password manager allows you to create and keep track of more complex passwords that you’d otherwise have trouble remembering. However, if you are using a password manager, use multi-factor authentication so your password manager is more secure and all your passwords are safe. Just make sure you don’t forget your password to access the password manager itself!

How to Use a Password Manager

View Resource How to Use a Password Manager
Identity theft remains a serious issue in the United States. How serious? According to the Identity Theft Resource Center, 233.9 million records were exposed so far to identity theft in 2023, arising from over 2,116 total data breaches. The data breach analysis reports 733 compromises for Q3 2023. The financial services sector accounted for 27.8 percent of data breaches, healthcare and hospitality were 16.8 percent, the government had 3.5 percent and education with 5.7 percent. The meaning? You have to be more careful than ever to prevent a criminal from stealing your identity and impacting your daily life and finances. Fortunately, there are steps that you can take to lessen your odds of becoming a victim of this crime. Moreover, some of the steps require little more than common sense. Reducing the Chance of Identity Theft National credit bureau TransUnion, for example, recommends that you only carry essential personal documents with you. Leave extra credit cards, birth certificates, passports, and Social Security cards at home unless you need them. This way, if you get physically robbed, your assailant will not have as much personal information to use against you. TransUnion also recommends that you be careful when throwing away documents. The credit bureau recommends shredding receipts, credit card offers, bank statements, and returned checks before tossing them in your garbage or recycling bin. Thieves are not above pawing through your garbage to uncover your personal information. The Federal Trade Commission adds that you should refrain from receiving new personal checks from your bank through the mail. Instead, try picking them up at the bank so that identity thieves have one less opportunity to acquire your personal information. One way to give identity thieves less personal information is to opt-out of prescreened credit, and insurance offers that come in the mail. For example, you can log onto OptOutPreScreen.com to prevent financial companies from sending credit cards or insurance offers to your mailbox. Through this site, recommended by the Federal Trade Commission, you can opt-out of receiving these offers for five years or permanently. Eliminating these offers from your mailbox means that information thieves will not be able to use them to acquire your personal information. Avoiding Scams Equifax, a national credit bureau, warns consumers to be careful when giving out information online or through the phone. As the credit bureau says, many scammers will try to pry personal data out of consumers by convincing them they are representatives of their banks, phone company or credit card providers. The scam is simple, with identity thieves calling or emailing to say that consumers will lose access to a vital account if they do not confirm necessary information. Please do not fall for it. As Equifax states, your credit card company, utility, or bank will never ask you to provide passwords or your Social Security Number by phone or email. If you are unsure that you are speaking to a legitimate representative of your bank, utility, or credit card provider, ask them to send you a request by mail. An excellent way to protect yourself is to regularly track your bank and credit card accounts. Study your bank statements for any questionable withdrawals or transactions. Look at your credit card bills when they arrive to ensure that there aren’t any unauthorized purchases. Scammers rely on the fact that many victims fail to study financial statements when they come. Don’t fall into this trap. It would also help to track when your credit card statements regularly arrive. If your statement is late, contact your credit card provider. A thief may have stolen the information to take your data. Of course, signing up for paperless statements could solve this problem. Securing Your Information Today’s identity thieves have become proficient at using a computer to steal consumers’ personal information. Their computer savvy means that you have to be especially careful when online. CNET says that protecting yourself online starts with creating strong passwords that are difficult for thieves to hack. To do this, make sure to create passwords that include text, numbers, and symbols. Also, make sure that your passwords are long. The longer and more complex your passwords, the more challenging they will crack hackers. Unfortunately, many will merely move on to more accessible victims. Make sure, though, that you do not use the same password for all of your online sites. Once a hacker cracks one password, you can be sure that this criminal will not hesitate to try it out on many other financial websites you visit. CNET also recommends that you refrain from clicking on the attachments in strange email messages, even if these messages appear to be coming from a friend or co-worker. You never know if your friend has been a hacking victim as well.

Protect Yourself from Identity Theft

View Resource Protect Yourself from Identity Theft
Technology and online security see continuous enhancements each year, but unfortunately, not those upgrades have not been enough to protect databases from being breached by hackers. As a result, identity theft remains a serious issue in the United States. How serious? According to the Identity Theft Resource Center, more than 233.9 million records were exposed to identity theft in 2023, arising from over 2,116 total data breaches. The data breach analysis reports 733 compromises for Q3 2023. The financial services sector accounted for 27.8 percent of data breaches, healthcare and hospitality were 16.8 percent, the government had 3.5 percent and education with 5.7 percent. How to Know if Your Data Has Been Compromised In most cases, a company will notify you via email or postal mail after discovering a data breach. They will likely tell you the stolen information, such as your name, email address, username, password, mailing address, Social Security number, and financial account numbers. Another way you may discover your data was in a breach is if you notice fraudulent activity on your accounts. For example, you may see a credit or debit card charge you did not make, or you may get a phone call or piece of mail about an account you did not open. The thief may have obtained your information through a data breach where the company has failed to notify you or where the breach has gone unnoticed. Steps to Take to Protect Your Identity After a Data Breach
  1. Change your password if that was one of the pieces of information involved in the data breach. Also, if you use the same or a similar password for other things, change those passwords as well.
  2. Sign up for the free credit monitoring service offered by the breached company, if applicable. This service will likely check your credit report regularly and notify you immediately regarding any new information that appears. However, do not let the credit monitoring service give you a false sense of security. You should still take other steps to protect yourself and your identity.
  3. Place a fraud alert on your credit report by contacting one of the three credit bureaus: Equifax, Experian, or TransUnion. This alert will automatically transfer to the other two bureaus as well. When there is an alert on your credit report, creditors are supposed to contact you directly before issuing credit in your name.
  4. Review your credit reports for unusual activity. In particular, focus on the section that lists credit inquiries initiated by you. If you see something here that you do not recognize, this can indicate that someone has attempted to apply for credit using your name and Social Security number. Also, look at the section listing active accounts. If there is an account there that you did not open, contact the financial institution that manages the account and the credit bureau that provided the report to tell them it is fraudulent.
  5. Consider issuing a security freeze on your credit reports if you found evidence that someone is actively trying to open accounts using your information. The security freeze prevents new accounts from being opened unless you lift the freeze for a specific financial institution and a specific time frame.
  6. Protect existing accounts by monitoring your monthly account statements and checking all activity to ensure you initiated it. Monitoring your account is especially important if you know your credit card number, debit card number, or bank account number was compromised. If you notice any unusual activity on your statements, notify the financial institution that manages the account immediately. They may issue a new account number for you.
  7. Be vigilant about requests for personal information. Do not give your personal information if you receive a call or email from someone who claims to be with one of your financial institutions. Instead, call your financial institution directly through the number listed on your account statements or by typing in their website address. You should only reveal personal information if you have initiated the contact and are sure you are not talking to someone trying to defraud you.

