Waukesha State Bank Blog
This commentary was written and prepared by Waukesha State Bank. Content in this blog is for general information only and not intended to provide specific advice or recommendations for any individual. Please visit with one of our bankers to discuss your individual needs.
It was supposed to be a tax bill that would substantially simplify tax returns and provide tax relief across the board, benefiting in some way all taxpayers. While it didn’t quite get there as far as tax simplification, the Tax Cut and Jobs Act that was just passed by Congress does cut taxes for the vast majority of Americans. Just how much any particular tax payer benefits depends on a number of factors, including the amount of taxable earnings and itemized deductions, marital status, family status and the state of residency. For many Americans, the tax bill gives and takes through various provisions that, on a net-basis, results in less taxes owed. Here are some of the key provisions and the way they help or hurt taxpayers.
Lower Tax Brackets
Original versions of the bill sought to simplify taxes by reducing the number of tax brackets from seven to three or four. That was lost along the way to producing the final tax bill which keeps the number at seven, but many of the marginal tax rates have been adjusted downward. The top rate dropped from 39.6 percent to 37 percent and most income levels will be taxed at lower rates. The downside is that the tax brackets are now linked to an inflation index, which will push many taxpayers into higher brackets over time.
Double the Standard Deduction
Perhaps the bigger news is the doubling of the standard deduction from $12,000 to $24,000 for married couples ($6,000 to $12,000 for single filers). That is significant for taxpayers who don’t itemize or whose itemized deductions don’t exceed the lower threshold. These taxpayers are the most likely to realize a tax reduction.
For those who do itemize, the tax reduction could be much less and some could end up owing more in taxes.
Lower Mortgage Interest Deduction Cap
Under current tax law, the mortgage deduction is capped at $1 million of mortgage indebtedness. The new tax bill lowers the cap to $750,000 so, although it will affect more homeowners, it won’t impact most. Homes purchased before December 15, 2017 will be grandfathered for the $1 million cap. In addition, the tax deduction for interest on home equity loans has been eliminated except in cases where the proceeds have been used for significant home improvements.
SALT Deduction Remains with a Cap
The provision that caused most of the controversy was the elimination of the tax deduction for state and local taxes. Originally, the provision was to be eliminated altogether, but the final bill keeps it with a cap of $10,000 of state and local income, sales and property taxes.
Personal Exemption Gone
Everyone loves the personal exemption – the amount each individual is able to use to reduce their taxable income. Families especially loved it because the exemption was available for each dependent. The new tax bill eliminates the personal exemption. With the doubling of the standard deduction and the larger child tax credit, most taxpayers will still come out on top.
Child Tax Credit Doubles and Access Expands
The child tax credit has been increased from $1,000 to $2,000. More families will qualify for the credit because the phase out has also been increased for married couples from $110,000 to $400,000. The first $1,400 is refundable for people who owe zero taxes.
Alternative Minimum Tax Still Here
One way the original tax bill was supposed to simplify taxes was by eliminating the alternative minimum tax. The final version keeps AMT, but it increases the threshold from $86,200 to $109,400 so AMT will impact fewer taxpayers.
No More Marriage Penalty
Under the new law, married taxpayers will pay taxes at the same tax rate as individual filers. For example, if two individuals each earned $150,000 under the old law they would be in the 28 percent bracket. If they got married, their $300,000 combined income would boost them into the 33 percent bracket. Under the new law, the couple would be in the 24 percent bracket – same as an individual earning $150,000.
Larger Medical Deduction
For taxpayers who do itemize, more medical expenses will be deductible. The new tax bill lowers the adjusted gross income (AGI) floor for medical deductions to 7.5 percent from 10 percent and it will be retroactive to the 2017 tax year. For example, a married couple with $100,000 AGI can start deducting medical expenses above $7,500 instead of $10,000.
You Lose Some Deductions
The tax bill eliminates several deductions, including just about everything that was categorized as “miscellaneous deductions,” which included items such as unreimbursed employee expenses and tax preparation fees. You’ll still be able to deduct charitable contributions and student loan interest.
Larger Estate Tax Exemption
The bill’s authors originally wanted to eliminate the estate tax altogether, but the final bill only included an increase in the amount that would be exempt from estate taxes. The new exemption is doubled to $22.4 million for married couples ($11.2 million for individuals).
There is a lot to absorb from the new tax bill. Be sure to meet with a tax professional to ensure you understand how the new tax law will impact your specific tax situation.
New Year, New Me, right? We’re two months into the new year, and you may have dropped your New Year’s Resolution to become financially fit. Don’t despair. It’s still early in the new year and a great time to clean up your financials, adopt better spending habits, and start saving more. Here are a few tips to keep in mind:
Make a budget and stick with it
This almost cliché financial advice is repeated so often for one important reason: it works. Start by tracking your spending, once you’ve tracked how much money you spend over the course of a few weeks, you can look for trends in what you’re spending. These trends help you start planning on how much income goes towards necessities (like rent/mortgage, utilities, groceries), and see areas where you can cut back (rarely-used subscription services, eating out less) and start putting away a portion of your income towards a savings goal. The most important part of a budget is sticking with it, once you start tracking your spending you should make sure to take time every day or every few days to log your spending and compare that to your planned spending.
