Ready to own your own home? Ready to make the investment of your lifetime? Here are three things to know financially when buying your first home.
Preparing to buy your first home is both exciting and stressful. Before you start down the road of home ownership, it is vital that you have all of your finances in order and that you fully understand what is in store for your budget. Here are three things to know financially when buying your first home.
Mortgage and Down Payments
The world of mortgages and down payments can be confusing for the first-time homebuyer. Understanding the differences between a fixed-rate and an adjustable mortgage will help you to make a more informed decision. You also need to plan how much money you want to put down on the home. There are several advantages of placing a 5 percent down payment, but it’s important to consider what works best for you and your financial situation. Keep in mind that if you put less than 20 percent down, it is likely you will be charged a monthly fee for private mortgage insurance (PMI). Consider the pros and cons as you're weighing the offsetting advantages of placing a 5 percent down payment.
Set a Price Range
Picking the right price range is an imperative step in finding the right house for your personal needs and your budget. When it comes to real estate, timing is everything. If you are shopping in a buyer's market, you are going to get more for your dollar. There are a host of online tools to help you figure out how much home you can afford. A lot of times, a real estate agent can also help you to figure out how much you can afford. You also need to examine your current and projected lifestyle to determine how much you can spend. For example, if you plan on having children in the future, you need to add these costs to your overall budget, especially if one parent plans on staying home with the kids.
Budget for Extra Expenses
The costs of purchasing a house go well beyond the basic outlay for the down payment and insurance. Chances are that if this is your first home, you will be upgrading to a significant amount of additional space. This will likely necessitate that you set aside extra money for new furnishings. If you are moving into a newly constructed home, it is also probable that you will need a budget for landscaping. Depending on the condition of the home, you will want to have some cash on hand for repairs and renovations.
Equipping yourself with the right tools and knowledge will help the process of buying your first home go more smoothly. All of the stress will be worth it once you are relaxing in a place you own.
A car accident has immediate financial effects. Some hospitals will not even evaluate a person without a deposit. Hospitals do not provide information about how much treatment will cost. In an emergency situation, an accident victim may have no choice, even if it spells financial disaster. There are three tips on surviving financially after a car accident.
Loans may be another option to pay for your medical bills after a car accident. A personal loan through a credit union or a cash advance from your credit card company might help you stave off bankruptcy. Loans could also help you avoid dealing with providers who refuse to deliver any additional medical services until you are current with your account. Keep track of any loans or other debts that you make and include those in your negotiations with insurers.
Personal Injury Claim
Depending on the circumstances of your accident you might be able to file a personal injury claim to receive compensation for suffering caused by the accident. If you are less than 50 percent at fault for the accident, you may be eligible to file a claim for pain and suffering in addition to compensation or payment of your medical costs. Some states limit the amount of money that you can get for suffering during the recovery of an accident, but it is worth consulting a lawyer to find out the details for your situation.
Use Your Insurance Benefits
If you have health insurance, use those benefits while you wait for funds from a personal injury claim. A court case could take one year or longer, and the bills will roll in well before then. Also, consider your auto insurance coverage. If you have MedPay or PIP insurance on your auto policy, then that coverage may help you pay for the initial out-of-pocket medical costs that you incur. You may also want to consider the insurance of the other driver. Their insurance may also pay for some of your medical expenses until you find out about a personal injury claim settlement.
How you immediately respond to a car accident will affect the rest of what happens after. It is also important for an accident victim to hire a lawyer as soon as possible. The lawyer may be able to provide physicians, hospitals and rehabilitation centers with documentation of the pending litigation. Many lawyers also help accident victims with negotiating their bills to a level that will be covered by a settlement.
(BPT) - If you had to grade your financial literacy, what would it be? Are you an A+ saver, investor and planner, or do you think you could do better? If you grade yourself average at best, you’re not alone.
