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Investing IN YOUR

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Inside • Get out of debt • Make college affordable • Tips to control spending

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2018

PAGE 2 • 2018 • INVESTING IN YOUR FUTURE

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Dealing with debt

INVESTING IN YOUR FUTURE • 2018 • PAGE 3

Climbing out of debt is a process Discipline and patience are the keys, adviser says

By Tracy Ouellette EDITOR

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Bankruptcy can provide a fresh start

For those facing mounting debt and looking for an easy way out, “There’s no magic bullet, other than hard work and discipline,” said Brian Lauer of Lauer Financial Services in Waterford. While it’s not what people want to hear, it is the only solution, he added. “There are a couple of things we talk about when people who have significant debt issues come in. The first thing is creating a budget amount to put toward paying down the debt,” Lauer said. The next step is to identify what Lauer called the “highest cost debt” and pay that off as quickly as possible. “We want to make sure to pay off the debt with the highest interest rate and make that go away first,” he said. “Then, when that’s paid off you add that amount to the next highest one, and so on. It’s one step at a time.” Along with paying down the debt, Lauer said something he also puts a high priority on is getting the client to create an emergency fund. “It’s first and foremost,” he said. “You don’t want to have to go back and use those cards again when you’re finally getting them

It may be the only option for some, attorney says

STAFF WRITER

According to attorney Shannon Wynn filing for bankruptcy is a smart decision in many situations even though it has a stigma and often misconceptions surrounding it. “I categorize it as a traumatic event to your credit score but it clears away the problem and allows people to start rebuilding. Yes, it’s a very harsh thing to do but I’ve had clients recover rather quickly from it despite misconceptions that it takes years to do so. As long as you show good habits after filing, it doesn’t preclude you from buying a car or a house, for example,” Wynn said. She said debt consolidation is less traumatic to a credit score, but that process often takes longer – five or six years depending on the amount of debt – to “fix the problem.” Wynn cautions people considering debt consolidation to be wary of scams and check the Better Business Bureau, research the company and read reviews before signing an agreement.

“I had a client that had paid into a consolidation service for years, we’re talking like $20,000. Then he gets notice he’s being sued by one of his creditors and it turns out only one of two creditors he owed had been paid. All that time he was making his payments only to find out he still owed thousands of dollars,” she said. To help people determine the best course of action, Wynn offers a free consultation and said she won’t recommend bankruptcy if there is a better option available. “It’s definitely not one-size-fits-all. The consultation is free of charge because I’m not here to make things worse. I’ve got a whole network of people that can help and sometimes, filing for bankruptcy isn’t the best option,” she said. Wynn said there are several types of bankruptcy but the two most common are Chapter 7 and Chapter 13. Chapter 7 has income caps so it’s only an option for people whose income is not too high. In that instance, the debt is

See BANKRUPTCY, Page 5

STOCK PHOTO Investing in Your Future

Limiting use of credit cards is among the first steps to getting out of and staying out of debt, according to financial advisers and bankruptcy attorneys.

investing future IN YOUR

By Heather Ruenz

paid off. If you have a decent emergency fund, it will help you keep control of those unexpected expenses.” Lauer also offered some tips to help people be more intentional about using credit cards, which he says is usually a Brian Lauer huge problem in situations he’s seen with too much debt. “I suggest people take their credit cards and put them in a container of water that can go in the freezer,” he said. “Now, if you think you want to use one of those cards you have to wait for it to thaw out, or chip away at the ice to get at it. It gives you time to think about how you’re going to use that card and is it important enough to do so. “When you stop carrying those cards with you, you become more deliberate about using them.” After the cards are paid off, Lauer said to keep one for an emergency and close the other ones. “You don’t need multiple cards,” he said. And once someone has gotten out of debt, Lauer said they need to be diligent about monitoring their credit rating and keeping available credit limits reasonable for their needs. “It will help your credit rating if you reduce the amount of money available on those credit limits,” he said. “You have to watch those things, credit companies will increase those limits without you telling them to and without them asking you.” Lauer said seeking professional help to get out of debt has become common as complicated situations with student loans, bankruptcies and other issues are on the rise. “But it’s not hopeless,” he said. “The biggest thing is to have a plan and then you’ve got to be dedicated to it and make a little bit of a sacrifice for a short period of time to have long-term peace and have that debt eliminated.” Lauer Financial Services is at 228 N. Milwaukee St., Suite C, in Waterford. Lauer can be reached at 262-534-7100.

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PAGE 4 • 2018 • INVESTING IN YOUR FUTURE

Key traits of a good financial adviser Professional financial advice can be a valuable asset for men and women focused on their futures. Effective financial advisers help their clients navigate the sometimes confusing waters of personal finance, helping them to achieve both short- and long-term goals. Financial advisers can help men and women protect their savings, make smart investments and grow their wealth. What defines the right financial adviser depends on the client. Some financial advisers’ strategies may not appeal to all prospective clients, so it’s important that men and women vet financial professionals before trusting them with their hard-earned money. The following are a few things adults can look for as they begin searching for someone to help them secure their financial futures.

