Investing in your Future 2020

Published by Rock Valley Publishing 2020

Investing IN YOUR FUTURE

PAGE 2 • 2020 • INVESTING IN YOUR FUTURE

Simple steps to take control of your finances As we say goodbye to the holidays and hello to a new decade, it comes as no surprise that money is the No. 1 driver of stress for many of us in the Midwest.

That’s according to the inaugural Midwest Money Mindset Survey ABOVE: A recent survey found the top driver of stress for people is money and finances.

However, the survey also found that many are being proactive about their financial well-being and taking steps to improve their situation.

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The survey found that 50% of participants cited money and finances as the top driver of stress, ahead of family and personal relationships, employment and health. The survey also dug into the reasons for that stress and found a silver lining: many people are taking steps to take control of their financial well-being.

Take a look at these stats: • Compared to a year ago, 68% of participants are either saving more money or the same amount; • More than half of participants (56%) have a retirement account; and • Almost two-thirds of survey participants (64%) have established a “rainy day fund.”

Andy Harmening, senior executive vice president, Consumer and Business Banking director for Huntington, says personal finances don’t need to be overwhelming. He offers the simple ways to better understand and manage your personal finances in 2020 and beyond:

Look at the whole picture

Find out who you owe, interest rates, late fees and timing. Then determine how much is coming in and out each month and understand your investment opportunities and tax picture. Talk to your partner, dependents or other family members and get on the same page.

Track behaviors

Set goals

Automate as much as possible

Stay focused

Cashless and one-click spending can make it hard to see where your money is going, especially those small purchases that compound quickly. Sophisticated online banking solutions, such as Huntington’s new Spend Analysis tool, can give you an eye-opening look into how your spending adds up so you can make smart adjustments.

It’s never too early to begin your long-term planning for retirement, which should be top of the list for most Americans. Near-term goal planning is essential as well, so keeping your attention on a down payment for a home or reducing credit card debt can help to keep you motivated – as long as you’re balancing your short- and long-term goals.

Money can be complicated, and it’s easy to slip up here and there. If you make a mistake, don’t throw in the towel on the progress you’ve made. Regain your focus and stay on track. Your momentum will benefit you in countless ways, from reduced stress and improved confidence to a bigger bank account and more.

Make a plan “With our Midwest Money Mindset From basic control of your budget survey, we not only know that managing to plans for consolidating debt and personal finances is a top concern of negotiating with creditors, there are Americans today, but we’re pleased to many ways to handle debt. Decide which see people taking action to help manage works best for you and take steps to this incredibly important part of their bring debt down. Then, make changes lives,” Harmening said. “We’re glad to avoid additional debt. A tool like Huntington can be part of the solution Huntington Heads Up helps you do people are looking for as they improve this by alerting you about areas where their financial health.” you’ve over spent and might want to pull back.

(BPT) Direct deposits and automatic bill payments ensure nothing gets overlooked or falls through the cracks in spending and saving. Not to mention, paying bills on time every time helps you maintain a good credit history and boosts your credit score.

INVESTING IN YOUR FUTURE • 2020 • PAGE 3

How to get out of debt ... and stay that way

Stop the flood

Avoid new debt at all costs. Stop using credit cards, cease taking loans, do not buy any big-ticket items, and scale back on general purchases.

ABOVE: With an effective plan in place, people in debt often can dig themselves out of financial peril.

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Learn about avalanches and snowballs

The avalanche method is a way to pay off debt. According to NerdWallet, a popular online financial resource, the debt avalanche approach encourages debtors to pay off debts with the highest interest rates first. That seems like an effective way to get out of debt quickly.

However, in a 2016 investigation for the Harvard Business Review, researchers found that the snowball method, which prioritizes paying off the smallest debt balance first and then moving on as debt amounts increase, is the most effective strategy. It tends to have the most powerful effect on people’s sense of progress because they gain momentum by watching debts disappear.

Monthly budgets help people make the most of their money. While a person’s income will affect how much they can spend on housing, food and clothing each month, another, more abstract factor can have a big impact on monthly budgets as well.