Deal with any debt
Debt is an extremely stressful thing to deal with but the new year is a time to get a handle on any debt that may have piled up around the holidays. Debt should be something factored into your budget like your electric bill and tracked. Although it may be daunting, contact your creditors to discuss your situation, they may be willing to work with you to put together a repayment plan. If you're carrying debt on multiple credit cards, talk to your local bank about the possibility of consolidating that debt into a single payment so you can close the extra card accounts. No matter what you do, addressing debt instead of ignoring it will help you get a handle on it and make positive progress.
Many times people will stick with whatever they find first, be it their internet provider, car insurance, or brand of soup, but that may not be the best deal, especially a few years down the line. There’s nothing wrong with being loyal to a company but just because they’ve been your cable provider for a few years isn’t necessarily a good reason to stay with them and doesn’t ensure that you are getting the best value for what you are paying. Look around to see what other companies are charging for similar services, you may find that your current company is priced competitively or you may find that you can get a better deal elsewhere. One thing to beware of is a cheaper product or service that is cheaper for a reason, make sure you are still getting a similar quality or ask yourself if you are ok with a downgrade.
Making a commitment to financial health and wellness can be a great way to start the New Year on good footing that can last throughout the year and your life.
In simple terms, a home equity line of credit works a little like a credit card - a credit card secured by your home. Lenders approve you for a specific amount of credit, but you are not required to borrow up to the limit of your credit line.
How a Line of Credit Works
Here's an example. Say you are approved for a home equity line secured by the equity in your home. Most lenders will limit how much you can borrow, using a percentage of your home's value as a guideline.
In this example, we will assume you have been approved for a $30,000 credit line.
You can draw funds at your discretion in any frequency or amount during the term of your loan up to the $30,000 limit. In addition, your account may automatically renew from year to year after the initial term. You are charged interest only on the amount you have drawn and payments may be calculated using an “interest only” method or figured using a percentage of your outstanding balance. As you pay down your balance, those funds become available to borrow again and again.
With a home equity loan you receive the entire loan amount up front. If you borrow $30,000, you receive a check for $30,000, and you start making payments on that $30,000 loan immediately based on a predetermined repayment period.
|Home Equity Loan
||Home Equity Line of Credit|
|Receipt of Funds||Received up front in one lump
sum, typically by check or direct deposit to an account.
|Funds can be accessed at any time by check, by debit card, or by an in-person withdrawal or online transfer.|
|Interest Rate||Typically fixed and applied to
entire loan amount.
|Usually variable; applied only to the outstanding principal balance|
|Repayment||Usually installments over a
defined repayment term.
|Can vary depending on repayment method and interest rates.|
Home equity lines of credit generally use variable interest rates instead of fixed interest rates. The rate will vary based on a common index like the prime rate. Typically the interest rate is calculated by adding a percentage, called the margin, to the index; for example, your interest may be calculated using "prime rate plus 1%." In that example, if the prime rate is 5%, your interest rate will be 6%. The rate will change based on changes in the index and will impact your payment amount and/or repayment period.
A home equity loan usually has an interest rate that is fixed for a defined term which may be all or part of the repayment period. You have confidence in knowing your interest rate and payment amount will not change for a predetermined period of time.
Which is Right for You: Loan or Line?
Home Equity Loan
- Home equity loans are often used for one-time expenses (home improvements, major purchases, etc).
- Home equity loans often come with fixed interest rates and fixed monthly payments, making budgeting simple.
- Home equity loans will generally require higher monthly payments.
- Payments include interest and principal (using a standard amortization schedule).
- No additional funds are available; to access more cash, you will need to refinance or take out another loan.
Home Equity Line of Credit
- Home equity lines are often used for recurring and unexpected cash needs.
- Home equity lines often come with variable interest rates; your rate can rise or fall based on changes to the prime rate.
- Payment amounts will also vary based on how much money has been borrowed at any given time.
- Payments are often interest-only, but can include principal. During the term of the loan, you will make lower monthly payments but will owe the entire principal balance when the loan term ends.
- Funds can be accessed at any time, and if you pay down the balance, you can draw against that money again and again during the term of the loan.
Need a simple way to decide between a home equity loan and a home equity line of credit?
If you need a lump sum at one time, and want the stability of a fixed interest rate and fixed monthly payments, choose a home equity loan.
If you want greater flexibility and the ability to choose when and how much you will borrow, and are willing to accept the potential for changing interest rates and payment amounts, choose a home equity line of credit.
To speak to a lender about whether a home equity loan or a home equity line of credit is the best choice for your individual needs and goals, simply call our Customer Service Center at (262) 549-8500, click here to schedule an appointment or stop into any of our convenient locations .
Credit cards provide a lot of convenience when you’re traveling. They can be used across the globe, and you can use online tools to track spending and more while you’re away. There are a few considerations for traveling with your credit cards though, especially if you’re traveling abroad. Here are some things to keep in mind.
- Bring copies of the front and back of your cards and keep the copies in a separate place from the cards themselves. A hotel safe can be a good place to store them. If your cards are stolen, you’ll have all of the information you need to contact the company.
- Always carry a back-up card. If something happens to your primary card, you’ll be glad you have a secondary one.
- Carry some cash. Cards don’t always work, especially abroad where card readers are increasingly incompatible with U.S.-issued cards.
- Save your receipts. It can be hard to track your expenditures during a whirlwind trip, so use receipts during vacation and then again to verify the transactions on your statement.
- Check your card’s travel discounts. Many cards, even some that aren’t specifically travel-related, offer benefits on particular airlines, hotel chains, and more.
- Check your card's benefits relative to travel discounts, travel assistance services and other travel benefits.