If You’re a Victim of a Data Breach

View Resource If You’re a Victim of a Data Breach
As a parent of a new teen driver, having your teen get their license is enough to cause you to break into a cold hard sweat. Not only do you now have to worry about the safety of your teen behind the wheel, but your auto insurance premiums could go through the roof. Why is Teen Insurance so Expensive? Teens cost more to insure for good reason. The rates are typically higher for teens than other drivers because they pose a more significant risk of accidents than experienced drivers. Teen drivers are also more likely than the average driver to get tickets. The National Highway Traffic Safety Administration (NHTSA) says that the leading cause of death for teens is motor vehicle crashes and make up more than a third of all deaths of teens between the ages of 16 through 19. According to the CDC, in 2020, 2,800 drivers between the ages of 13 to 19 were killed in motor vehicle crashes. In addition, male drivers have over three times the death rate compared to female drivers of the same age. According to CarInsurance.com, your insurance premium will increase, on average, by $3,726 annually when adding a teen to your policy. In some states, the increase could be as high as 150 percent. What are Parents Required to Do? Most insurance companies will require that all licensed members of your home be added to your policy, regardless of whether they are driving your vehicle or not. You do not have to add teens if they only have a learner’s permit. That does not mean that you do not have to notify your insurance agent when your teen gets their learners permit, you do, but there should be no charges to your policy since your teen is not listed. Once your teenager gets his license, you have to either take out a separate policy or add them to your own. You also need to contact your insurer to ask about their rules if you are divorced and only have custody part-time. Typically, the parent who has primary custody adds the teenager. That is not always the case, however. If you have multiple vehicles, you may be able to save money on premiums by limiting your teen to driving only a single car. However, to avoid paying a premium for your teen on other vehicles, you will need a named exclusion. That is where you and your insurance company agree, through an endorsement to your policy, that your teen does not have coverage on those vehicles. As a result, your teen does not get coverage for any claim caused by them either. How Can I Add a Teen Most Cost Effectively? It is often less expensive to add a teen to an existing policy instead of buying a separate one, which most parents do. However, there are other things you can do to reduce the cost of adding a teen driver to your insurance. It is also better to add your teenager to your current insurance while sharing a car rather than purchasing them a new car. Take Advantage of Discounts Many insurance providers provide discounts. For example, the Good Student Discount is one that insurance providers offer to students who maintain good grades (B average or higher). Others offer programs, such as educational videos, online safety courses, contracts between parents and teens, and driving logs to foster safe driving habits. Some insurance companies subsidize the costs of electronic gadgets, such as GPS tracking devices, which parents can install in their cars to monitor their teen drivers. Then they offer discounts to the policyholders whose teenagers use the gadgets. That is part of a concerted effort to reduce teen-involved crashes. Drop Collision and Comprehensive Coverage You can save some money on your policy by dropping comprehensive and collision coverage on older cars that are not worth that much more than the deductible itself. Chances are, with an older car, you will pay more in the premiums than you would receive from the insurance company if your vehicle is totaled. You can research Kelley Blue Book to see your car’s value. Get a Safe Car Not only will you be able to sleep better knowing your teen is driving a safe car, but your premiums will be cheaper as well. Take Advantage of Bundling You will likely receive a multi-policy discount if you have both a homeowners and auto insurance policy with the same insurance company. By adding an umbrella policy, you can even get another discount, which offers additional liability coverage beyond the limits of your auto insurance. Consider ‘Pay-as-you-go’ or Usage-Based Insurance For this insurance policy, they install a device that monitors the driver’s driving behavior. When drivers display good driving habits, they receive a financial reward. That’s a positive way to keep an eye on your teen’s driving and save some money as well. The bottom line is this: there are always ways for you to save money on your insurance premiums while keeping your teen safe at the same time. Give your insurance company a call to get a quote and discuss the number of options you can implement to save on adding your teenager to your auto insurance policy. Of course, your main priority is to keep your teen safe while they are behind the wheel; saving money on your auto insurance is a bonus.

Auto Insurance and Teen Drivers

View Resource Auto Insurance and Teen Drivers
Most parents worry about their children as they grow up; however, you’d think that would stop once they reach adulthood. Parents always look to set their children up for a successful future. They might be helping out with their first car, paying for higher education, or assisting them in purchasing their first home. Parents may also choose to open and operate a guardian IRA, or custodial IRA, for a child or someone who is disabled. Understanding a Custodial IRA Parents or legal guardians are responsible for managing a custodial IRA for their child or disabled adult. Typically, this will include the guardian signing all the legal paperwork since the other person cannot. The parent or guardian usually uses a custodial IRA to assist with setting their child up for financial success once they reach retirement age. Even though a legal guardian manages the account, the child or disabled person still owns it. Then, once the child reaches the age of 18 or 21, depending on the state, they’ll have the account transferred to them for proper handling. Disabled individuals would receive complete ownership once they can handle their finances. There are two common types of custodial IRA accounts – Traditional and Roth. Custodial IRA Account Benefits One of the most important things we can do for our children is to teach them financial responsibility at a young age. Maintaining funds and establishing savings will help them apply those skills to their future finances. People typically do not consider retirement funds until they reach their late 20s to 30s. However, by creating a custodial IRA for your kid, you’ll be able to kickstart their retirement savings and help them prepare for the future. You can withdraw money from a Traditional IRA or Roth IRA anytime. The main difference between the two accounts is how the funds are affected by taxes. A Traditional IRA will face tax penalties for an early withdrawal, while a Roth IRA does not. The ability to withdraw your funds from a Roth IRA without penalty will only assist with managing emergencies, attending college, or other money-related concerns. Using a Custodial IRA Account The first step when setting up a custodial IRA is choosing the right financial institution. Next, you’ll need to provide general information for whomever you’re opening the account with, including their social security number, employment information, annual income, and banking information. The account is typically set up in the child’s name and then funded by taxable earnings regardless of age. The funds can come from babysitting, dog walking, or a W-2 job once they reach legal age. However, the maximum limit for 2023 is $7,000. Takeaway A Roth or Traditional custodial IRA is an excellent option for setting your child up for a successful retirement. However, remember the main differences between the two types of accounts. In addition, educating your children on the importance of saving money will only help them in the future when it comes to managing their finances.

What Is a Custodial IRA?

View Resource What Is a Custodial IRA?
Being underwater on your mortgage does not refer to having a flooded home. Instead, it means that your current debt on the house is higher than the current value of your home. Unfortunately, this situation occurs far more often than anyone wants to admit. In fact, according to Irvine, California-based ATTOM Data Solutions, in the second quarter of 2023, less than 3 percent of American homes had a combined estimated balance of loans that were at least 25 percent more than the market value. Fortunately, those numbers have fallen dramatically in the last five years — though that offers little comfort if you are one of the nearly 5.2 million homeowners currently facing a negative equity situation in your home’s value. A condition, as it happens, that makes refinancing or selling your home extremely difficult. These are a few options to consider if you find yourself in this situation. Stay Put One option to consider is to remain in your home rather than attempting to sell it for a probable loss. Even if you face work-related relocation, you could keep your home and consider using it as a rental property instead. Why is staying put attractive? Like many other things in the world today, home values are cyclical. Areas that may be experiencing a slow economic state of affairs today will likely pick up and, provided the home is in a stable state of repair, improve in value in time. If there is no critical reason to leave your home, consider remaining in your home until the market corrects itself and home values improve. You may even consider making improvements to your home during this time that will help to increase its value once you decide to put it on the market. Selling Your Home For some people, the only option is to sell your home. For example, you may be facing a relocation and need to get out of the financial obligation your home represents. Alternatively, you could be at risk of foreclosure and trying to salvage your credit. Some options are available that may allow you to sell your home even if it is underwater. However, they are not guaranteed and may come at a higher price than you want to pay. While none of these are entirely attractive options, they are options to consider and maybe the best option for you, depending on your tax and property situation. Foreclosure Sometimes foreclosure becomes the only option available to you. When this occurs, the lender retakes control of your home, and you get evicted. This process can take a huge emotional toll on you and your family, as well as a financial toll on your credit situation for the next seven years. In addition, the foreclosure process allows the lender to sell your home as quickly as possible to another buyer to help recover their losses. If you can avoid this process, it is best to do so from an emotional perspective. However, it is sometimes an economic necessity. Declaring Bankruptcy Bankruptcy is another option to consider when facing an underwater home. There are two types of bankruptcy you may qualify for in this situation: Bankruptcy has a lasting effect on your credit score and can be an exhausting process both mentally and emotionally, not to mention expensive. It’s not easy knowing the right move to make when dealing with an underwater mortgage, but understanding your options helps.