Nearly every adult has a credit score, which can fluctuate daily. Various factors, including a person’s age and track record in regard to paying bills, combine to produce a credit score.

According to the credit reporting agency Experian, credit scores range from 300 to 850, though most consumers’ scores fall somewhere between 600 and 750. The Fair Isaac Corporation create what’s known as a FICO Score, which is used by many lenders to determine prospective borrowers’ credit worthiness.

FICO scores are often characterized using five terms: • Very poor: Scores between 300 and 579; • Fair: Scores between 580 and 669; • Good: Scores between 670 and 739; • Very good: Scores between 740 and 799; and • Exceptional: Score between 800 and 850.

Some consumers may feel that these are just numbers on a page. But in certain instances, such as when consumers attempt to buy a home, a credit score can have

See CREDIT SCORES, Page 4

Get a lower interest rate

Customers can call customer service centers to see if they can lower debt by negotiating a better interest rate, says Credit.com. Since much of a credit card payment goes toward monthly interest charges and not toward the actual balance, this can be a way to get a handle on debt.

Some people prefer to use a balance transfer to get a lower rate on another card and try to pay off the balance before the

See DEBT, Page 4

investing future IN YOUR

Debt can quickly sneak up on a person.

However, it can take much longer – sometimes decades – to get out of debt.

And that’s a big concern when considering just how much debt the average person has incurred.

Northwestern Mutual’s 2018 Planning & Progress Study says the average American has about $38,000 in personal debt, excluding home mortgages.

A survey from the insolvency firm MNP Ltd. found that 31 percent of Canadians do not make enough to cover their bills and 46 percent are a mere $200 or less away from failing to pay debts at month’s end.

Researchers in the United Kingdom analyzed data from 1.4 million credit card holders and found that people typically choose ineffective methods to paying off debt.

These tips can make it easier to get rid of debt:

How credit scores can affect your finances for years to come

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PAGE 4 • 2020 • INVESTING IN YOUR FUTURE

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a dramatic effect on a person’s monthly budget.

When borrowing to buy a home, borrowers with desirable credit scores may be eligible for considerably lower interest rates than borrowers whose scores fall into the “Very poor” or “Fair” range. Over the length of a standard, 30-year, fixed-rate mortgage, a low interest rate can save borrowers tens of thousands of dollars in interest fees.

In addition to paying more in interest fees, Experian notes that borrowers with subpar credit scores may have to do even

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more to earn the trust of lenders. Borrowers whose scores fall into the “Very poor” range may be required to pay a fee or make a deposit when opening a new credit account, and some might not be approved for credit at all. Borrowers whose scores fall into the “Fair” may be classified by lenders as subprime borrowers, making it hard for them to open new credit accounts or secure loans without a cosigner.

Consumers can benefit from knowing their credit scores and how to improve them.

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(Continued from page 3)

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Stocks & Bonds • CD’s Mutual Funds • Retirement Plans IRA’s • Saving for Education Life Insurance

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streamlining debt into one payment per month instead of many.

Consolidate or settle

When debt is so substantial that debtors cannot see the light at the end of the tunnel, they might ask a creditor to accept a onetime, lump sum payment to satisfy the debt.

Debt consolidation companies also can help by negotiating with creditors and

Cut back temporarily

Cut back nonessential spending, such as cable subscriptions or gym memberships for the time being. Repurpose that extra money to pay off existing debt.

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Taking measures to improve low or subpar credit scores can put more money in consumers’ pockets, both in the immediate and distant future.

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INVESTING IN YOUR FUTURE • 2020 • PAGE 5

Where to begin when purchasing a home as your primary residence Common questions answered by a mortgage professional

What is your credit score?

Various organizations compile information from your credit history and assign you a credit score. Your credit score is often used by many different types of lenders in the decision-making process. In

By Rebecca Swick some home loan scenarios, this can also Have you ever thought, “I would like determine what mortgage program will to buy a home someday but I don’t know work best for you. where to start.” You’re certainly not alone.

How do you maintain a good credit In the mortgage industry, we get asked questions every day from people interested score?