When asked to grade their own financial literacy, more than half of Americans say they’d earn a “C” or lower, according to new data from Prudential Financial. This isn’t surprising, considering data from Prudential’s Financial Wellness Census shows less than half of Americans are on track to meet their financial goals, including planning for retirement.
“Regardless of where you are on your family’s financial wellness journey, the best way forward is through financial literacy,” says Prudential Advisors President Brad Hearn. “Researching, educating yourself and getting advice from a financial professional can help you make the best decisions based on your life stage, risk tolerance and goals.”
Hearn says each family’s situation and goals are unique, and things like life stage and personal preference will impact how they choose to prepare for their financial future. To get started, here are five financial wellness basics every family should master:
Set up an emergency fund
Life is a series of experiences, and sometimes the unexpected can hit your finances hard. Whether it’s a car breaking down, your AC unit on the fritz or even losing a job, it’s important to be prepared for emergencies. If you don’t already have an emergency fund, start saving a little each month until you reach your goal. A good rule of thumb is to have three months’ worth of expenses saved in an emergency fund. So, if your monthly expenses are $2,500, you should have $7,500 saved.
Create a budget
Saving for college? A new car? How about starting that emergency fund? Whatever your family’s financial goals are, it’s important to have a plan in place that helps you achieve those goals. Budget to manage day-to-day expenses, and include in that budget a commitment to save for bigger milestones. For tips on getting started, do some research. There’s no shortage of advice, whether you decide to go it alone or consider using the help of a professional financial advisor.
Plan for the unimaginable
If you have people who count on you for financial support or caregiving, you should have life insurance. A life insurance policy can help give your family financial peace of mind should the worst happen. There is no rule as to how much life insurance you need, but important things to consider are your annual income, mortgage debt, potential college costs for kids and other future financial obligations.
Save for retirement
According to Prudential data, of Americans who have retirement savings and debt, nearly one-quarter have more in total debt than in retirement savings (23%), while 15% of Americans say that they have no debt, but also have nothing saved for retirement. Planning for retirement is something that should start as soon as possible. If your work offers any type of matching program, make sure to take advantage. If you don’t, you’re essentially leaving free money on the table.
Seek professional advice
Retirement, life insurance and savings can be confusing. Information overload is partly to blame. According to Prudential data, two-thirds of Americans agree that the list of things they need to learn to successfully manage their finances keeps growing, not shrinking. That’s where financial literacy programs and professional financial advice can play a key role. Nearly two-thirds of Americans don’t have a financial advisor. They say they cannot afford one (42%) or don’t believe their financial situation warrants needing an advisor’s help (26%). The reality is that advice is more within reach than ever before — and it’s not just for the wealthy. A financial professional can help at various stages in life and work with you to create a strategy based on your timeline, risk tolerance and goals.
“Financial wellness isn’t always a matter of having more money,” says Hearn. “Instead, it’s a journey that takes a combination of proactive effort, dedication and professional guidance.”
Prudential Advisors is a brand name of The Prudential Insurance Company of America and its subsidiaries. Life insurance is issued by The Prudential Insurance Company of America, Newark, NJ and its affiliates.
Regardless of income or wealth, the road to financial health – how you are able to manage your day-to-day financial life while building for the future – can be a lifelong journey. What you do today can build toward or detract from your long-term resilience and ability to pursue opportunities. These questions can serve as a starting point to take inventory of your financial health.
Planning for the Future
Taking inventory of your financial health
(Family Features) Only 28% of Americans are financially healthy, according to the U.S. Financial Health Pulse. Most others will have difficulty reaching long-term financial goals and are more vulnerable to the threat of financial shocks, such as car trouble, unforeseen medical bills or job loss.
Regardless of income or wealth, the road to financial health – how you are able to manage your day-to-day financial life while building for the future – can be a lifelong journey. What you do today can build toward or detract from your long-term resilience and ability to pursue opportunities. Whether you want to take that dream vacation, prepare for retirement or save for college, financial health takes effort to build.