Selling a Home That is Financially Underwater

View Resource Selling a Home That is Financially Underwater
Avoiding Tax Penalties Mistakes are common when filing and paying your taxes. In such a case, it’s best to know what types of penalties you can incur and how to calculate them to stay better prepared. What’s a Tax Penalty? Your income tax returns are filed directly with the Internal Revenue Service (IRS). However, you can face a tax penalty if you have underpaid your quarterly taxes, missed a deadline while filing those taxes, or have had a check used to make tax payments bounce. In addition, you can still get a penalty even if the IRS owes you a tax refund. The IRS will always send a notice if you incur a tax penalty. Typically, they calculate the tax penalty based on the following equation: Total Tax – Refundable Credits = Total Tax on Return Penalties are calculated based on: Types of Tax Penalties You can incur a penalty for a variety of reasons. Failure to file your income tax return: The IRS does offer an extension for those who fail to file their tax return before the due date. However, you will incur a penalty if you fail to file during the extension period. The incurred penalty charges 5% of the tax due every month or part thereof, exceeding the time for return filing. Eventually, the amount caps at 25% (5 months) of your balance. However, if you file your return 60 days late, you’ll incur a penalty of $435 or 100% of the tax owed, whichever is less for returns due after 1/1/2023. To avoid tax penalties, file your tax return before the due date (or the extended period). When you’re expecting a return, you will not incur a penalty. However, when you’re getting a return, file it within three years of the due date or risk losing the refund. Failure to pay the due taxes: To avoid penalty, you’ll need to pay all your taxes before your return’s due date. If you have unpaid taxes before the stipulated date, you’ll incur a penalty of 0.5% of the tax payable per month that maxes out at 25% of the tax due. Although both penalties can occur in the same month, the penalty for failing to file your return decreases by the penalty for failing to pay your taxes. The maximum combined penalty caps out at 5% per month. If you want to avoid the penalties, pay all your taxes before their due date. Failure to pay the estimated tax: Since the IRS follows a “pay-as-you-go” system, typically, you pay your taxes throughout the year as you receive income. You’ll incur a penalty if you owe more than $1,000 in taxes. To avoid a tax penalty, you need to pay quarterly estimated taxes, typically due on: Calculating your taxes each year can be challenging. However, the IRS does offer a ‘safe harbor’ method when calculating your estimated payments. You can avoid an underpayment penalty if: Dishonored Checks: If the check you sent to the IRS gets returned, they will charge a 2% penalty of the total check amount, maxing out at $1,250. Therefore, the fine is $25 or the total amount of the check, whichever is less. Avoiding Tax Penalties You can easily avoid tax penalties by ensuring that you pay all of last year’s taxes. Try following the steps below to prevent future tax penalties: Takeaway Filing returns and paying your taxes tend to be a tedious process. If you’re looking to avoid penalties altogether, ensure you get all the information together and pay your taxes on time.

Avoiding Tax Penalties

View Resource Avoiding Tax Penalties
If you’re contemplating selling products online for the first time, there are some things to consider and decisions to be made First, you have to decide whether you want to set up your own online business or work with a third party. Setting Up Your Own Online Business Domain Name and Hosting The first step to take when setting up your own online business is to choose a domain name and hosting. Your domain name should be strong and memorable. It will enable your visitors to find your online store more efficiently, remember it, and enable you to build your brand. Regarding hosting, be sure to consider your store’s long-term goals before deciding on a provider, as there are many web hosting providers offering a variety of features. Online Merchant Account Since customers who shop online will often use credit cards to pay for their purchases, setting up an online merchant account is essential. That will allow you to take and process payments and have the money transferred directly to your business bank account. In addition, you will most likely need to work with a ‘payment gateway’ or payment service provider for security reasons. PayPal is another payment option that will allow your customers to use their credit cards and other forms of payment if shopping internationally. Your E-Commerce Storefront There are several storefronts to choose from depending on your particular needs. There are: Your Products Since your customers are not in a physical store where they can touch your products, it behooves you to replicate this experience as much as you can. You can do this by providing many details and descriptions of your products, including dimensions and weight. Include a zoom feature to enable customers a close-up look at your products. Also, having an online video showcasing and demonstrating the product is ideal. SSL Certificate By obtaining an SSL Certificate, you ensure to your customers that shopping at your e-commerce store is secure. That not only keeps your customer’s information but also provides your small business with credibility. Third Party Selling Opportunities If you are looking to sell products online without setting up an e-commerce website yourself, working with third parties might be best for you. These sites allow individuals and businesses to sell their products and earn commissions. However, there are some necessary things you want to follow first to make the most of this option. First, you want to determine what you wish to sell. You want to find unique products and offer an excellent market opportunity. Next, you will want to strategize as there is so much competition. You have so many options at your disposal, including big names like Amazon and eBay, where you can set up shop. Because you have so many options, you should research them and find a trustworthy provider. Not all providers are the same. You want to go with one that is easy to work with, will offer reliable e-commerce solutions for selling your products, provide professional-looking websites, and is user-friendly. In the end, you want to leave your customers with a fantastic virtual shopping experience. Since they do not get the instant gratification of exiting a brick-and-mortar store with a purchase in hand, you want to replace that by providing a great online shopping experience.

Selling Your Products Online

View Resource Selling Your Products Online
An online presence is a must for any business. According to Statista’s e-commerce industry report, they estimate that online sales in the U.S. will consistently grow between now and 2028. Statista forecast expects U.S. e-commerce sales to reach over $1.524 trillion by 2028. Those figures represent just the online sales of goods. The numbers do not include the sale of services or local transactions where initial contact or comparison shopping began over the Internet. The bottom line is that if you are not on the web, you are missing out on a significant market for your goods and services. Many small businesses put off establishing themselves online because they are confused by Internet marketing concepts. Although the medium is different, Internet marketing concepts stay the same. To make the most of your online shop, you need to learn what makes the web different and make the most of its strengths for your business. Here is a look at five basics you need to understand. Website A website that is appealing and engaging is step number one. Like a clean, well-lit, and welcoming storefront, a well-designed site attracts visitors. If customers like what they see and can quickly get their questions answered, they will probably buy from you. If you already have a website but are attracting few paying customers, have a professional review your site. Evaluate your content. Does it answer questions? Is it exciting and practical? Ask friends and visitors how easy it is to navigate through your site. If it is confusing, visitors will leave. Consider utilizing a usability testing firm to provide you with feedback on the effectiveness of your website. Do you use attractive and professional-looking graphics, photos, and even video? They are essential attention-getters because you only have a second or two to convince visitors to stay on your site longer. Search Engine Optimization Usually called SEO, search engine optimization means appealing to the algorithms used by the different search engines, like Google, Bing, and Yahoo. Typically, most of your search engine traffic will come from the behemoth Google. Your goal is to get on the first page of the search engine results and preferably in the top five. You do this by consistently updating your content with valuable, engaging copy. For example, use keywords in your website text that matches what you believe to be potential customers’ most popular search terms. Also, take advantage of social media and use quality backlinks on your site. Email Marketing Using email efficiently is the best way to stay in touch with prospects and customers. Try providing them with helpful content and offer them sales opportunities periodically but not too often. Over time, you will build brand recognition and customer loyalty. Online, everyone complains of overstuffed inboxes. The way to get people to look forward to your emails is to send just a few emails but pack them with genuinely helpful advice and excellent deals tailored to their needs. If you follow this formula, your emails will get read instead of immediately deleted. Social Media Due to the many social media platforms, knowing where to make your mark can be confusing. You are better off choosing two or three and consistently updating your content, and regularly engaging with followers. Facebook, Twitter, Instagram, TikTok, Pinterest, and LinkedIn are the big ones. However, there are many other smaller spots on the net where prospects gather. Find out your target audience and set up an active, engaging, and entertaining presence. Content Marketing You cannot confine yourself to a blog or website copy. Content marketing means spreading the word about your brand, products, and services using every type of communication method available on the web. That certainly includes your blog, website copy, email, and social media posts. Go beyond those essentials with ebooks, whitepapers, press releases, podcasts, infographics, photos, graphics of all types, and especially videos. There is a reason that more than 75% of all marketers now use video content on their sites, and YouTube has more than a billion visitors each month. Learn which types of content work best for your audience and do more of it. Then keep it updated and fresh. You need to be online. The days when it was optional are long over. If you are not online now, start small with a website and gradually add all the elements discussed. It is a wise investment in your business’s health, longevity, and profitability.