In prior years, if you paid off a debt and in home ownership. closed the account your credit score might The process and regulatory guidelines have went up. Now the credit bureaus can be difficult and confusing. Even those want to see you use credit card debt in a in the industry must educate themselves to disciplined way, not borrowing 20-30% over remain current.

Here are some important details you need the available limit. It’s good to have 2 or more credit cards along with your auto loan to explore. and other loans. However, use your credit wisely with an attempt to pay-off the What is your debt ratio? cards balance each month. The goal is to make The debt ratio is a number that a lender payments on time and don’t over extend looks at to see if you have enough funds each yourself. Avoid making too many credit month to make your house payment. This inquiries and avoid making payments late, as ratio takes into account your monthly earned these items can lower your credit score. income against your monthly debt obligations.

The debt ratio can help determine the amount Do you have you can afford to pay, or in some cases, help much credit? determine if you’re borrowing too much.

Income is determined by reviewing paystubs, If you pay cash for most purchases, this tax returns, pension letters, social security can be an issue when you go to purchase a home. The lender wants to see that award letters, and other related documents.

you have established credit with a good payment history of 12 months or more for two or more trade lines.

If you currently rent, this can be a good indicator that you will pay your mortgage on time if you haven’t been over 30 days late in the past 12 months. Rent is verified either with a verification of rent form filled out by your landlord or with the last 12 months cancelled checks.

Do you have money for a down payment?

Let’s face it: not everyone has a lot of money saved up for what can be a sizable amount to put down on a home. It’s good to have some money down. But if not, you may not need as much as you think.

There are programs that can help with down payment assistance. Gifts of money are usually allowed on most mortgage programs. (Gift funds must be verified with a paper trail from the source). In fact, regulations require any funds used to purchase a home must have a documented paper trail.

When you purchase a home, the seller will want earnest money down which can range anywhere from $500 to over $2,000.

Earnest money is used as a credit towards costs at the closing. If the buyer cancels the contract to purchase, the earnest money is typically lost.

What makes up the monthly mortgage payment?

A mortgage payment can consist of principal, interest, real estate taxes, home insurance, and possibly home owner association dues if the property is a condo, townhome, or located in a planned unit development. The mortgage payment can also include mortgage insurance, if required by the lender based on limited down payment or mortgage guidelines depending on the type of mortgage.

Keep in mind that many factors, including regulatory guidelines and program specific requirements, can ultimately determine your ability to buy a home.

Buying a home can be rewarding as well as stressful. There’s a lot of responsibility when owning your own home. You will want to find a mortgage professional whom you trust and makes you feel comfortable. Ask questions and make sure you understand the process.

There’s a lot of things to know and understand.

If you have any questions or you’d like to learn more about this process, please reach out to Durand State Bank at 815248-2101. We are happy to assist in any way we can.

WHO NEEDS LIFE INSURANCE? Life insurance is one of many components of estate planning. Statistics from the insurance industry groups Life Happens and LIMRA indicate that 70 percent of Americans consider life insurance a necessity. However, 41 percent of respondents in 2017 did not have any life insurance.

Even though most people deem life insurance important, it is not necessary for everyone. Determining if you are a good candidate for life insurance involves doing a little research. These qualities often make life insurance a smart move.

YOU’RE MARRIED OR IN A COMMITTED RELATIONSHIP If you are married or in a relationship in which your partner depends on you financially – even if just partially – it is smart to have a life insurance policy. This way your significant other does not have to rely entirely on his or her income to pay off debts or maintain the quality of life you currently enjoy. Many households cannot function without two incomes. Life insurance can ensure financial burdens do not rest entirely on the shoulders of surviving loved ones.

ABOVE: A life insurance policy is a wise investment for people whose survivors could benefit from some financial assistance in the wake of their deaths.

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YOU HAVE CHILDREN If you have children who depend on you, life insurance is a must-have. If your spouse and children could not continue their standard of living on one income, then life insurance can fill in the gap or pay for future plans, such as college educations.