Financial advisers can be assets to people looking to protect their finances. Finding the right one is paramount.

Credentials

Consumers may benefit by selecting a person who is just a financial planner, and not an accountant or insurance adviser. A financial adviser who is a certified financial planner (CFP) is licensed and regulated, and he or she has taken mandatory classes on the various aspects of financial planning.

Humility and an ability to listen

Financial advisers need to be in-tune with their clients’ needs, rather than putting their own best interests first. Northstar Financial Planning notes that good advisers lend support and will ride out the ups and downs of financial decisions.

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Recommendations

Advisers who have a reliable track record likely have clients willing to vouch for them. Men and women can ask friends, family or co-workers for recommendations regarding financial advisers.

Wealth of experience

An adviser who has many years’ experience under his or her belt likely has worked with clients from all walks of life and men and women whose comfort levels regarding risk have run the gamut. That wealth of experience can prove invaluable to clients.

Continued learning

Advisers who have memberships in financial associations and continue their education are committed to honing their craft and staying on top of changes in their field.

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It’s all about knowledge, knowing what to do and what not to do. It’s about putting a plan in place and believing in it and feeling good about it.”

Credit counselor offers advice to get back on track

COPY EDITOR

Rod Benstead faces myriad potential variables anytime his phone rings or someone walks into his office. However, he said his goal seldom changes regardless of the financial circumstances involved. “My passion is helping people get rid of any negativity and, based on their goals and values, to embrace their financial situation and empower them in moving forward with a plan they feel good about.” Benstead is a consumer credit counselor for Life Financial Solutions, a division of the nonprofit, United Way-supported Family Services of Southern Wisconsin and Northern Illinois. Established nearly 16 years ago, the organization concentrates on and provides financial counseling, coaching/educational presentations and credit report reviews. The company recently changed its name from Consumer Credit Counseling Services and made Beloit its lone office after also having a Janesville location. Benstead sees clients in Rock and Walworth counties, as well as in northern Illinois. FINANCIAL COUNSELING “Generally, when it involves this realm,” Benstead said, “they are dealing with a circumstances that involve a lot of stress and anxiety, and they’re looking for the resources and ideas of how to work through the process.” The numbers ebb and flow each year, but Benstead counseled over 350 people during 2017. “The main thing is getting a sense and understanding of each client’s situation and learning what their goals are,” he added. “There is not much I haven’t seen, so I will use my experience to make recommendations. But I don’t sell anything … this is all about the client. The idea is to have an open, honest conversation.” COACHING Last year, Benstead conducted more than 50 group presentations that drew 720 attendees. But a lot of the resulting work is done individually. “This area is meant to be more of a longterm process in which we really explore everything,” he said. “We discuss a client’s

(Continued from page 3)

liquidated and the advantages, she said, are that no assets are taken and it’s generally discharged in three to four months. “It gets rid of unsecured debt and is the one most people think of. The bankruptcy court says they don’t have to pay those debts back,” Wynn said. Chapter 13 is for people who make more money and is similar to a debt – Rod Benstead consolidation program. It includes a repayment plan that lasts three to five years, typically. “At the end of the plan any remaining debt is discharged. The caveat is that secured debt – say you have a car or a house, and want to keep them – those have to be paid throughout the program and continue to be paid for afterwards,” Wynn said. Foreclosure on a home – if it’s under water, needs repairs or the owner can’t make the payments – can often be surrendered in a Chapter 7 filing, she said. For people behind on payments but wanting to keep their home, Wynn said a Chapter 13 bankruptcy is often the route to go because it includes a mortgage modification that works for both parties. She said many mortgage companies now offer modification programs so values and what’s important to them in homeowners don’t need to file for addressing their issues or problems. We try to bankruptcy. establish relationships and check in on them “Oftentimes they’ll work with you,” she on a regular basis.” said. His programs typically involve companies As a bankruptcy attorney, Wynn said or agencies, but Benstead has held events at she deals with people who fall into two Blackhawk Technical College and works with categories: those who are “very good at three domestic violence shelters. keeping track of their finances and see the “All kinds of things happen to folks, whether it’s a relationship, losing a job or a medical-related situation,” he said. “So, it’s meeting people where they’re at. Everybody has financial issues impacting their lives.”