Internet Marketing Basics

View Resource Internet Marketing Basics
Most people know that you need to save money for retirement. However, how many people know how much money they need to save? Do you? According to the 2022 Retirement Confidence Survey from EBRI, three in four workers, or 74 percent, are feeling very or somewhat confident about affording their expenses in retirement, with 29 percent feeling very confident. With the pandemic’s effects slowly fading, debt has become one of the key reasons as to why workers are feeling less confident about having funds during retirement. Roughly 56 percent of workers claim debt as being a problem. However, the pandemic and inflation has still affected workers’ confidence, especially those that lost work hours, income, or had job changes. For example, a third of workers have felt the impact of the pandemic, which has made them less confident in having enough for retirement. Determining how much you will need for retirement is one of the essential questions you can ask. Unfortunately, it is not an easy one to answer. That is because every retiree has different lifestyle plans for their retirement. Some want to spend their retirement years taking cruises and traveling the globe. Others want to spend their time taking their grandchildren miniature golfing. One of these options costs more than the other. Once you have determined what kind of lifestyle you would like to live following retirement, you can work toward saving the amount of money you will need. Again, how do you calculate that figure? You have several options.

Calculating Your Needed Savings

The advice from financial and retirement experts can be frightening to those planning for their retirement. There are even various advisory ‘rules of thumb’ that workers should consider as they contemplate their retirement needs. Some focus on your income, others your anticipated expenses, and a third on just reaching savings targets.

The Income Method

This method has a critical assumption: you will need a certain percentage of your ending income when you retire. Insurance company StateFarm estimates that retirees will typically need 70 to 80 percent of their pre-retirement annual income to maintain their standard of living during their retirement years. For example, the insurer says, a couple earning an average of $60,000 a year would need between $42,000 to $48,000 a year during their retirement. Once you know what you will need on an annual basis, you will then want to subtract what you can expect from Social Security, pension benefits, or any other continued streams of income you will receive post-retirement. The remainder is what you will need to withdraw from your nest egg each year. So if the same couple also receives $15,000 a year in Social Security and pension income, they will need just $27,000 to $33,000 from their nest egg each year. Most experts say that you should only plan on withdrawing 4 percent of your nest egg each year so that it lasts you through retirement. If we take our example couple and divide their remaining annual need by 4 percent (or 0.04), we can see that they will need between $675,000 and $825,000 in savings before they retire.

The Expenses Method

While the income method takes a top-down approach to determining your retirement needs, the expense method looks at the problem from the bottom up. To start, begin adding up all expenses you expect to have each month or year in retirement. If you take preemptive steps and begin eliminating credit card debt and mortgage payments, you will begin retirement working from a much smaller expense base. Once you know your budget requirements, follow the same steps from the income method. First, deduct Social Security, pension, and other income to arrive at your annual number. Then divide the remaining yearly amount by 4 percent (or 0.04) to get your nest egg number.

The Savings Method

The savings method does not require you to estimate your retirement needs. It just requires you to put aside a set percentage of your annual gross income each year towards your retirement. Most experts suggest that the minimum savings rate is 10%. Others suggest a more robust 20% savings rate. If you start saving early enough, you might be able to get by saving only 10% annually. Even a 20% savings rate may not be aggressive enough if you start later in life. One significant benefit of this approach is that the higher the percentage of income that you save, the less you will spend. That will reduce your expense levels through your earnings years and likely mean that you will start retirement with much lower budget requirements.

Points to Consider

In addition to maximizing your savings, there are several other factors to consider as retirement approaches. First, you have to determine the right age to retire. That will often depend upon your health and your industry, but, in general, the longer you can work, the better off financially you will be in retirement. Don’t retire early, or your monthly Social Security benefits will fall. If you push retirement off, the amount of your benefits will rise for every extra year of work you log. That can prove crucial depending on how long you live in retirement. Your health is also an essential factor in determining the amount of money you need for a satisfying retirement. Health care is not inexpensive, even when you factor in Medicare. If you already have health problems before retirement, you can expect to spend a significant amount of out-of-pocket money on healthcare once you are no longer working. Consider your retirement goals, too. You might want to live a life of luxury after you stop working. That might not be possible if you have not saved enough money. In such a case, you might have to scale back your plans to cruise the world’s oceans and instead be content with taking day trips to state parks. Luxuries are not as necessary as paying the bills and living comfortably. Finally, take a look at your skills. Just because you have retired from one company does not mean that you cannot still earn money. For example, you can work on a part-time basis as a consultant. You could start a home-based business with your spouse. You might even run a side business with one of your children. Such outside work can keep you connected to your industry while also giving you more hours to relax with your grandchildren or spouse. Retirement planning is far from an easy task today. However, those workers who know how much money they need during their retirement years can take the steps necessary to boost the odds that their retirement years will be pleasant ones. Once you know the financial realities of your retirement, there is nothing to stop you from saving the money you need to make your retirement goals come true.

How Much Do You Need to Retire?

View Resource How Much Do You Need to Retire?
ETFs, or exchange-traded funds, are an excellent way of investing in the securities markets. ETFs include a basket of securities to trade on the stock exchange, like mutual funds. They are simple to understand and can generate significant returns at a minimal expense.

What is an ETF?

Exchange-traded funds, or ETFs, are pooled investment securities traded on a stock exchange. An investor can buy a portion or shares of an ETF, and the fund fulfills the ETF’s objective. Like stocks, investors trade ETFs on major stock exchanges, like NASDAQ and NYSE. In addition, ETFs can contain all types of investments, like stocks, bonds, and commodities. Moreover, they can offer domestic or international shares.

Types of ETFs

Here are some of the types of ETFs currently available on the market.

Understanding Risks and Returns

An ETF is a marketable security that you can buy and sell daily. Whenever an investor purchases shares in an ETF, they’ll have fewer risks as the investment spreads over a collection of stocks. To improve returns and minimize risks, investors must consider the following while investing in ETFs:

Benefits and Limitations

Investing in ETFs can have the following benefits and limitations:

Benefits:

Limitations:

Takeaway

ETFs allow you to diversify your investments without having to purchase individual stocks. However, they may come with higher costs and potentially lower dividends than high-yielding stocks.

Investing in ETFs (Exchange-Traded Funds)

View Resource Investing in ETFs (Exchange-Traded Funds)
The main attraction of a certificate of deposit (CD) is its fixed interest rate. Opening a CD in a bank or credit union allows you to lock in an interest rate that remains the same throughout the CD’s complete term, which can be months or years. Standard CDs focus on locking in that interest rate for the term of the CD. However, bump-up and step-up CDs are a new option in which the interest rate increases over time, following the changes in the market.