Even if you are a stay-at-home parent, your contribution to the household still holds weight. Should you pass away, your spouse

will have to pay for tasks that you would normally perform, such as childcare, cleaning services, cooking, and transportation.

YOU’RE A BUSINESS OWNER Entrepreneurs benefit from life insurance since it can help pay off business debts, advises the online financial resource Nerd Wallet. When business owners pass away, their heirs might be able to use life

insurance payouts to pay off estate taxes or fund a buy-sell agreement.

YOU WANT TO LEAVE AN INHERITANCE If you do not have a vast accumulation of assets, investing in permanent life insurance can provide a small sum of money to heirs upon your death.

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THE VARIOUS TYPES OF IRAS PAGE 6 • 2020 • INVESTING IN YOUR FUTURE

SEP IRA This type of IRA is a traditional IRA, but one set up and funded for employees by an employer. SEP stands for simplified employee pension. Employers must contribute equally to all employee accounts, and personal contribution limits are much higher for these accounts than on other tax-favored accounts.

Discussions about retirement planning typically include mention of individual retirement accounts, or IRAs. IRAs are retirement investment vehicles that can be used in place of or in conjunction with 401(k) plans.

Many investors like IRAs because they give them a certain measure of choice in regard to their investments while allowing investors to postpone paying taxes on gains until money is withdrawn during retirement.

One common misconception about IRAs is that there are only two types, when there actually are many more. Depending on which definitions and resources you go by, there are as many as 11 types of IRAs. Financial advisors can help people choose the appropriate IRA based on their needs and goals. Here’s a look at just a few of the more popular IRAs.

Traditional IRA Traditional IRAs are very popular, according to data from the Investment Company Institute. Classic features include a tax break of up to $6,000 initially, and investment earnings are not taxed as long as the money remains in the account.

Money Management International says one advantage of a traditional IRA is that contributions can be taken as tax deductions in the tax year they are made.

This type of IRA might be good for someone who anticipates being in a lower tax bracket upon retiring, since taxes are paid when funds are withdrawn.

Roth IRA A Roth IRA is different than a traditional

Spousal IRA The financial resource The Motley Fool notes that spousal IRAs are either traditional or Roth IRAs funded by a

married taxpayer in the name of his or her spouse who has less than $2,000 in annual compensation. The couple must file a joint tax return in the year of the contribution.

Education IRA Not all IRAs are strictly for retirement funds. EIRAs help pay for higher education. No tax deductions are allowed, but deposits and earnings may be withdrawn tax-free so long as they are used to pay for higher education.

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Explaining the difference between wills and trusts IRAs are tax-advantaged tools for setting aside funds for retirement and other needs.

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IRA in various ways. Contributions to a Roth IRA are not tax-deductible, but funds will grow tax-free. Also, with a Roth IRA, the taxes are paid upfront, so account holders will not pay taxes when the money is withdrawn. This is beneficial for those who expect their income tax bracket to rise after retirement.

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It’s never too early for adults to think about estate planning. Estate planning is an important part of money management.

While it’s easy to think of estate planning as just a way to dictate how your assets are allocated after your death, estate planning also can protect people and their money should accidents or injury make them incapable of managing their finances on their own.

Some familiar terms may come up when people begin planning how they hope to transfer their assets. Two more common terms are wills and trusts.

Understanding the distinctions between the two can help people as they begin estate planning.

WHAT IS A WILL? The online financial resource Investopedia notes that wills are legally enforceable documents that dictate how people want their affairs handled and assets allocated in the wake of their deaths.

Wills should include a host of information, including who a person wants to assume guardianship of their minor-aged children should they pass away. This is especially important information to include in a will, as surviving relatives may have to go to court to contest guardianship if parents do not dictate who they want to serve as guardians in their wills.

WHAT IS A TRUST? A trust is a relationship in which another party is given authority to handle a person’s assets for the benefit of that person’s beneficiaries. When making a trust, a person will need to designate someone as a trustee, who will be tasked with distributing assets in accordance to the terms dictated in the trust.

There are many types of trusts, and working with an attorney who specializes in estate planning can help men and women determine which type of trust, if any, is best for them.