A plan you can believe in

By Todd Mishler

• Bankruptcy

INVESTING IN YOUR FUTURE • 2018 • PAGE 5

CREDIT REPORT REVIEWS “These reports can open and close a lot of doors, and obviously you want them to open doors,” Benstead said. “What we can do is offer our insights and talk about steps and actions people can take. We don’t hold them by the hand, but we can walk them through the process and talk to them about options.” BOUNCING BACK Benstead said that many people have recovered from the recession of 2008-09, but that doesn’t mean all is well despite a national economy that has continued to improve since then. “Prior to the recession, we saw a lot of people in trouble from losing their jobs and building high debt levels,” he said. “Many people were living on the edge or going into bankruptcy. “Some folks have repositioned themselves and have learned important lessons … they’re being careful with their credit loads and some have been able to build emergency funds,” Benstead added. “But other folks have not done those things. Many people still are living from paycheck to paycheck. From my perspective, we’re seeing people not learning those lessons and seeing many instances of what happened before the recession.” Still, Benstead continues to emphasize the positives and keeps pushing common sense solutions. “It’s all about knowledge, knowing what to do and what not to do,” he said. “Again, it’s about putting a plan in place and believing in it and feeling good about it.” FOR MORE INFORMATION Life Financial Solutions is at 416 College Ave. in Beloit. Call 608-365-1244 or email to Rod Benstead at rod@lifefinancialsolutions.org.

cliff even before they missed a payment on anything,” or those who have buried their head in the sand – sometimes for years – and may already be having their wages garnished and are not be able to afford an attorney. “People are very ashamed – it’s a hard phone call to make but I’d rather people call sooner than later. As soon as I sit down with somebody and we come up with a plan – even if we don’t have the details ironed out – things will start to get better. The ‘fresh start’ is cliché but it’s so true… they just have to reach out and get help,” she said. “The stress of going through bills over and over to try and come up with a way to pay them, often not sleeping or eating properly, it catches up with people,” Wynn said. “The hardest part is making that phone call but once the process is started, it gets easier.” Wynn at Law LLC, has been in Lake Geneva at 415 Broad St., since 2010 and also has two other offices – 520 E. Walworth Ave., Suite A, Delavan, and 28611-B 75th St., Salem. The law office, featuring Wynn along with attorney Alyssa Wilson, offers services for bankruptcy, real estate, estate planning, probate, business and employment law and workers compensation. Wynn and Wilson grew up in Walworth County and are graduates of Big Foot High School in Walworth. For more information call 262-7250175, visit wynnatlaw.com or email swynn@wynnatlaw.com.

Attorney Shannon Wynn, of Wynn at Law LLC, which has offices in Lake Geneva, Delavan and Salem, said filing for bankruptcy is a smart decision in many situations. She offers a free consultation to determine what route is best and if it’s not bankruptcy, she has a network of people who can help someone dealing with debt and financial issues.

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PAGE 6 • 2018 • INVESTING IN YOUR FUTURE

Money sense

Budgets help keep finances on right track Do you ever wonder where your money goes each month? Does it seem like you’re never able to get ahead? If so, you may want to establish a budget to help you keep track of how you spend your money and help you reach your financial goals. Here are some tips to get the process started:

EXAMINE YOUR GOALS Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child’s college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them.

INCOME AND EXPENSES To develop a budget that is appropriate for your lifestyle, you’ll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose. Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories:

fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You’ll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair and so on. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

EVALUATE YOUR BUDGET Once you’ve added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you’re on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you’ll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending.

MONITOR YOUR BUDGET You’ll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don’t have to keep track of every penny that you spend. In fact, the less record keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., leaky roof, failed car transmission).

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Budgeting is one of the most important steps you can take to get a handle on your spending.

HOW TO STAY ON TRACK • Involve the entire family: Agree on a budget up-front and meet regularly to check your progress. • Stay disciplined: Try to make budgeting a part of your daily routine. • Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays). • Find a budgeting system that fits your needs (e.g., budgeting software). • Distinguish between expenses that are

wants (e.g., designer shoes) and expenses that are needs (e.g., groceries) • Build rewards into your budget (e.g., eat out every other week). Avoid using credit cards to pay for everyday expenses: It may seem like you’re spending less, but your credit card debt will continue to increase. This column was written by staff at Thrivent Financial and appears here courtesy of the firm’s local representatives. Readers are advised to consult a financial planner for specific questions.

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INVESTING IN YOUR FUTURE • 2018 • PAGE 7

Tips to repay student loans as quickly and affordably as possible College students who borrow to pay for school typically don’t have to start repaying their student loans until six months after leaving school. But when it does come time to start making loan payments, you may find yourself stressing out about the additional monthly expense. “Properly preparing for this transition can help students successfully manage their payments now and in the future,” says Martha Holler, senior vice president, Sallie Mae. To help, Holler is offering the following insights:

KNOW WHO AND HOW MUCH YOU OWE

Keep track of lender and servicer contact information and other important details on a spreadsheet. Include the type of student loan, name of the servicer, the servicer’s phone number, interest rate and type and the ending date of your separation or grace period.

winning mobile app for Android and Apple, customers can make and manage payments anytime, including from an Apple Watch or by using Siri.

SAVE MONEY

Make more than the minimum payment each month to pay off your loan faster and pay less interest overall.

THINK LONG-TERM

Paying on time consistently can help you establish and build a favorable credit history. This can make a big difference when you apply for a car loan, credit card, lease, mortgage or even a job.