“An overwhelming majority of the country is experiencing financial challenges that have lasting effects on people’s lives, on their ability to weather the inevitable ups and downs and on their chances to pursue their dreams,” said Jennifer Tescher, CEO of the Center for Financial Services Innovation (CFSI), the nation’s authority on consumer financial health. “Each year, CFSI and MetLife Foundation join forces on #FinHealthMatters Day to highlight the importance of financial health, especially for the 180 million people who are financially vulnerable.”
Photo courtesy of Getty ImagesSOURCE:
Center for Financial Services Innovation
When you apply for a loan, your future lender wants to make sure that you aren’t too much of a risk on defaulting. In the past, lenders have used the Allowance for Loan and Lease Losses (ALLL) standard to evaluate the risk of your loan. However, the Financial Accounting Standards Board (FASB) has decided to switch to a new system, known as Current Expected Credit Losses (CECL). This means that, starting in 2020, loans will be evaluated differently. Here’s what you need to know about these changes.
Why The Change?
The financial crisis of 2007 was devastating for a number of reasons, but one of the biggest ones is that it demonstrated that the ALLL was not adequate for making timely adjustments. ALLL worked well for evaluating losses that would happen with some certainty, but it was not able to respond to changes that happened suddenly. The financial crisis demonstrated that the current evaluation was not able to adjust for fluctuations in the economy. As a result, The FASB decided to reevaluate how risk was calculated for loans. In 2016, they announced the new accounting standard, known as CECL, that would be implemented by 2020.
CECL is Based on GroupsUnder CECL, review for loans is mostly based on collective groups. CECL looks at your situation and puts on you in a category. Each institution will have to develop their own way of dividing these groups up, but they will be based on things such as credit score, type of loan, length of the loan, the interest rate, what year you are applying, and what your individual finances look like. Once you are placed in a category, your lender is able to determine how much risk this loan will carry. However, under CECL you can still be individually reviewed, but only when you fit a couple different requirements. Your lending institution will decide whether your loan will be individually reviewed based on your circumstances and other factors with your loan.
Understanding the Effects
In the banking industry, there has been some criticism about CECL accounts. Some lenders have a tough time adjusting to the policies since they have to implement procedures in order to pinpoint losses that could possibly happen down the road. This requires a lot more data and analysis than they have previously used. However, CECL will help lenders stay competitive and prevent a lot of the losses that many of these institutions saw during the 2007 financial crisis. To use CECL methods, bankers must always monitor the conditions in the economy, and this process heightens focus, awareness, and drive.
Most of the major changes will occur behind the scenes, and you may not see much impact on your loans as a consumer. When applying for a loan, you will still need to pay attention to your earning potential, personal debt, and credit score. While it may seem intimidating and confusing, don’t let these changes scare you when it comes to getting a new loan. Your lender will be able to guide you in the right direction.
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(BPT) - If you haven't made solid financial plans, now would be a good time to consider a life insurance policy to protect you and your family in your time of need - or protect your loved ones in your absence.
Given the importance of life insurance, it's surprising that 37.5 million American households lack such a policy, according to the 2016 Facts About Life study by the industry group LIMRA. That may be because many people misunderstand how such policies work and how much they cost. For example, recent Insurance Barometer studies by LIMRA and Life Happens found 63 percent of Americans cite expense as the reason they don't carry term insurance, yet 80 percent overestimate the cost - millennials by 213 percent and Gen Xers by 119 percent.
While some Americans hope to rely on other sources to protect their families, they may not realize all the benefits life insurance offers. Every family has different needs, and some life insurance products are flexible enough to offer customizable options to provide a measure of financial security to your spouse and children - the people that matter most.