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IS IT BETTER TO HAVE A WILL OR A TRUST? Both wills and trusts can be useful when estate planning. In fact, wills are often used to establish trusts, and many people have both a will and a trust.

Estate planning is an important part of managing one’s finances. A qualified attorney who specializes in estate planning can help people write their wills and, if necessary, establish trusts that can help surviving loved ones in the wake of their death.

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INVESTING IN YOUR FUTURE • 2020 • PAGE 7

Protect your most valuable asset How to pick the right homeowners insurance

If you’re like many Americans, your home may be your most valuable asset.

That’s why it’s so important to protect it with homeowners insurance. Plus, it’s probably a requirement of your mortgage.

Setting up your coverage the right way starts with understanding the major parts of a homeowners policy.

Consider the following information and tips from the USAA Home Learning Center:

Dwelling protection

This protection covers the cost of repairing or rebuilding your home if it’s damaged or destroyed. When you select the amount, keep in mind the cost to rebuild your home is different from its market value.

It’s important to get the dwelling coverage right and to monitor it over time to make sure it keeps up with construction costs to rebuild. Under most homeowners policies, if you file a claim and have underinsured your home, your payout may be reduced.

Some insurers will help you estimate the rebuilding cost. They take into account the features, materials and finishes that make your home unique.

Personal property protection

This protection covers your furniture, clothing and pretty much everything else inside your home. Most policies set the amount of personal property protection as a percentage of the dwelling coverage.

ABOVE: Homeowners insurance is a must, not to mention a probable requirement of your mortgage. Talk to an insurance agent about what coverage you need.

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It may not be enough, though.

Homeowners’ plans set limits on certain high-value items. If you own expensive jewelry, art, guns, stamps, furs, cameras, computers, silver or collectibles, you’ll want to consider buying valuable personal property insurance. This is sometimes called a “personal articles floater.”

When you set up your homeowners policy, you may have to make an important choice about how to reimburse losses.

There are two approaches: • Replacement cost – this coverage is the amount needed to replace the property with a comparable, new item; and • Actual cash value – this coverage considers depreciation in the value of your property. If your 10-year-old couch is destroyed, you’d receive what it was worth at the time of loss, not the money you’d need to buy a new one.

To make your recovery from a loss as smooth as possible, replacement cost coverage is recommended.

Liability coverage

This is one of the most important and least appreciated forms of protection offered through homeowners coverage.

It protects you if you’re found to be at fault for someone’s injury or property damage. It even covers you for nonautomobile incidents away from your home. Generally, it also covers your legal costs associated with such claims against you.

As a rule, your liability coverage should at least be equal to the total value of your assets for both your homeowners and auto insurance. If your assets are higher than the maximum coverage allowed under the policy, consider purchasing umbrella insurance to cover the difference. This is important to protect the savings and other assets you’ve worked hard to acquire.

Deductibles

when you have a mortgage and live in a flood zone, you should give it strong As with other types of insurance, a consideration no matter where you live. deductible is the part of a loss that you’re Whether it’s a flash flood or a few inches of responsible for covering out of your own excess water, flooding can cause massive pocket. The higher your deductible, the damage to your dwelling and its contents. lower your monthly premium.

• Earthquakes. You can add coverage Choosing a higher deductible can save you money with a lower monthly premium for earth movements to your policy with an extra premium. If you live in an area prone but increases the risk you take. Consider to earthquakes, consider reinforcing your the amount of cash you typically have on home protection with this coverage. hand in your emergency fund or checking • Home businesses. Homeowners plans and savings accounts. Make sure you can provide limited coverage for business cover the deductible amount comfortably. equipment. If you run your business from home or have expensive office equipment, What may not be covered you may need to consider additional Your policy’s basic coverage won’t coverage. Your homeowners policy may cover some special risks. not cover injuries to someone if they’re • Floods. While a standard policy covers related to your business. most weather-related events, floods aren’t For additional information on protecting one of them. Flood insurance is inexpensive your home, visit USAA.com/Homeowners. and the federal government offers it through insurers. While it’s mandatory (BPT)

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