- If you’re traveling outside of the country, be sure to notify your credit card company in advance. If the company doesn’t know that you’ll be traveling, they may block your transactions. Then you’ll have to call them, which can prove difficult depending where you are.
- Likewise, investigate potential card fees for foreign transactions before your trip. Some companies charge for specific types of transactions, so you’ll want to know what you’ll actually be spending.
- Ask if your transaction will be processed in U.S. dollars or the local currency. If the merchant plans to charge you in U.S. dollars, they may be providing you with currency conversion for a fee. While it may be nice to know your exact purchase amount in U.S. dollars, you may end up paying more than you have to. Ask what the currency conversion fee is and know that you can decline that service.
By planning ahead, you can make your trip as hassle free as possible.
Nearly half of the energy costs in a typical home come from heating and cooling, according to the U.S. Department of Energy, so when the temperature goes up, so do your cooling costs. Here are a few tips on how to stretch your household budget this summer and still keep your chill.
Consider upgrading your old air conditioner. If you have an old window unit air conditioner with an EER energy efficiency of 5, you can cut costs in half by replacing it with a new one with an EER of 10. So do a simple calculation: If your average annual bill is $260, your bill would become $130. Depending on the size of the unit and room (window units range from $100 to $500), your annual savings will pay for the unit in just a few years. Air conditioners also function more efficiently and cheaply (and last longer) when you replace or clean their filters on a regular basis. Read your owner’s manual to find out how often you should replace or clean filters.
Use ceiling fans. Overhead fans get air circulating, which means you might be able to delay turning on the air conditioning-especially if you can also leave windows open on cool summer evenings. Make sure you have the blades spinning in the right direction, though! In the summer, the preferred direction for a ceiling fan to spin in is counterclockwise as you look up at the fan blades. You will feel a cool downward airflow as you stand directly under the fan. In the winter, the preferred direction for a ceiling fan to spin in is a clockwise direction. Check your owner's manual for how to switch the direction on your fans.
Take time to unplug. Even when they're not in use, electronics such as television sets, DVD players, computers and phone chargers can suck power out of outlets. Either unplug them when you're done using them or use a Smart Strip (which cuts power when it's not needed). One exception to this tip: overhead fans, especially at night, will cool air more cheaply than turning down the thermostat.
Invest in a programmable thermostat. Programming your thermostat is one of the easiest, most cost-effective ways you can cut your energy bills this summer. Installing a programmable thermostat prevents your home from going through large temperature swings and can save you up to 10 percent on your cooling bills. A homeowner can save as much as $150 on air conditioning bills by setting a thermostat.
What is your home worth? Ultimately, your home is worth what someone else is willing to pay you for it.
The problem is you won't know that amount until you sell. So, what if you need to estimate the value of your home to determine what you will list it for or to get a sense of how much you can borrow with a home equity loan or home equity line of credit? Here are a few ways you can develop a fairly accurate ballpark figure.
Use Online Tools
Just keep in mind that some sites use results provided by other sites. If the information you receive from several online value sites seems uncannily similar, it could be due to the fact those sites all pull information from the same database.
You can also see what homes are listing for by checking your real estate agent's site. Some will also show prices for homes recently sold, and in many areas your local government website may list recent transactions including price, square footage, number of bathrooms, the age of the home - everything you need to make apples to apples comparisons. Similarity is important, because comparing similar homes is the best way to accurately estimate your home's value.
Just keep in mind that online tools may only be directionally-accurate, especially in rural areas or in areas where few homes sell on a regular basis. If you live in metropolitan Milwaukee, sites like zillow.com are likely to be fairly accurate; if you live in a smaller rural town, online tools may provide limited value.
Ask an Agent
Experienced real estate agents can quickly ballpark a home's value; they do it every day. A local real estate agent would be more than happy to give you an estimate of the value of your home even if you don't plan to sell right away. If you can, get two or three agents to provide a ballpark figure; compare the results you get to determine an average amount.
And while you're at it, ask the agent(s) to provide comparables. Using comparables is a great way to estimate the value of homes as well as other items. A comparable is a home that recently sold that is very similar to your home: Square footage, age, number of rooms/bathrooms, size of lot, etc. If you provide the agent with the specs for your home, he or she can quickly "pull comparables" for recently sold homes.
Go to Open Houses
Asking others for help is great, but sometimes doing your own Sherlock Holmes impression is useful, too. Open Houses are a great source of information: You can check out comparable homes to your heart's content and get a great sense of how your house compares to others currently for sale.
And while you're there, talk to the agents showing the homes. Agents hold Open Houses for two main purposes: To show the home being listed but also to meet other potential clients. As mentioned, a good agent will be more than happy to share their knowledge with you.
Get a Formal Appraisal
Another option is to pay for a professional appraisal of your home. A home appraisal is the expert determination of value by a certified and licensed professional. Keep in mind that an appraisal is still just an estimate. The appraiser, using a variety of tools and approaches, estimates what the home is worth. An appraisal value is not a guarantee of what the home will sell for.
But it is a widely used and relied upon tool. Mortgage and home equity lenders use appraisals to protect themselves from lending too much on a particular property. After all, you may agree to pay too much for a home; while the home is worth that much to you, it may not be worth that much to other buyers. Lenders will typically only lend up to a certain percentage of the appraisal value even if the home is being purchased for significantly more.
A formal, professional appraisal is the most accurate estimate of home value you can receive. The appraiser will evaluate the specifications and condition of your home, compare your home to comparables, and assess local market trends and conditions. The result is his or her best estimate of the value of your home.