Consider these other common myths about life insurance:
Myth: Life insurance is only available through financial advisors. In fact, quality policies for your entire family are often available through your employer or your spouse's employer. For example, Boston MutualLife Insurance Company offers a range of workplace solutions paid for by employers, employees or both, including permanent life, term life, critical illness, accident and disability insurance. Talk to your company's HR department about the process involved in securing comprehensive coverage for your family.
Myth: Workplace policies can't offer enough options for your needs. You'll find that well-established life insurance companies understand the market well enough to offer a range of flexible products, including policies that are payroll deductible, stable in cost regardless of your age, portable when you're changing jobs and available with add-on riders or other insurance types through the same carrier.
Myth: Young, healthy people don't need life insurance. The truth is, your health can change at any time and it's best to expect the unexpected. Uninsured people can easily leave behind personal, medical or mortgage debts and/or funeral expenses that end up burdening family members or executors when they die.
Myth: Your life insurance policy only covers you, not your family. Not true. Some products protect you, your spouse, your dependent children and even your grandchildren, often at one affordable cost. That's why marriage and becoming a parent can be excellent reasons for buying new policies.
Investing in life insurance is a crucial step to take to protect yourself and your family from unexpected losses. But it doesn't have to be confusing or complicated. Find more detailed information about life insurance options for you and your family at www.BostonMutual.com.
Here are four steps to take today to spruce up your money management process and get yourself on the path to financial health.
(BPT) - Are you feeling good about your finances? Or do phrases like “account balance,” “credit score” and “retirement savings” give you a twinge of anxiety?
Don’t worry, you’re in good company. Only 24 percent of millennials have basic financial literacy, according to the National Endowment for Financial Education. When it comes to getting their financial house in order, most millennials would prefer not to set foot in that proverbial house in the first place. Getting yourself out of debt and building enough savings to cover your expenses in an emergency is a marathon, not a sprint. Small, incremental changes in your financial habits today can make a big difference in your financial health months or even years from now.
Take these steps today to spruce up your money management process and get yourself on the path to financial health.
* Check your credit score. Before you start the work of realigning your finances, you should check your credit score and review your credit report. It helps to know where you stand financially, and the good news is, even if your credit score is not as high as you’d like it to be, you can take steps to improve it. Establishing a history of on-time payments and maintaining a healthy credit utilization ratio are two things that could improve your credit score quickly. One way to access your credit score without any cost is to find out if your bank or lender offers your VantageScore through their website.
* Knock down your debt. Track down all your accounts — checking, savings, investment, credit cards and other loans — and do the math to find out your net worth. That’s your benchmark to help you track your progress. In the beginning, the truth can hurt, however, knowing how much you have in savings and knowing how much you owe gives you a valuable blueprint for where you need to direct your energy. From there, put together a household budget, and figure out where you can trim expenses, so you can pay ahead on your debts, one account at a time.
* Automate your savings. You’re much more likely to accumulate savings when you make the decision once and let the rest happen automatically. Log onto your bank account and set up an automatic transfer from checking to savings, starting with a small amount, preferably timed with your regular pay day. If you can manage to set aside $85 a month, in a year’s time, you’ll have set aside a full $1,000. That’s a decent emergency fund for things like car repairs and doctor bills.
* Open a retirement account. Here’s another way to automate savings. If you haven’t done so already, start contributing to a retirement plan. Even better, if your employer makes a plan and a match available to employees, sign up as soon as you can. If you can’t afford to contribute the full amount to get the full match, start with a small percentage, and slowly add on.
Taking the first steps to gain control of your finances isn’t easy. Setting up good financial habits today can leave you in a better place tomorrow. Test your credit score knowledge at CreditScoreQuiz.org, and be sure to visit VantageScore Solutions to learn what things influence your score, and what you can do to improve it.
(BPT) - A recent study by the Center for Retirement Research (CRR) 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.
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.
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.
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 has also 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.
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, since any indebtedness in retirement will limit your ability to react and adjust to poor investment return on your assets.
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 may also 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 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, then, 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 tax-free health care fund for retirement.
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, since 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.
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