BE RESPONSIBLE

Open any mail you receive from your servicer or lender and read it carefully. Update your contact information when it changes, such as when you leave school and “.edu” is no longer part of your email address. If you run into trouble, contact TAP TECHNOLOGY Set up automatic payments so you’ll never your lender or servicer, touch base with your cosigner if you have one, and look for have to worry about missing a payment. solutions. You’ll avoid late fees and you might qualify For more tips and tools, visit salliemae. for a discount on your interest rate. For com and check out Sallie Mae’s “Manage example, Sallie Mae customers may be eligible to receive a 0.25 percent interest rate Your Student Loans,” a one-stop source of straightforward, comprehensive information reduction when they pay on time via autofeaturing practical tools – including a debit. In addition, with the lender’s award-

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Time to repay your student loans? Be sure you have all the tools and facts needed to do so as quickly and affordably as possible.

monthly budget worksheet and a loan payment estimator, as well as easy-tounderstand explanations of complex subjects, like how interest accrues, how payments are allocated to principal and interest, and how to build a strong credit history.

“Our student loan repayment tips and tools are designed to help new grads adopt responsible personal finance habits now that will serve them well throughout their lives,” Holler says.

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PAGE 8 • 2018 • INVESTING IN YOUR FUTURE

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college education is one of the largest expenses you’re likely to have in your lifetime, second only to buying a home. Unfortunately, the cost has increased dramatically in recent years. Tuition plus fees at fouryear public colleges jumped 71 percent over the last decade, forcing many wouldbe degree seekers to delay or even forgo attending college. For others, it’s meant heading to school while taking on large amounts of debt. Today, however, new solutions are popping up to address the college affordability crisis. Most people know about grants and scholarships. Students can now also consider alternate paths to college credit, helping them graduate faster and more affordably, experts say. Here’s what you need to know: • The average cost of a typical undergraduate college course is $1,782. In high school, take as many Advanced Placement and College Level Examination Program courses as you can handle, increasing your opportunity to earn college credit and save money on tuition. • The College Board’s CLEP, while not as well-known as AP, is a 50-year-old credit-by-examination program accepted by more than 2,900 schools and universities. Check to see if the colleges you are considering accept CLEP credit, and then work hard to succeed on one or more of the 32 CLEP exams. CLEP courses and exams are rigorous but shorter and not as challenging as AP.

• Consider new programs such as “Freshman Year for Free,” an initiative developed by Modern States Education Alliance, a charity dedicated to making a college degree more affordable and attainable for everyone. Students can use Modern States’ 40+ tuition-free online courses – all taught by top college professors – to prepare for the AP and CLEP exams. • One advantage of CLEP tests is that they are offered every day at thousands of testing centers. AP exams only can be taken in high schools in May. Modern States is paying the AP and CLEP exam fees for the first 10,000 test-takers, making the program, which also includes free textbooks and practice questions, totally free. “This is a great on-ramp to college and an opportunity to save both time and up to 25 percent of the rising cost of a degree,” says Steve Klinsky, founder and CEO of Modern States Education Alliance. To learn more, visit modernstates.org. • Attending community college for the first two years and then transferring to a four-year institution offers another opportunity to cut costs. Dual-enrollment programs, whereby students take college courses at a city or community college while still in high school, are another great way to head to college with some credits under your belt. More than one-third of Americans ages 30 and younger who haven’t attended college attribute their decision to the high cost, according to a Federal Reserve survey. In fact, U.S. student loan debt stands at an all-time high of $1.34 trillion.

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INVESTING IN YOUR FUTURE • 2018 • PAGE 9

Controlling student debt Options available to help students pay for college

With student debt increasingly becoming a long-term burden on graduates and families, says Peter Gayle, a vice president for Prudential Advisors, it’s never been more important to minimize the out-ofpocket expenses to put a student through college – and reduce reliance on student loans. To put the weight of student debt in perspective, The Federal Reserve Bank of New York noted that in 1995, 54 percent of graduates had loans averaging $11,491. It’s more recent data in 2015 showed 71 percent of graduates joined the workforce with student debt averaging slightly more than $35,000. What’s more, the Federal Reserve Bank of New York estimates 25 percent of those who owe federal student loans are delinquent or in default. The good news is that anyone willing to put in the time likely can find programs that help foot the bill – helping to reduce the need to take out loans – so a student’s education won’t break the budget or jeopardize a financial future. According to Gayle, families can take a few initial steps before choosing a school: • Learn how the financial aid process works and get the most out of options that don’t need to be repaid. • Understand each school’s actual net price – after financial aid – and set realistic expectations, choosing from the most affordable institutions. • Explore types of financial aid, including grants, work study programs and scholarships; examine the specific types of aid available per school and find out how much of a family’s demonstrated financial need each school will cover. • Understand the kinds of loans available, including a variety of federal loans and private loans, which may be used to fill any financing gaps after exhausting other options. • Understand how parents’ “available income” is used to calculate how much parents are expected to contribute to their child’s education, especially for federal financial aid purposes. Several guides, including Prudential Financial’s www.prudential.com/