Quick note: Keep in mind, a home appraisal is not the same as a home inspection. A home inspector looks for maintenance, mechanical, and other problems in the home. Appraisers may note obvious problems, but they do not test plumbing, electrical, heating and cooling, and other systems. An appraiser estimates value; an inspector evaluates the condition of a property.
If you've been keeping up with news stories about the economy lately, you may have heard that "the Fed" has been raising rates, and is likely to do so more often in the future. What does this mean, and how will it impact you? Do you know what the Fed is and how it influences your money? Learning a bit more about how the central bank of the United States works and how it can impact your finances can help you make long-term plans for big financial decisions.
What is "the Fed"?
The Federal Reserve is the central bank of the United States. It is owned by private banks and operates independently of the U.S. government; it is not a government agency, though its Board of Governors are appointed by the President. The Fed has three mandates: maximize employment, stabilize prices and moderate long-term interest rates.
What does it do?
The main way the Fed accomplishes its three mandates is by raising or lowering the Federal Funds Interest Rate (the basis for most other interest rates). In general, when the Fed lowers interest rates, the goal is to stimulate the economy. Conversely, they usually raise rates when they want to slow down the economy and/or control inflation.
Does the Fed Funds rate impact me?
Yes. Even though consumers do not directly borrow money from the Fed, the banks that provide their car loans and mortgages do. Since the Fed Funds rate is the basis for other rates (by being the cost of what your bank must pay in order to get money) raising and lowering it affects the rates you, the consumer, can get from your bank. So, if you're in the market to buy a house and you hear that the Fed may be raising interest rates soon, you know to act quickly so you can secure a lower interest rate for your mortgage.
So are high rates bad?
No. While low interest rates on large purchases like homes are good for consumers, extended low interest rates (like we've seen over the past 10 years) means that the economy isn't growing very fast and consumers aren't earning much on their savings. When the Fed Funds rate goes up, depositors see increased interest rates on their savings accounts and CDs, so higher rates are a bonus for savers. It's also important to note the Fed raises rates a little at a time (usually only 0.25%) and the higher rates only affect new loans and loans with adjustable rate terms. Higher rates also mean the FOMC sees signs that the economy is getting stronger, which is good for everyone.
By keeping these basic concepts in mind, consumers can create a better financial plan for themselves. Be sure to speak with your friendly Waukesha State Bank banker if you want to learn more about the Fed. They'll be able to offer specific advice according to your accounts and circumstances.
No matter how careful you are, anyone can become a victim of financial fraud. However, older adults are particularly at risk. Those who commit elder fraud range from loved ones—family members, friends, or caregivers—to complete strangers. In its financial form, elder abuse is the exploitation of senior citizens to gain access to their property, investments, cash, or real estate.
Learn about common elder abuse scams and red flags below. You could prevent a loved one from becoming a victim.
Grandma Scams – "Hi Grandma! It's your favorite grandkid calling, and I need your help." Many seniors find it difficult to resist pleas like this and are more than willing to immediately wire money to their "grandchild" in need. The most important thing to do in this scenario is to verify the caller. Most scammers will plead with their "grandparent" not to tell anyone, but if you receive a call like this the fastest way to determine if the request is real is to contact another family member. Do not wire money or provide a credit card number until you've verified the identity of the caller.
"Free" Prize or Cruise Calls – Scammers call to inform an elderly consumer that they've won a sweepstakes prize or free cruise-they just need to send a "processing fee" or "cover shipping costs" to collect their winnings or tickets. Sometimes, these callers go straight to asking for credit card or bank account numbers. The best way to avoid this scam is to simply hang up. It is illegal to charge a fee to enter a sweepstakes. If the caller says you've won a cruise, ask what cruise line is involved and then verify the contest.
Fake Charities – This type of scam is especially popular after a well-publicized natural disaster. The scammer solicits "donations" and sometimes provides official-looking documents to prove the charity exists. When donating money, it's best to go through a well-known company and verify the organization or charity through the Better Business Bureau.
Red Flags for Abuse
Isolation – The number one tactic used by perpetrators is to separate the victim from family and/or friends who would stop the abuse. Watch for victims to stop attending social events or even disconnect their phone line.
Changes in spending habits – Drastic changes in account balances or unusually flamboyant purchases like cars and real estate are a sign that the senior citizen is not the person in charge of their finances. Keep a close eye on lavish "gifts" to new friends or acquaintances.
Unfamiliar names on joint accounts – Sometimes perpetrators convince their victims that they will help them organize their finances by creating a joint account. In reality, this gives the perpetrator unlimited access to the victim's funds. If a senior citizen wants another person to manage their finances, they should use a Power of Attorney (POA) account instead, which puts a legal obligation on the co-signer to protect the elderly person's interests.
If you notice these warning signs, what should you do about it? Visit ReportElderAbuseWI.org for more information about elder abuse and how to report it. You can also visit our Security Resources page to learn more about other scams and ways to protect yourself.
In preparing your child for college, you’ve taught them everything you know about life. But, if they can’t manage their finances while in college, your troubles are just beginning.
Sending a child off to college has to be one of the most momentous occasions a parent can experience. However, getting a monthly call from your college student asking for more money can get old really fast. We hope that we’ve instilled our children with good values and common sense by the time they leave for college, but that doesn’t always translate to sound money habits which are often formed over years of trial and error. Although managing finances through college life is not rocket science, it can present a challenge for young students who have never had to balance a checkbook. Parents can shorten the learning curve and equip their students to better navigate college life by teaching them some fundamental principles of personal finances.