What are Bump-Up and Step-Up CDs?

Bump-up and step-up CDs allow for increases in the interest rate during the CD’s term. Bump-up CDs allow you to choose when you get a boost, while the bank or credit union chooses the increase in advance for a step-up CD.

Bump-up CDs

Unlike a traditional CD’s fixed interest rate, a bump-up CD will allow a one-time increase in the interest rate, which will lock in until the maturity period ends. A CD with a more extended maturity period, like four years, may allow a second increase in its interest rate. Bump-up CDs require the deposit holder to request the rate adjustment. For instance, a bank or credit union can offer a CD with a 24-month term and one bump-up option. For example, if the current interest rate is 2 percent and will increase to 2.9 percent in seven months. The seventh month will allow you to bump your interest rate to 2.9 percent to get increased returns for the remaining 17 months. Whenever the rates decline again, you’ll be able to enjoy the higher interest rate throughout the remainder of the maturity period.

Step-up CDs

Step-up CDs have interest rates that increase in phases over the maturity period. For example, your certificate of deposit can have an interest rate of 0.5 percent and have a schedule to increase it by 0.1 percent every six months for four years. That way, you’ll have a CD with a 1.1 percent by the end of its maturity period.

Advantages and Disadvantages of Bump-Up CDs

Advantages of Bump-up CDs:

Disadvantages of Bump-up CDs:

Advantages and Disadvantages of Step-Up CDs

Advantages of Step-up CDs:

Disadvantages of Step-up CDs:

Takeaway

In a growing market, a traditional CD with a fixed interest will make you lose out on any potential increase in interest rates. In contrast, getting a bump-up or step-up CD will allow you to increase your interest rate and get better returns after the CD’s maturity period.

Bump-Up CDs vs. Step-Up CDs

View Resource Bump-Up CDs vs. Step-Up CDs
Investing in stocks can be an exciting and potentially lucrative way to grow wealth. Stocks represent ownership in a company, and their value can rise or fall based on various factors, such as company performance, economic conditions, and investor sentiment. While there is always some risk involved in investing, the potential rewards can make it worthwhile for those willing to do their due diligence and make informed decisions. This article will explore the basics of investing in stocks, including the benefits and risks, how to get started, and some strategies for success. Whether you are a seasoned investor or just getting started, this guide will provide valuable insights to help you navigate the world of stock investing.

What are Stocks?

Stocks, refer to company ownership shares. When you buy a stock, you buy a small piece of that company and become a shareholder. Investors can buy stocks –

Starting to Invest

You can begin investing in stocks by using the following steps.

Assessing Your Risk Tolerance.

Stocks will typically vary in risk levels and can classify as follows: Consider your risk-taking ability before deciding on which to invest in.

How Much Should I Invest?

The amount you’re looking to invest will determine your budget and time frame. Ideally, you need to keep your money invested for three to five years to ride the bumps in the market. Most brokerage firms do not require a minimum investment amount, so you can invest as little as you want. In addition, brokers allow you to purchase a fraction of a share when you can’t invest in a whole one. Once you decide on investing, deposit money in your online brokerage account and start investing.

Choosing an Investment Account.

Once you decide how much you’re willing to invest, you’ll need to choose an investment account where you can start investing. It’s best to consider how you want your money managed as well.

Benefits and Limitations of Investing in Stocks

Although stock markets can offer generous returns in the long run, they come with certain risks.

Benefits

Some of the benefits of investing in stocks are as follows.

Limitations

Investing in stock markets can have the following limitations.

Takeaway

Investing in stocks offers the potential to receive dividends, high short-term returns, and long-term wealth. However, risks are involved and can include capital losses due to a market or stock downturn.

Investing in Stocks

View Resource Investing in Stocks
Diversification is an investment strategy that combines a wide variety of investments in a portfolio to reduce risks associated with investing. By combining different kinds of assets in a portfolio, an investor can limit exposure to the risks associated with investing in a single asset.

Understanding Investment Diversification

When an investor gets different types of assets and investment vehicles in their portfolio, the diversification process smoothens any risks from a single security. The positive performances of some securities will balance out the negative performance of others, reducing the overall risk of investments.

Types of Investments

Investors building a diversified portfolio can invest in various stocks and securities, like the following:

Asset Classes

You can invest in various asset classes:

Industries and Sectors

You can diversify your portfolio by investing in stocks and bonds of companies in different industries and sectors like energy, healthcare, and technology. Growth in one sector can fuel its share prices, balancing a fall in other industries while diversifying the investor’s portfolio.

Domestic and Foreign Countries

Diversification is also possible by investing in domestic and international shares. In addition, investing in different global markets can diversify portfolios.

Diversification Strategies

To effectively diversify a portfolio, investors need to have a balanced mix of different types of securities that are not perfectly co-related; that is, they respond differently to changes in market conditions. Investors can diversify their portfolios by investing in different types of shares following the strategies mentioned below.

Asset Classes

Investors often diversify portfolios based on the different asset classes.

Stocks and Bonds

Stocks and bonds represent two leading asset classes. Therefore, one strategy to diversify a portfolio is determining the proportion of investment between stocks and bonds. Although stocks often offer higher returns, they tend to be riskier than bonds. In contrast, bonds offer a secure way of investing with lower returns.

Bond Assets Classes

Bonds can be classified based on the following:

Alternative Assets

Alternative assets, like real estate, cryptocurrencies, and commodities, do not fit into the stock and bonds asset classes. Therefore, investing in them can further diversify the investor’s portfolio.

Industries and Sectors

Investors can diversify their portfolios by investing in different industries and sectors. For example, investing in unrelated industries like airlines and digital streaming can help hedge the risks of investing in a particular industry or sector.

Geographical Locations (Domestic vs. Foreign)

Investing in foreign securities can help investors diversify their investments. Geographical locations typically classify as U.S. companies, companies in developed countries, and those in emerging markets. Investors looking to benefit from higher growth potential and high risks can invest in emerging markets.

Market Capitalizations (Big vs. Small)

Another way investors can diversify is by purchasing shares in companies that differ in the market capitalization of their assets. Companies have a unique way of asset acquisition, brand recognition, and other operations based on their market size. While large capital stocks are considered safe investments, small caps have more significant growth potential.

Company Lifecycle (Growth vs. Value)

Public equity shares can classify into growth and value shares. By investing in a balanced way between the two shares, an investor can further diversify their portfolio.

Benefits and Limitations

Investment diversification does have its advantages and drawbacks.

Benefits

One of the most significant benefits of diversification is reducing your risk. If one asset class isn’t performing well, another asset class can make up for it. In addition, it can help you achieve your long-term financial goals by mitigating risk.

Limitations

Diversification can limit some downsides by averaging volatility and risk across a group of investments. However, it can shorten your upside, causing you to realize lower rewards. As you further diversify your portfolio, your returns may mimic the market average. A highly diversified portfolio can be time-consuming if you’re doing it alone.

Takeaway

Investment diversification is an essential strategy in financial and investment planning and management. Instead of putting all your money in a single asset, maintaining a diverse pool of assets can balance your risks while ensuring an optimum return on investments.

Diversifying While Investing

View Resource Diversifying While Investing
Certain companies and government agencies offer benefit programs as part of their employment to assist employees in paying off their student loans. Employers can offer employees up to $5,250 as annual tax-free loan repayment benefits.

What are Employer-Sponsored Repayment Programs?