payingforcollege, can help families take a carefully considered approach to financing a college education while safeguarding a student’s long-term financial future, including the ability to save for retirement. For families that must use student loans, the federal government is making it easier to understand how to borrow, process applications and repay loans through new online tools. Since 2010, all new federal loans, except Federal Perkins Loans, have been issued through the U.S. Department of Education, which offers information about borrowing and repaying loans. There are multiple options to repay federally funded student loans, which generally require repayments to start six or nine months after a student graduates, leaves school or drops to half-time enrollment. A few popular choices for repayment include types of income-driven plans, which calculate payments based on a borrower’s ability to repay. One catch: It’s critical to recertify income and family size annually to avoid huge monthly payment increases. When debt becomes too burdensome, some loan programs offer forgiveness through public service, federal government employment and options like teaching in underserved school districts. Private loans are trickier because there is no standard: Interest rates and repayment terms vary from lender to lender. It’s also worth considering the need for life insurance to cover the full loan balance to aid co-signers or beneficiaries in the event of the borrower’s death, says Gayle. Financial advisers would be well-equipped to help explore this and other options, Gayle notes. Employers also are beginning to offer employee student debt benefits to put their employees on a course for financial security. At Prudential Financial, for example, new employees hired through the company’s campus recruitment program beginning in January 2017 could earn an incentive of up to $5,000 toward paying off student loans after one year of service. Other companies match student debt payments with contributions to employee

STOCK PHOTO Investing in Your Future

With college tuition continuing to rise, families are looking for ways to help pay for their child’s education that won’t rack up large debt and put their financial future at risk.

retirement savings plans. Studies show college education can be worth the price. The U.S. Census Bureau estimates that students who attend college can earn nearly twice as much over their lifetimes as those with only a high school diploma. But with college tuition continuing to rise, families must find the

most effective way to finance a child’s college education to avoid jeopardizing their ability to save for retirement. “Prudential Advisors” is a brand name of The Prudential Insurance Company of America and its subsidiaries located in Newark, New Jersey.

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State college savings program reaches $5B

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Wisconsin’s college savings program, Edvest, has reached the $5 billion mark in assets and has reduced the amount students and their parents must pay for through loans.

The Wisconsin College Savings Program reached the $5 billion mark in assets in the new year. The milestone was official as of Jan. 3. Edvest, Wisconsin’s direct-sold college savings plan, surpassed $3 billion in assets in late 2017. Along with Tomorrow’s Scholar, the state’s adviser-sold plan, college savers have invested more than $5.008 billion in the Wisconsin College Savings Program. The continued growth of both programs reinforces the state’s commitment to helping families save for higher education. “We want to make sure Wisconsin families have the financial vehicles they need to make college a reality,” said Jay Risch, Secretary of the Wisconsin Department of Financial Institutions. Risch said 529 plans like Edvest and

Tomorrow’s Scholar can be attractive to investors because of low fees and tax advantages. “We’re thrilled that Wisconsin families are utilizing these tools to ensure future college education for their children,” Risch said. Edvest is Wisconsin’s direct-sold 529 college savings plan designed for families who want to direct their own 529 college savings accounts. Edvest, which is managed by TIAA-CREF Tuition Financing Inc., currently has 166,326 accounts with more than $3 billion in assets. Tomorrow’s Scholar 529 Plan is offered through financial advisers and is managed by Voya Investment Management. The program offers a flexible, multi-manager investment approach and has 118,421 accounts with nearly $2 billion in assets.

PAGE 10 • 2018 • INVESTING IN YOUR FUTURE

IS IT TIME TO BUY PROPERTY? Tips for first-time real estate investors

Real estate can be a good investment that helps build wealth and secure a financial future. According to Investopedia, average 20-year returns in commercial real estate hover around 9.5 percent, while residential and diversified real estate average returns of 10.6 percent. Such figures may seem too good to ignore for many prospective real estate investors. But investing in real estate can be risky, and it’s important that first-time investors consider a host of factors before deciding to delve into the real estate market.

CURRENT FINANCES Real estate can potentially yield big returns, but these may only materialize after investors spend ample amounts of money refurbishing or even maintaining their investment properties. Prospective investors without the capital on hand to finance repairs or routine maintenance may find it difficult to make their properties appealing to potential tenants, which can make it harder to meet mortgage payments. Prospective investors who already have sizable debts, be it consumer debt or existing mortgage payments, may want to pay down those debts before investing in real estate.

DOWN PAYMENTS According to Wells Fargo, mortgage insurance does not cover investment

property, and loans typically require a minimum down payment of 20 percent of the value of the property. So prospective investors cannot count on mortgage insurance to finance their investments in real estate. Investors should not just make sure they can meet that 20 percent requirement, but also ensure they have enough capital left after making their down payments to address any repairs that need to be made. If not, they might have trouble attracting renters willing to pay enough in rent.