Create a Spending Plan
It’s difficult to imagine any parent sending their child off to college without a budget. Money is always tight when it comes to paying for college, so there is little margin for error. Your goal as a parent is to stave off the monthly call and instill in your student the virtues of living under his or her means. It’s a tall order, but, it‘s achievable when all parties can adhere to a strict spending plan. College expenses are fairly straightforward. Tuition and rent are locked in. So, the variables are food, personal needs, transportation and fun.
Food: If food expenses are covered under a boarding arrangement, such as dorm dining, you still have to account for any off-board dining, such as fast food meals and late night munchies. Regardless, you will need to establish a fixed food budget that allows your student to eat more than Top Ramen every day. The food budget should be broken down into a weekly, if not daily, allowance. If he is budgeted for $10 per day and spends $15, he will need to get creative to spend only $10 the next day. Perhaps the budget should allow for one or two fast food purchases a week when the schedule gets too busy for cooking dinner or preparing a lunch.
Personal needs: Should absolutely be fixed. You can be sure that students know how to stretch their personal hygiene supplies, so they should never run low.
Transportation: If your student has a car for transportation, you will need to budget for fuel and maintenance. Hopefully he is driving a well-maintained car that won’t be in need of constant repair. If no car, then public transportation costs need to be included. This should be a fixed expense with very little wiggle room.
Fun: This is the big X-factor for college students. Many parents don’t budget for this; either because they assume their students are at school to work, and they should find free fun; or they put the burden of funding fun on the student through earnings from a summer job. It’s important to note, however, that any budget shortfalls are likely to occur as a result of overindulgence in fun. Parents and their students should agree on how much money should be spent on fun, regardless of who pays for it.
Many students have experience managing a checkbook before they leave for college. Of course, today a checkbook is really an online account that doesn’t require all the balancing and reconciling of the old days. Online accounts make it a lot easier for students to watch their cash flow and keeps things balanced; however, cash flow still needs to be managed to ensure there’s enough on hand to cover every expense.
The challenge for students is that there are sometimes multiple sources of income that need to be directed to multiple categories of expenses. For instance, they might receive a portion from their parents that are to be used for room and board. They also might receive a portion from financial aid or student loans that should be directed at tuition and books. They also might have their own source of income that they use for fun and extras.
To prevent comingling funds, which could lead to confusion and the inadvertent misdirection of funds, you should consider having your student use the bucket approach to cash flow management. For a college student, this might consist of managing funds from three separate accounts - one for tuition, books and school fees; one for room and board; and one for personal expenses. Each account has a fixed budget or spending target that can be easily tracked through separate online accounts. If one of the accounts has a surplus over the spending target, the funds can be transferred to another account to cover expenses, or transferred to a savings account.
Managing Credit Cards
Parents should be aware that, at some point, their students will be approached by a credit card issuer with an offer for a student credit card. They’re usually seen on campus during school events handing out applications. Parents who have experienced this will tell you that students and credit generally don’t mix. Although it’s probably a good idea for a college student to have a credit card that can be used in emergencies, you may want to consider setting up an authorized user account under your credit card account. That way you can keep track of the account and establish strict rules for its use. Some credit card issuers will report payments made on the account to the credit bureau, so your student can start building a credit history.
Preparing your children for launch is an 18-year endeavor which ultimately comes down to equipping them with the right tools and values to begin managing their own affairs. Teaching your college-bound student how to effectively manage his or her personal finances may be one of the last important life lessons they learn from you. And, whether they tell you or not, your student is concerned about his or her ability to get it right. It’s probably one of the most teachable moments you’ll ever have as a parent, so be sure to take full advantage of the opportunity.
During the holiday season, it seems that no matter how early those store decorations go up, we feel as though we’re suddenly caught off guard. Our holiday shopping turns into a sprint, and then quickly deteriorates into a spending frenzy. “The heck with the budget – full speed ahead! Cha-a-a-r-r-r-ge it!” But then the monthly statements start pouring in, and we are reminded of our credit card misdeeds. And, then we groan, “I’ll never do that again.” Okay, this is your chance to avoid the holiday shopping aftermath and keep your credit score from taking a January dip.
- Start with a clean slate: Hopefully you have managed to pay off your balances so that when you’re ready to hit the malls your limits are intact. It’s important to avoid hitting or going over your credit card limits.
- Fix your budget: Of course, this should have been done well in advance of the holidays so that you have been able to meet your living needs while setting aside savings. For many of us, holiday shopping requires that we tighten our belt for a few months. Look for non-essential budget items and cut them out until after January.
- Set a spending limit: How many times have you set a holiday spending limit only to blow through it? Do it for real this time. Set it and follow it. Don’t forget to include all of the holiday trimmings in your limit, such as drinks, meals, holiday travel, service tips (hair salon, paper boy, etc), and last minute gifts.
- Make a list: Don’t make your gift list until you have set your spending limit. It will help you prioritize your gift giving and allocate amounts to be spent. It’s supposed to also keep you from impulse shopping. If it’s not on your list, just say no.
- Spurn new offers: 'Tis the season for credit card offers. Good ones can lower your costs, but be careful about adding new credit cards just to increase your spending power (remember your spending limit). And, retail credit card offers should be avoided at all costs – they do little to increase your spending power and they can wreak havoc on your credit score.