Employer-sponsored loan repayment programs are benefits private employers and certain government agencies offer to help employees pay off their student loans. The companies can offer benefit programs as a lump sum payment or in the form of a recurring payment either to the employees or directly to the loan providers.

Eligibility and Application Process

Third-party financial institutions can offer these loan repayment programs in which they’ll pay the borrowed amount directly to the loan providers. The loan-paying organizations can also provide additional non-monetary services like refinancing bonuses and student loan counseling programs.

Taxability of the Repayment Programs

Early on, repayment programs were considered an employee’s taxable income and were subject to payroll taxes. But after passing the CARES Act in March 2020 as a relief during the coronavirus pandemic, employees receiving such assistance were allowed tax breaks for up to $5,250 annually– the tax break now lasts through 2025. Whenever you receive loan repayment assistance through government programs, you’ll not have to pay taxes on the amounts you receive.

Eligibility

When working for a private company offering loan repayment benefits, you must work for a specified amount before receiving such benefits. In addition, some employers offer these programs from the start. If your current employer does not offer repayment programs, you can always look for jobs at companies that do. Alternatively, depending on your career choice, you can get repayment benefits through a federal or state government agency. For instance, military professionals and healthcare employees can be eligible for these benefits through government agencies. It’s best first to check if your career choice offers repayment programs and their eligibility criteria.

Types of Repayment Programs

Typically, repayment programs do not have a set structure or rules. However, here are some of the types of repayment programs an employer may offer.

Benefits and Limitations

Some benefits of employer-sponsored repayment programs are: However, there are still some limitations for employer-sponsored repayment programs, like the following:

Takeaway

Student loan repayment benefits have become more popular since the inception of the CARES Act of 2020, which allows employers to offer tax-free student loan repayment benefits up to $5,250 until 2025. When you are currently looking for a job, choosing one that offers student loan repayment benefits will be best to help you pay your loans faster. When you are already working under an employer who offers such benefits, it makes sense to know how the program works so you can maximize them.

Employer-Sponsored Repayment Programs

View Resource Employer-Sponsored Repayment Programs
Working in government service or for a non-profit organization might qualify you for the public service loan forgiveness program (PSLF). However, to fully qualify, you’ll also need to have made ten years’ worth of loan payments to have the remaining balance forgiven under the program.

What is the PSLF Program?

Public service loan forgiveness, or PSLF, will forgive the remainder of your loan balance once you pay 120 monthly payments for ten years under a qualifying repayment plan while working full-time. When qualifying for the program, you’ll need to work for government services, which include local, state, federal, or tribal levels. In addition, working at a non-profit organization qualifies you for the program. You can also be eligible for loan forgiveness if your employer provides qualifying services.

Eligibility and Application Process

Eligibility:

To qualify for PSLF, you must:

Be Employed By a Qualified Employer.

Employment with the following organizations qualifies for PSLF. The following employers do not qualify for PSLF.

Have Full-Time Employment.

You must work at least 30 hours per week with the employer or meet your employer’s definition of full-time work, whichever is greater.

Have Direct Loans.

Any loans received under a Direct Loan Program will qualify you for PSLF. However, student loans taken from private financial institutions do not qualify. Even though people consolidate federal loans into direct loans, the PSLF program still requires payments to direct consolidated loans to qualify.

Repay Your Loan Under Income-Driven Repayment Plans.

You can prepay monthly payments in lumpsum, which will apply to your future payments for up to 12 months or till your repayment plan is due. The payments will qualify for PSLF once you have certified your employment for 12 months. All repayment plans qualify for PSLF except the following:

Make 120 Monthly Payments.

To qualify for loan forgiveness, you must make 120 qualifying monthly payments.

Application Process

Before applying for PSLF, you need to:

Types of Repayment Plans

The repayment plans that qualify you for PSLF are:

Benefits and Limitations

The Benefits of PSLF:

The Limitations of PSLF:

To qualify for loan forgiveness under the PSLF program, you need to satisfy specific criteria like the following:

Takeaway

When you hold a full-time job under a qualifying employer and have excessive student loan debt, you can consider the PLSF to become debt free after ten years. Seeking PSLF is a ten-year commitment. Therefore, you must clearly understand the risks and benefits before considering them. For more information about the Public Service Loan Forgiveness program, click here and here.

Public Service Loan Forgiveness (PSLF)

View Resource Public Service Loan Forgiveness (PSLF)

Although mobile banking is relatively new technologically, its popularity has skyrocketed. Offering a convenient way for people to access their bank accounts and perform transactions on the go, it’s no reason that so many people opt for mobile banking. However, while many cybersecurity experts say mobile banking is safe, it does come with some risks.

As a mobile banking user, it is essential to understand how to keep your personal information safe and detect and respond to any potential fraud. Below we discuss safety practices for mobile banking.

Keeping Mobile Banking Safe

Mobile banking is typically safe when used correctly and when you take the proper precautions. Banks use various security measures such as encryption and multi-factor authentication to protect your account information.

However, there are still risks that you should be aware of and steps you can take to make yourself less vulnerable to cybercrime. For example, people can use malware to steal your personal information or gain access to your account. Additionally, phishing scams can trick you into providing your login credentials to fraudulent websites. Following the safety practices below can significantly reduce the risk of security breaches and fraud.

Protecting Your Personal Information

Protecting your personal information may seem obvious, but not being careful about your personal information is an easy vulnerability that scammers can exploit. However, protecting your personal information is simple if you follow these steps:

  1. The first step in mobile banking safety is downloading a verified banking app from your bank’s website. Usually, you’ll go to a secure app store where you can download the right app. A banking app found outside of your bank’s website could be a way for perpetrators to steal your banking information. If you need clarification on whether an app is legitimate, contact your bank to confirm.
  2. Never share your login credentials or personal information, such as your social security number, date of birth, or banking information. You can use an encrypted password manager to provide extra security to your devices’ passwords.
  3. Avoid accessing your mobile banking app on public Wi-Fi networks, as these networks may not be secure, and hackers can intercept your information. Instead, use your home Wi-Fi or use your cellular network when you’re in public.
  4. Always opt for two-factor or multi-factor authentication. Two-factor authentication requires a password or PIN and another layer of security, like email verification or text message, to further secure your account.
  5. You can also take additional steps to secure your mobile device. For example, you can enable a passcode or biometric authentication to prevent unauthorized access to your phone. Your phone is the first defense against scammers, so you should take similar steps to secure it. You should also keep your device’s operating system and apps up-to-date to ensure they patch any security vulnerabilities.

Detecting and Responding to Fraud

Even with the best safety practices, there is still a risk of fraud. Therefore, monitoring your accounts regularly and reporting any suspicious activity to your bank immediately is essential. Some signs of potential fraud include:

If you notice any of these signs, contact your bank immediately to report the activity and take appropriate action. Your bank may be able to freeze your account or reverse unauthorized transactions to prevent further damage.

You can also take proactive steps to prevent fraud by enabling account alerts. For example, many banks offer alerts that can notify you of specific account activity, such as large transactions or changes to your account information. Also, many banks will inform you when someone has logged into an unfamiliar device. By setting up these alerts, you can quickly detect any potential fraud and take action to prevent further damage.

Takeaway

Although banks, credit unions, and other financial institutions heavily invest in cybersecurity to protect themselves and their customers, there is still a risk. However, following the outlined safety practices can significantly reduce the risk of security breaches and fraud.

Remember to protect your personal information, monitor your accounts regularly, and immediately report any suspicious activity to your bank. By taking these steps, you can enjoy the convenience of mobile banking while keeping your finances safe and secure.