INTEREST RATES Prospective real estate investors may be surprised to learn that investment property loans often are subject to higher interest rates than those for homebuyers borrowing to purchase a primary residence, says Quicken Loans. Investors should not count on getting the same or better interest rates for their investment properties that they did when buying the homes they currently live in.

FINANCIAL RESERVES Some lenders may require that prospective investors have sizable financial reserves before they will lend them money to invest in real estate. Some may require that borrowers have several months’ worth of reserves to finance both their personal lives and their investments. If a 20 percent down

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Investing in real estate can yield big returns. But first-time investors should know that such investments are vastly different than investing in a home for oneself.

payment would make that impossible, then prospective investors may want to wait a little longer to invest and save more money

until their financial reserves would prove more acceptable to lenders.

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INVESTING IN YOUR FUTURE • 2018 • PAGE 11

When to use credit and debit cards Knowing the difference can protect your accounts

The decision of whether to use a debit card or a credit card can affect consumers’ credit ratings and make it easier or more difficult to manage one’s personal finances. This decision often depends on the situation and understanding how each of these cards works. Credit cards allow customers to borrow money from the credit card company up to a certain limit with the intent to pay back the amount used at the end of the month. If that balance is not paid in full, customers will be charged interest fees. Debit cards are a direct link to the money a person has in the bank. Debit cards withdraw cash straight from a checking account, so no interest will ever need to be paid on purchases made with debit cards. Since 2004, use of debit cards has exceeded credit cards for purchases made in the United States, reports the Federal Reserve. In 2012, debit cards were used to make 47 billion payments, compared to 26.2 billion payments made with credit cards. But debit cards might not always be the best choice in certain situations. Here are a few ways to weigh the options of what payment method might be best.

IF YOU DON’T WANT TO OVERSPEND: DEBIT Staying on budget and not overspending can be challenging when using credit cards. When cash leaves your hand, it is easy to keep track of what you have left. This isn’t as easy when using credit to make purchases. Some shoppers feel they are more likely to overspend when using credit than having money deducted from their bank accounts via debit cards. Bank of America says recordkeeping is made simpler with debit cards, and they are a great way to avoid spending more money than you have available.

IF YOU LIKE INCENTIVES: CREDIT Credit cards are still the best way to earn rewards on purchases made, and credit card companies recognize the rewards market is more competitive than ever before. From airline miles to cash back bonuses to points toward vacations, credit card companies now offer a host of benefits that debit cards do not offer. But industry analysts at CreditCards.com say the industry is so competitive that many banks are trying to attract new customers and keep current ones happy, so debit card users may be able to earn some perks if they are not doing so already.

IF YOU’RE CONCERNED ABOUT FRAUD: CREDIT Credit cards typically offer better fraud protection than debit cards. If unauthorized purchases are reported, the consumer’s maximum liability is $50, though many credit cards offer zero liability. Debit cards offer some protection, but it may take a little longer to get your money back and loss responsibility amounts may be higher.

IF YOU’RE SHOPPING AT SMALL BUSINESSES: DEBIT Business Insider says it costs small-business owners more to process credit transactions than transactions in which customers use a debit card or cash. By using debit cards when patronizing local businesses, consumers can help small business owners keep more money in their pockets. (METRO CREATIVE)

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Debit and credit cards are secure and convenient ways to shop. One card may be better in certain instances than the other.

Mobile banking offers convenience but comes with risks Online banking safety tips to keep your money protected

Online banking has revolutionized the way people manage their money. Investors can buy or sell stocks with the click of a mouse, and money can be moved across accounts just as easily and instantly. Many consumers now even do their banking on their mobile phones. In fact, a 2016 study from the Federal Reserve found that 67 percent of millennials use mobile banking, suggesting that mobile banking is the wave of the future. While online or mobile banking makes it easy for consumers to manage their money, it’s also potentially much riskier than inperson banking. Unseen hackers and thieves are lurking online and in places where WiFi is open and free, so online and mobile banking enthusiasts must exercise caution when accessing their accounts.

SIGN UP FOR TWO-FACTOR AUTHENTICATION Some banks and credit card companies now provide two-factor authentication, and some may even insist their customers use it. Two-factor authentication requires two forms of verification before users can log into their accounts. The first might be the traditional username and password, while the

home networks. Consumers who routinely use public Wi-Fi, even if it’s just for basic internet surfing, should log out of mobile banking apps or websites before logging on to public networks.

USE SECURE PASSWORDS Change passwords frequently and avoid using the same password for more than one account. Many banking websites advise customers if their passwords are weak or strong when customers first set up their accounts.