- Spread it around: If you have more than one credit card, it would be important to spread your spending among them so as to avoid hitting the credit limit thresholds. If possible, you want to keep your balances below 30% of the credit limit on each card. Even if you intend the pay the balances in full, a maxed-out card can cause a temporary hit to your credit score.
- Reward yourself: This is the time to optimize your rewards and cash back strategy. Focus on opportunities to earn maximum cash back. Use your rewards points to purchase gifts when you can (they’re great for gift cards). And, check out your credit card’s online shopping mall for additional discounts.
- Be on fraud alert: Identity thieves and credit card fraudsters are out in full force this season, and it can’t be stressed enough to be on alert. Limit your online purchases to familiar shopping sites and never lose sight of your card at stores or restaurants.
- Be of good cheer: Studies show that people spend more and shop more impulsively when they are feeling in the dumps. Avoid using shopping as a means to lift your spirits. Get in good spirits before you go shopping.
- Pay it all off: This is the biggie. After you have run up your balances, you need to pay them off. For most people, the debt they run up during the holidays sets the tone for the next year. At the very, very least, make sure you pay down your balances to below 25% of the credit limit for each card.
What habits will your children learn about money? It starts with your own values, beliefs and habits. No matter what you tell them, your kids will always do as you do, not what you say.
Somewhere between the cradle and the college dorm, our children have been instilled with the values about money that they will carry with them well into adulthood. That can be a good thing, or it can be a really bad thing depending on what values were learned and how they were communicated by their parents. Undoubtedly, the issue of kids and money can be perplexing for parents who have all of the best intentions, but often find themselves on the defensive in issues about money. That may be because money is often discussed as the means to an end, or even an end, without an understanding of the underlying values of money and it works. Unlike the birds-and-the-bees discussion, the concept of money has to be demonstrated and reinforced through daily interaction.
Starting from the moment your toddler points to a toy and says, “I want!” money concepts should be taught throughout the course of your children’s young lives. More importantly, parents need to be mindful of their own money habits and how they will be emulated by their kids. More than any other aspect of life, money habits are transferred, inadvertently, when parents operate by the “do as I say, not as I do” form of parenting. Children, even at a young age, are extremely observant and impressionable when it comes to the actions of parents; and they’re more likely to emulate their parents than they are to heed their words of wisdom. Parents should be the first to know that “actions speak louder than words” and guard against transferring these bad habits to their children:
Money does Grow on Trees
No matter how many times they are told otherwise, kids do get the impression that money grows on trees when they see their parents whipping it out every time they ask for it. And, many times, kids don’t even have to ask for it. Money is often dispensed as a way to stop a tantrum in a store or as consolation to a disappointed teen. Each time parents go for the wallet, it perpetuates the money tree myth. Refraining from giving your children money is not about “tough love”; it’s all about letting them know that money is earned.
Money as a Reward for Good Behavior
When parents offer money as a reward for good behavior, kids might think they are “earning” it, and the parents might think it will lead to better behavior. Both the kids and the parents would be wrong. Rewarding good or even expected behavior with money can lead to a warped sense of entitlement for doing what is expected, which can get very expensive. If it will cost parents money to get better behavior from their children, who’s really in control? If, by good behavior you mean completing assigned chores on time or when asked, then that should be rewarded.
Money as a Substitute for Love
Due to the demands of life, it’s sometimes difficult for parents to give their time and attention to their children when they need it. It’s not unusual for parents to offer money as a way to placate their children or buy their happiness. However, when this “act of love” becomes routine, it could lead to resentment when the money stops. Children, who become accustomed to money as a replacement for love, may carry those expectations into adulthood, which could lead to similar habits when they become parents.
Money can Buy Happiness
We’ve all experienced that momentary sensation of pleasure when we get a nice bonus or when we splurge on something we’ve always wanted. But, if you’re honest about it, you’ll admit that the sensation was just momentary and nothing that would make us feel much differently about where we are in life. Even if you were able to string together a hundred of those moments, it wouldn’t necessarily make us any happier, because we would need more moments to keeps that feeling. When kids see their parents trying to buy happiness, it becomes a pattern that is easily mimicked, starting at a very young age. If parents can’t learn to appreciate the lifestyle they have by pursuing more, their kids are likely to follow course with no guarantee of increased happiness.
Not having Serious Goals
As young tots, children probably don’t have any sense of whether their parents have financial goals. Yet, at some point, we would like our children to understand the concept of setting goals and working to achieve them. Parents who do set financial goals, and back them up with actions, find it easier to transfer the concept to their children, largely because they actually believe in it. If we ask our child to set a goal and save his or her money to obtain it, they are much more likely to be successful when their parents talk about their own financial goals, and the importance of achieving them. When kids can see that their parents are serious about goals, planning and saving, they will find it a lot easier to emulate them than if they simply told the kids what they should do. It’s called “walking the talk.”
Watch Me and Learn
It’s scary to some parents just how smart and observant their children are – literal sponges that will soak up even the slightest detail in how we live our lives. Teaching children about money and imparting healthy habits about it starts with the parents own values, beliefs and habits. When raising children to meet the expectations we have for them, we first must be able to meet our own expectations for ourselves, because that is how our children will see us.
Putting off, or not making a contribution to an IRA can be easy. There may be other uses for the funds that seem more urgent - a vacation, a down payment on a new car, new furniture or maybe just leaving the funds in a regular account to build some liquidity.