Experience the Difference of Banking Local

At First Federal Lakewood, we understand your unique needs. Whether you’re looking for personalized banking solutions, competitive loan rates, or expert financial advice, we have what you need!

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Safe Practices for Mobile Banking

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Credit cards have become an essential and ubiquitous tool for purchase transactions and managing finances. While credit cards have several benefits, it’s best to use them with care because poor credit management can negatively affect your credit score. Your credit score calculation is based on multiple factors, one being your credit utilization ratio. We’ll further discuss what it is, why it matters, and how to manage it.

What is a Credit Utilization Ratio?

Your credit utilization ratio is the percentage you use of your entire credit limit, specifically on a loan or credit card. For example, if you have two credit cards with limits of $2,500, your total limit is $5,000. If you have a total balance of $3,000 between both, your credit utilization ratio is 60%. Lenders will use this ratio to determine how much credit risk you pose as a borrower. For example, a higher percentage will indicate to lenders that you are using too much of your available credit, which could suggest that you’re overextended or unable to manage your finances properly.

Impacting Your Credit Score

Your credit score is based on several factors, including your payment history, credit history length, and the types of credit you use. However, your credit utilization ratio is one of the most significant factors affecting your credit score. Lenders view a high credit utilization ratio as a sign of financial instability, making you a high-risk borrower. Therefore, a high ratio can negatively impact your score. Low credit scores make it more challenging to qualify for loans and other credit cards in the future, especially those with favorable terms. Unfavorable terms could be in the form of higher interest rates or lower credit limits. Therefore, building and maintaining good credit is essential for financial security.

Managing Your Credit Card

Managing your credit card is crucial to maintaining a low credit utilization ratio. One of the best ways to do this is by paying your balance in full each month. Paying off your balances will ensure a lower ratio while avoiding paying interest charges. However, if you cannot pay your balances in full each month, keeping your overall balance as low as possible is best. Another way to manage your credit card utilization ratio is by requesting a credit limit increase. The best way to ensure an increase in your credit limit is by having a good score and a low balance. In addition, increasing your total available credit will lower your credit utilization ratio.

Benefits and Limitations

Understanding the importance of a credit utilization ratio can have several benefits. Firstly, it can help you maintain a good credit score, which is essential for securing loans, credit cards, and other financial products. A good credit score can also help you negotiate better interest rates on loans and credit cards, saving you money in the long run. Moreover, understanding the significance of your credit utilization ratio can help you make informed financial decisions. For instance, you may open a new credit card to increase your available credit and, at the same time, keep your balance relatively low to maintain a healthy credit utilization ratio. Remembering that a low utilization ratio doesn’t automatically equate to a good score is essential. For example, your credit score will suffer when you have a low credit utilization ratio or have a history of missing payments or delinquencies. Managing your ratio can also be challenging when you have multiple credit cards or high balances. It requires discipline and careful planning to keep your ratio low, and it may take some time to impact your credit score.

Takeaway

By keeping your credit utilization ratio low and responsibly managing your credit card usage, you can maintain a good credit score, avoid debt, and make informed financial decisions. Ultimately, recognizing the value of your credit utilization ratio and how to manage it effectively can help you achieve your financial goals and build a strong foundation for your financial future.

Why Your Credit Utilization Ratio Matters

View Resource Why Your Credit Utilization Ratio Matters
Smart homes have become increasingly popular due to their convenience, comfort, and security benefits. However, one of the most significant advantages of having a smart home is that it can help you save money while making it more energy-efficient. Below, we’ll dive into the world of smart homes and explain how they can help you save money and run a more energy-efficient household.

What is a Smart Home?

Before we dive into the benefits of a smart home, it’s essential to understand what it is. A smart home uses technology that can automate and control various systems, such as lighting, heating, cooling, and security. You can manage these systems using mobile apps, voice commands, or smart home devices like speakers or hubs. The primary goal of a smart home is to simplify your life and make your home more efficient.

Saving With Automation

One of the primary benefits of a smart home is the ability to automate systems within your home. In addition, automation can help you save money by reducing energy consumption and appliance wear and tear.

Making a Home Energy Efficient

Other ways besides automation can make your home more energy efficient.
  1. Energy monitoring: Smart homes can monitor your energy usage and identify where you can reduce energy consumption. For example, smart plugs can monitor appliances’ energy usage and identify those that consume more energy.
  2. Renewable energy: Smart homes can integrate renewable energy sources like solar panels to reduce your reliance on the grid’s energy. Solar panels are easy to control and monitor in a smart home. They can save a lot on your energy bill while reducing your carbon footprint.
  3. Efficient appliances: Smart homes can integrate with efficient appliances, such as energy star-rated appliances, to reduce your energy consumption. For example, a smart dishwasher can determine the most energy-efficient cycle based on the load and adjust it accordingly.

Benefits and Limitations

There are both advantages and drawbacks to smart homes.

Benefits

Smart homes offer numerous benefits, including convenience, safety, and energy cost savings. With a smart home, homeowners can remotely control their systems, monitor energy consumption, and detect unusual activities at home. This feature enhances the safety and security of the house. Smart homes also come with voice-activated assistants such as Amazon’s Alexa and Google Home, making it easy to control home systems hands-free. In addition, voice commands enhance convenience, particularly for people with mobility issues.

Limitations

While smart homes can provide numerous benefits, they also have some limitations. The primary drawback is the initial cost of setting up a smart home. Typically, the expense can be high, depending on the level of automation you desire. However, the long-term savings can offset the initial cost in the long run. Another limitation is the need for a stable and reliable internet connection. Smart homes rely on the internet to communicate with devices, and a weak or unstable internet connection can affect the functionality of your smart home. Therefore, if you get a smart home, ensure you have a reliable internet connection.

Takeaway

A smart home can help you save money and make your home more energy-efficient. Automation can help you reduce energy consumption, and monitoring can help you identify areas where you can reduce your energy usage. While smart homes have some limitations, the benefits of a smart home are undeniable. A smart home is an excellent investment to make your home more efficient and save money in the long run.

How a Smart Home Can Save You Money

View Resource How a Smart Home Can Save You Money
Getting older comes with a lot of unique challenges. One such challenge is a decline in mental abilities. When you’ve had an aging parent who has experienced a decrease in cognitive skills, then you’ll know it can make it challenging to do the simplest tasks. For example, remembering to take medication or caring for a pet can be difficult as people age. Finances are one of the hardest things to manage as people age, and even difficult for young and mentally capable people. In addition, poorly managed finances can have dire consequences, especially if the individual isn’t receiving income from a job. Financial caregivers can help older people handle their finances as they age and lose their mental acuity. We’ll further discuss what a financial caregiver is, the different types, the benefits, and limitations of hiring one, and determining which suits you.

What is a Financial Caregiver?

A financial caregiver is an individual or entity appointed to manage the financial affairs of someone unable to do so themselves. Financial caregivers can be family members, friends, or professionals, such as attorneys or financial advisors. Their goal is to ensure financial stability for those who need help managing their bills, investments, and other financial members. In other words, a financial caregiver manages the assets, investments, property, and other finances of an individual who cannot do so.

Types of Financial Caregivers

There are a few options for financial caregivers; whichever you choose will depend on your needs and circumstances. Usually, the types of financial caregivers go into two categories– formal and informal.