MONITOR CREDIT SCORES

Consumers have the right to one free credit report each year, but many credit card companies now update customers STOCK PHOTO Investing in Your Future regarding their credit scores once per Online and mobile banking is convenient, but consumers must tread carefully month. Consumers many need to sign up to when accessing sensitive financial information online. take advantage of this service, but doing so is typically free. second might be a temporary code texted USE SECURE NETWORKS If credit scores suddenly dip or emailed to users after they log into unexpectedly and without reason, Public Wi-Fi can be convenient, their accounts. Some consumers may consumers may have been victimized but consumers should never use such feel two-factor authentication is tedious connections to do their online or by identity theft and can then take the and slow, but it’s an effective safety necessary course of action to address the mobile banking. The American Bankers measure that should only delay online or Association suggests consumers always do issue. mobile banking by a few seconds. (METRO CREATIVE) their online banking via their own private

PAGE 12 • 2018 • INVESTING IN YOUR FUTURE

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High-deductible plans and health savings accounts are not for everyone, particularly people who require a lot of medical coverage throughout the year, necessitating high medical costs. People are urged to talk with a tax advisor to see if an HSA might be the right option for them.

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Exploring health savings accounts Health savings accounts are specialized savings accounts that allow people with specific health insurance plans to set aside money to pay for qualified medical expenses. These funds are deducted before taxes are withdrawn. Health savings accounts are a popular option among American workers and provide another option for Canadians who need to pay medical bills that provincial programs do not cover.

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HOW DO HSAS WORK?

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Health Savings Accounts (HSAs) enable people to put money aside for use throughout the year on allowable health care needs. Some HSAs are offered in addition to health insurance through company plans, or health insurance providers may market them separately to individuals. Some financial institutions also support their own HSA. People decide how much to contribute to an HSA account each year, although there may be government-mandated minimums. In the United States in 2017, the limit was $3,400 for an individual and $6,750 for a family, according to the financial resource NerdWallet. Health Equity says that those who have an HSA account own the account, even if they change health plans, retire or change employers.

states Canada Insurance Plans. Highdeductible plans often have lower monthly premiums, but come at the cost of these higher amounts that must be paid before insurance kicks in, states HealthCare.gov. The U.S. Internal Revenue Service defines a high-deductible health plan as any plan with a deductible of at least $1,300 for an individual or $2,600 for a family. When HSAs are combined with highdeductible health plans, people may be able to lower their monthly health insurance premiums, all the while having a cache of savings to use toward eligible expenses.

HSA BENEFITS

HSAs can lower monthly health insurance premiums or offset some of the costs people pay for out-of-pocket health-related services, such as insurance copayments or services not covered by other insurance. HSAs are used primarily for tax benefits. Contributions to HSAs are made pre-tax and are tax-deductible. Because a person is taxed after making an HSA contribution, individuals are taxed as if they make less money, thereby lowering their income tax. Another possible benefit for some people is that HSAs can be invested in mutual funds, stocks and other investment tools to generate even more money. Health Savings Administrators, which helps clients invest their HSA funds, says some people find that investing in HSAs enable them to WHO IS ELIGIBLE? see greater savings that can be put toward Unlike flexible spending accounts, HSAs retirement than in more traditional 401(k) are restricted to people who participate or IRA contributions. in high-deductible health plans only, (METRO CREATIVE)

INVESTING IN YOUR FUTURE • 2018 • PAGE 13

Retirement readiness

Hitting the retirement preparation sweet spot A recent study by the Center for Retirement Research (at Boston College) suggests an alarming state of awareness about retirement readiness: Of surveyed households, 33 percent realize they are not well prepared, 19 percent are not well prepared but don’t know it and 24 percent are well prepared but don’t know it. For the Americans at risk of not being able to maintain an adequate retirement lifestyle, it’s critical to take action. For the households that are well prepared and don’t know it, they risk sacrificing a comfortable retirement. Understanding the behaviors associated with good retirement planning, in turn, can help you get a better sense of where you stand. Consider the following behaviors, which are more likely to be modeled by those who are well prepared for retirement.

ASSET ACCUMULATION A high-level approach to ensuring adequate retirement assets is to save a minimum of 10 percent of your gross income each year. You may need to save even more depending on your asset accumulation goals and how many years you have left to save before retirement. If you would rather have a dollar goal, multiply your annual income goal by 25 to arrive at the amount you should try to save. For example, if after considering Social Security and any pension payment, you want $30,000 more of annual income in retirement, you will need to save $750,000. Lower goals mean you need to withdraw at a faster rate and increase the risk you will deplete your assets too soon.

BUDGETING Not all budgets need to detail specific spending items. Rather, you can consider yourself working within a budget if you know that each year you are saving and not creating new debt (and paying off legacy debt for your education or home). If you want to squeeze out more savings, a line-by-line review of spending may well be fruitful.

PERSONAL DEBT Many of us are saddled with personal debt from college and graduate school. This debt has become so burdensome that the customary progression to home ownership has been delayed for many. The debt also has had a domino effect on the ability to save for retirement. Paying down personal debt should be job one. Other personal debt, such as for a car purchase, should be avoided, minimized or paid down as quickly as possible. Credit card debt, which carries high interest rates, should be avoided entirely. Remember, each dollar of debt limits your ability to save for the future.