However, making that $5,500 contribution, and even making it now instead of next April, can make a large difference when you retire. Many of the benefits of IRAs are obvious - tax deferred earnings, potentially a tax deduction with a regular IRA and the permanent tax-free nature of a Roth IRA.
Two of the not-so-obvious benefits should not be overlooked:
- Making IRA contributions forces you to save. Saving more automatically increases the amount you accumulate. Once this saving becomes a habit, you may not even notice you are doing it.
- By contributing early and often, your IRA balance has the opportunity to grow even more.
The cost of missing one IRA contribution
The tax deferred compounding within an IRA allows your money to grow faster since you do not have to pay any taxes while the funds are in the IRA. Roth IRAs provide an even better result since distributions are not subject to tax - ever. Consider what missing just one $5,500 contribution can mean. Of course, what you earn on your IRA is unknown and if it is a regular IRA your tax bracket when you take funds out is unknown, but the cost of delaying just one year can be significant.
|Starting Age||Accumulated Value At Age 65
and Earning 6%
|Accumulated Value At Age 65
and Earning 8%
|30 (35 contributions)||$612,891||$947,742|
|31 (34 contributions)||$573,011||$872,447|
|35 (30 contributions)||$434,820||$623,058|
|36 (29 contributions)||$405,019||$571,813|
|40 (25 contributions)||$301,755||$402,083|
|41 (24 contributions)||$279,486||$367,206|
|45 (20 contributions)||$202,321||$251,691|
|46 (19 contributions)||$185,680||$227,326|
Everyone's situation is different, there are no guarantees on what you can earn on funds within an IRA and your tax situation may suggest that consulting a qualified tax professional is advisable. However, just looking at this chart should demonstrate that consistently making IRA contributions makes sense. Furthermore, these numbers assume you only make contributions of $5,500 each year. The current tax laws provide for ability to make additional contributions beginning at age 50.
The cost of delaying to start contributing to your IRA can be significant. If you are age 30 and start contribution in 2018 instead of 2019 (and you earn 6% on your funds), you will have $39,880 more ($612,891 instead of $573,011) at age 65. Take advantage of the tax deferred compounding within the IRA and the higher limits to prepare for a financially secure retirement.
Searching for a Business Banking Relationship?
The Seven Questions a Business Banker is Never Asked…
The last time you ordered a meal through a drive-through window, did you peek in the bag to see if the order was correct? If something as basic as ordering a drive-through dinner frequently results in mixed outcomes, how much more likely are you to have significant frustrations from something much more complicated like establishing a business banking relationship?
One method to help avoid future complications is to understand a prospective bank’s service model through a series of focused questions. These questions can help you uncover what you and your management team can expect from a bank—and your banker—before selecting a new financial institution.
The business bankers at Waukesha State Bank have noted, through hundreds of customer interactions, that prospective clients tend to focus on three elements: interest rate, loan structure and loan covenants.
The implicit assumption is that every facet of banking is the same beyond that. However, banking models vary greatly from institution to institution. For example, almost universally, the regional and national banks have sought internal efficiency by centralizing key processes such as loan underwriting, approval, servicing, and documentation. This efficiency generally comes at the expense of less customization, less personal attention, and generally slower response times after the initial closing. However, these perceived “costs” don’t make that model wrong for companies that want the lowest possible interest rate and the fewest bank interactions. It really just depends on your situation and your expectations.
At Waukesha State Bank, our goal is to build a long-standing relationship with our customers. If you value the same, below are a few questions you should consider when interviewing a prospective bank:
- “Tell me about your decision making process. Where exactly, and by whom, are the decisions in the approval chain made? Who will structure my loan request, where will this occur, and how long will this process take? Can I customize my request?”
Usually, it’s better if your business is physically near wherever the loan decisions are made. In today’s banking climate, for loans of less than $1 million, your loan proposal may be a one-size-fits-all approach drafted by a processing center in a distant city. This means there is little chance you can customize the loan to your specific circumstances. For loans larger than $1 million, the approval process is likely to be multi-tiered and require a chain of approvals from people in many different states. So, while perhaps the first decision maker on that chain is local the rest are not. If your business encounters a rough patch or needs a rapid answer, this approval model may not work well.
- “Tell me about the strengths and weaknesses of my loan request? In terms of the weaknesses, tell me why you find those weaknesses acceptable and how will you will address these soft spots when my loan request is presented to your decision makers.”
It’s rare to get a loan request that doesn’t have any weaknesses. This probing question will help you determine how well this banker knows your business, your industry, and you. Also, any knowledgeable banker will know what proposed terms are likely to be changed during the underwriting and approval process. As such, the loan officer should articulately discuss where this might occur and why. This can help guard against over-promising.
- “Beyond providing credit and an attractive interest rate, tell me why I should bank with you?”
For most small businesses, a tenured business banker should be able to provide fresh insight into their business and act as a sounding board. This question is useful to determine if your service expectations and communication style match those of the bank. Again, service models vary. Some banks employ a pure sales model in which your loan officer will move on after loan closing leaving you with a rotating series of new college graduates to look after you. Other banks employ a hunter/skinner model in which the banker will be with you for the life of the relationship and know your business intimately. Again, it boils down to your expectations: Which do you prefer?
- “I keep hearing banks are moving upstream to larger customers or even shedding whole lines of business and customers. Tell me why you want me as a customer.”