Informal Financial Caregivers:

Informal financial caregivers typically are trusted family and friends. Therefore, it’s an excellent option for those with responsible and trustworthy family members and friends willing to help with their finances. For example, they can help manage bills by setting up automatic payments, handling investments, and whatever else is needed. There are three types of informal financial caregivers:

Formal Financial Caregivers

Formal financial caregivers are individuals or entities with expertise in managing finances. They can be attorneys, financial advisors, or even geriatric care managers. Professional caregivers can help manage finances, provide investment advice, and help with estate planning. Some examples of formal financial caregivers include: Financial caregivers can often be granted Power of Attorney, which legally allows another person to decide about your property or money.

Choosing a Financial Caregiver

Choosing the right financial caregiver is crucial to ensure your finances are well-managed and protected. Here are some factors to consider when choosing a financial caregiver:

Benefits and Limitations

Hiring a financial caregiver can provide many benefits, including peace of mind and the assurance that your finances are well-managed. Financial caregivers can also help manage bills, investments, and other financial matters, freeing up your time to focus on other things. However, there are also limitations to hiring a financial caregiver. One of the most significant limitations is the cost. Professional financial caregivers can be expensive, and their fees can quickly increase. Additionally, some seniors may lose independence when someone else manages their finances.

Takeaway

Nobody wants to feel lost when dealing with their finances in their old age. However, if problems arise, you may be unable to handle them, which can lead to financial losses. Therefore, planning or appointing a financial caregiver is a great way to add financial security to your old age.

Considering a Financial Caregiver

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Money is a sensitive and personal topic for most people, and it can evoke strong emotions and often be a source of stress and anxiety. Struggling to pay bills, pay down debts, or earn more at work can be a severe burden for many people. When your finances suffer, your emotional state can suffer too. Financial therapy is a solution to negative emotions resulting from finances. Financial therapy is a relatively new approach that combines financial planning with therapy to help individuals improve their relationships with money. Here we explore what financial therapy is, how it works, and the benefits and limitations of this approach.

Understanding Financial Therapy

Financial therapy is a holistic approach that combines financial planning with behavioral therapy. It aims to help individuals address emotional and psychological barriers to economic well-being. Financial therapy considers the practical aspects of money management and the emotional and behavioral aspects that often underlie economic issues. Financial therapists can help individuals overcome these obstacles and improve their financial habits by addressing them.

Money and Emotions

Money is not just a matter of numbers; it’s a matter of feelings too. Our emotions, beliefs, and past experiences often drive our financial decisions and behaviors. For example, a person who grew up in a family that struggled financially may have deep-seated fears and anxieties about money. These emotions can impact their financial decision-making, such as overspending or avoiding financial planning altogether. Similarly, a person who equates their self-worth with their net worth and appearance may feel pressured to overspend and accumulate debt to maintain their image. Financial therapy can even address more specific problems, such as spending habits. For example, when you often make impulsive purchases or go shopping to ease negative emotions, you might benefit from financial therapy. Financial therapy will help target these underlying emotions to help improve your financial decisions. Financial therapy addresses these emotional and behavioral aspects of money. It helps individuals explore their beliefs, attitudes, and behaviors toward money and help identify any negative patterns or triggers. Through therapy, individuals can develop healthy coping mechanisms to make better financial decisions that align with their values and goals.

Finding a Financial Therapist

Financial therapy is a specialized field that requires a unique set of skills and qualifications. Generally, a financial therapist is a licensed mental health professional with additional training and expertise in financial planning and counseling. In addition, a financial therapist can be a financial adviser who qualifies as a financial therapist. Therefore, choosing someone qualified, experienced, and trustworthy is essential when looking for a financial therapist. Here are some tips on how to find a financial therapist:

Benefits and Limitations

Financial therapy can be beneficial for individuals who are struggling with financial issues. Here are some benefits: However, financial therapy also has its limitations, including:
  1. Cost. Financial therapy can be expensive, and insurance may not cover it.
  2. Time commitment. Financial therapy can be a long-term process that requires a significant time commitment.
  3. Long-term. Financial therapy is not a quick fix for financial issues. It requires ongoing effort and dedication.

Takeaway

Financial therapy is a promising approach for individuals struggling with financial issues and would benefit from some support from a qualified professional. In addition, financial therapy is a great option for those who experience negative emotions around their finances since these negative emotions further impact our finances. If this applies to you, reach out to a financial therapist as soon as possible and start feeling (and acting) better regarding your finances!

What is Financial Therapy?

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When you want to build a diversified portfolio of assets within a single investment, try using a mutual fund. Mutual funds are a form of investment frequently used by long-term investors. In addition, people will use it as a retirement tool for employer-sponsored retirement plans.

Understanding Mutual Funds

A mutual fund collects money from multiple investors to diversify a portfolio. Typically, investors purchase securities like money market instruments, stocks, bonds, and similar securities. Professional fund managers typically handle mutual funds and choose what securities to invest in, thus creating a portfolio. Each investor becomes a shareholder and participates in the gains and losses of the fund.

Types of Mutual Funds

Mutual funds can be of the following types.
  • Money market funds. Money market funds comprise government treasury bills and other short-term debt instruments. Although the funds are secure and the principal amount is guaranteed, the investor is unlikely to earn substantial returns.
  • Stock funds. Stock funds invest in equities and stocks. Some equities are classified based on their size as small, medium, or large capital stocks. Others are ranked based on whether they invest in domestic or foreign stocks. A mutual fund will invest in equity stocks that fulfill their investment strategies.
  • Bond funds. Bond funds are fixed-income funds that focus on paying a specific rate of return. Typically, they come in government bonds and other debt instruments. While bond funds tend to pay a higher return, their risk depends on the type of bond.
  • Income funds. Income funds are invested in government and corporate debts until they hit maturity and then payout as a steady income. They are the perfect investment tool for conservative investors and retirees.
  • Index funds. Index funds typically invest in stocks on the major market index, like the Dow Jones Industrial Average (DJIA). The funds require less research from analysts and are great investment options for cost-sensitive investors.
  • Balanced funds. Balanced funds often invest in various asset classes like money market instruments, stocks, and bonds to balance the risk of each asset.
  • Foreign or global funds. While foreign funds invest outside the investor’s country, global funds are invested anywhere in the world. The funds, when included in a portfolio, can enhance the diversification of a mutual fund.
  • Specialty funds. Specialty funds aim at specific sectors of the economy, like healthcare, technology, and more. They can be regional, where the investment focuses on a particular geographical area, or targets ethical sectors like solar and wind power.

    • The Investment Process

    To make mutual fund investments, try the following:

    Active vs. Passive Funds

    Before investing in a mutual fund, you must choose between an active or passive investment strategy. Actively managed funds try to outperform the market indices and require proper management by professional fund managers. In addition, these funds tend to be more expensive, which can lower the return for investors. In comparison, a passive mutual fund attempts to match the market indices. A passive mutual fund will typically have lower fees since they do not require fund managers to outperform the market.

    Consider Your Budget

    When investing in a mutual fund, you must meet the minimum investment amount, ranging from $500 to $3,000. In addition, there are some with a $100 range and a few with a $0 minimum.

    Decide Where to Invest

    Most investors buy mutual funds through online brokerages, which offer a variety across different mutual fund companies. Before deciding on the broker, consider the following factors.

    Understand Mutual Fund Fees

    Before investing, it’s best to understand the annual fees when managing and running a mutual fund. This information is crucial as a higher fee can affect your returns.

    Benefits and Limitations of Mutual Funds

    Investing in a mutual fund can have its advantages and drawbacks.

    Benefits

    Investing in a mutual fund can have the following benefits:

    Drawbacks

    Takeaway

    Mutual funds offer many advantages for investors. However, it’s prudent to consider your options, of which there are many, and utilize the help of a professional if you are a novice or need help determining which funds to invest in.

    What is a Mutual Fund?

    View Resource What is a Mutual Fund?