MORTGAGE DEBT It used to be commonly accepted that you pay off your mortgage before retirement, but more and more retirees are entering retirement with mortgage debt. The old rule remains the best approach, because any indebtedness in retirement will limit your

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Many Americans are nowhere near ready to finance their retirement. Social Security was not intended to pay for retirement; it should be considered as a supplement to your investment income after you leave the workforce.

ability to react and adjust to poor investment return on your assets.

SOCIAL SECURITY With traditional pension plans less commonly offered by employers, Social Security has become an even more important source of guaranteed lifetime retirement income. By waiting to age 70, you can increase the benefit payment significantly, which is also the base for annual Social Security cost-of-living increases for the rest of your life. That increased Social Security benefit also may increase the benefit that a surviving spouse will receive after you die. Unless you have a health care issue that could reduce your life expectancy and no spouse who might need a spousal benefit based on your earnings record, claiming Social Security early is the greatest retirement planning mistake made.

HEALTH CARE Health care is the single greatest cost in retirement, and various studies estimate the cost to be $250,000 or more for a healthy 65-year-old couple. The cost of health care

will be even greater to the extent one retires before age 65 and Medicare eligibility. Moreover, health care costs can vary and may come sooner than expected. The best plan is to work until at least age 65 and understand that health care is a unique challenge in retirement. To the extent possible, utilize Health Savings Accounts and bank any unused amounts annually to build up a taxfree health care fund for retirement.

INCOME PLANNING No later than 10 years before your planned retirement, you should be translating your retirement assets into an annual or monthly retirement income stream. Start with your Social Security and any pension plan payments as your income base, and then consider how much income your other assets can safely generate. Depending on this analysis, you may want to consider purchasing an annuity to make more of your retirement income guaranteed and avoid the twin risks of poor investment return and living longer than expected. Consider also that many of your retirement assets have an embedded tax liability. You will need to look through your retirement

assets to determine after-tax income, because your food, rent and cable bills are paid with after-tax money. Only by seeing your after-tax income can you decide if you have enough to live on.

ANNUAL FINANCIAL WELLNESS CHECK-UPS During your early working years, you are likely to be focused on debt reduction and asset accumulation. As you get closer to retirement, you will need to focus on the strategies associated with Social Security, health care and income generation. At all times you should annually revisit your goals and make adjustments, as needed, to how much and where you are saving, how much you are spending, how aggressively you are investing and when your target retirement date is. Modeling such behaviors will make it more likely you will be well prepared for retirement. By doing so you will also make it more likely that you are properly assessing the state of your retirement readiness and not over- or underestimating your financial health.

(BPT)

PAGE 14 • 2018 • INVESTING IN YOUR FUTURE

How millennials spend their money The younger generation has different priorities and challenges

illennials include people born between 1980 and 2000. Millennials have become an influential demographic, changing the way business is conducted. While influencing technology, social norms and mores, millennials also are affecting the economy. Forbes says that many millennials have a shaky relationship with money, due in some part to the fact that they lived through one of the worst recessions the United States has experienced in decades. Couple that with staggering student loan debt and it’s easy to see why millennials may be facing an uphill battle when it comes to their finances. Millennials are falling particularly short in regard to saving money. According to a 2017 GOBankingRates survey, 57 percent of Americans have around $1,000 in savings. Sixty-seven percent of young millennials, between ages 18 and 24 have less than $1,000, says the survey. Canadians are saving even less, even though in the early 1980s Canadians of most ages used to save twice as much as Americans, or 20 percent of their disposable income, according to the Bureau of Economic

Analysis. Many millennials spend more than they earn and live above their means according to a report by American Express Business Insight. This, along with school debt, has compromised millennials’ ability to purchase a home or even get married. Just how are millennials spending their money? Here’s a look at the common patterns.

the generations that preceded them, states financial resource Mother Jones. Housing and education costs also have risen, contributing to a smaller pool of savings.

EXPERIENCES

TATTOOS

Funding experiences is a high priority for Gen Y. This includes concerts, sporting events, live performances, and other social events more so than possessions or career status, offers Forbes.

Surveys conducted for Pew Research found that 40 percent of millennials have at least one tattoo.

SAME-DAY DELIVERY A Shop.org survey indicated that millennials are twice as likely as other generations to pay extra for same-day delivery of online purchases.

ORGANIC FOODS

RETAIL GOODS AND DINING

A Gallup poll from the summer of 2016 found 53 percent of Americans ages 18 to 29 actively try to include organic foods in their diets.

TD Bank found that millennials make more retail purchases and dine out more than other generations, but generally spend less money overall.

SMALL BUSINESSES

HEALTH CARE Millennials spend about $1,000 more on health care expenses than

A new RBC Small Business poll found 70 percent of Canadian millennials are willing to pay more for goods and services if they’re sold by a small or local business. (METRO CREATIVE)

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Millennials have grown up during a period of rapid change. Their large numbers are shaping the economy in a myriad ways.

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