This question can demonstrate how well you and your company fits with the bank. You should be able to determine whether you’re going to be a small fish in a big pond (or vice versa), as well as gain additional insight into the bank’s management metrics. Also, banks jump in and out of markets. You don’t want to find out in five years that your bank abandoned a market it was aggressively pursuing when you first met them.
- “In my business, like yours, customer service is important. Please tell me where my loan will be serviced, who will service it, who I will contact regarding servicing issues, and then the process of addressing servicing issues.”
If you don’t enjoy hanging out on the phone for 30 minutes when there are even minor servicing issues, you may want to dig into the loan servicing process. Listen for the names of people to contact rather than 1-800 numbers, centers, or other cities.
- “Unfortunately, business is fraught with peril: recessions, slow spells, etc. In the unfortunate case where my business has a loss, breaks a covenant, or needs to discuss its obligations, who will I discuss this with and describe the general process?”
Remember the Great Recession? This is probably the toughest question, but it’s worth asking. You’re trying to determine if this is a bank that will want to exit your business at the first sign of trouble, or if they will stick with you—and for how long: one quarter, two quarters, a year or two? You’re going to need to drill deep with this question, as your banker may avoid a direct answer if he or she is not comfortable with the bank’s service model.
- “Tell me, what is your personal value-proposition as a banker?”
This is a question that will help you determine how deeply committed your prospective banker is to you and your business. You’d hope that no matter what career we are in that we would all have a ready-answer to this question! Also, consider the longevity of your banker (ask them or look them up on LinkedIn). Do they move every three years, have they been in this line of work for some period of time, do they have a specialty, etc.?
The financial events of the last decade brought hardship to people of all incomes and financial status. But, the ones hardest hit were those who weren’t prepared. Some may never recover. Yes, you may have your whole life ahead of you, but if you could avoid the mistakes others have made, you could be assured of making it a good life.
Living without a Budget: The number one reason why so many people of all ages are in financial trouble today is the failure to live within their means. Budgeting is nothing more than a habit, so the earlier you can start, the easier it will be to maintain as life grows more complex. Setting a strict budget and accounting for each dollar of cash flow will ensure that you not only have the means to live, but also to have the surplus to spend frivolously.
Not having a rainy day fund: Life happens, and the unexpected can be costly. Whether it’s a car repair, a medical expense, a family emergency, or the loss of a job, something is bound to happen. Your budget should allow for setting aside a fixed amount - $10 to $100 - each month into an emergency fund that is only to be used for, guess what? Emergencies!
Mismanaging credit: Spending more than you have budgeted for and then making minimum payments on your credit card is the path to insolvency. Building good credit is one of the most important things you do financially. Without it you can’t buy a car or a house, at least on reasonable terms, and you will have difficulty getting certain jobs.
Not having financial goals: It is never too early to start planning for retirement, but your financial future will also be muddled with plans to buy a house, to start a family, to send kids to college, etc. Setting targeted goals early will actually simplify your life because you can shoot for one at a time.
Not saving early or often: If, at the age of 25, you start setting aside $100 per week earning an average of 5% until you are age 65, you will have nearly $700,000. If you wait until you are 40 to start saving, it would require $1,100 a month to accumulate the same amount. Time is a wasting asset – you’ll never get it back. The sooner you can set goals and begin saving towards them, the less it will cost you to achieve them.
Online Bill Pay is a service provided by many banks as a part of Online Banking. Online Bill Pay can be used to pay nearly any bill, and the bank sends payments either electronically or by check using funds from your account. If you're not using the Online Bill Pay service you're missing out on many benefits, including saving time, saving money, decreasing clutter, and improving your financial management.
Setting up a payment through Online Bill Pay is quick and easy. You can usually search for a biller and simply add a payment for them. Many people visit numerous websites with separate logins to pay all of their bills, but with Online Bill Pay you can save that time by paying all of your bills from one website. If you're in the habit of paying bills by mail, you can also eliminate the time it takes to prepare and mail checks.
You can also save money with Online Bill Pay by eliminating the checks and stamps associated with traditional bill payments. Plus, Online Bill Pay is free^ for Advantage Plus and Value Club Checking customers. For other checking account customers there are no monthly fees or per transaction fees if the account is set up for Paperless Statements. (If the account is not set up for Paperless Statements, there is a monthly fee of $5.95).
Many companies offer electronic bills through Online Bill Pay. These bills can replace traditional paper ones. You can decrease the amount of mail you receive and paper that you have to handle by switching to electronic billing. You'll receive a notification when your electronic bill arrives so that you can review it and take action if needed.
Improving Your Financial Management
Online Bill Pay also puts you in control of your finances. You decide when your money leaves your account and you can set up recurring payments giving you the peace of mind that your bills will be paid on time. Payment amounts can be changed and payments can be cancelled before they are sent. Furthermore, because Online Bill Pay is integrated with Online Banking, you can get a clearer picture of your finances when you pay your bills through Online Bill Pay. All of these features translate into better management of your finances.
Sign up for Online Bill Pay today to save time and money, decrease clutter, and improve your financial management.
For current VaultLink Online Banking users, Online Bill Pay sign up is easy! Simply log into your VaultLink Online account, select Bill Payment and follow the instructions. You will be instantly enrolled in Online Bill Pay. If you aren’t already using VaultLink Online Banking, click here to enroll.
^For Advantage Plus, Value Club and other accounts with Paperless statements, there is an inactivity fee of $3.00 per month after 60 days with no Bill Pay transactions.
We all tend to develop habits that provide a rhythm or structure to our daily lives. Once these habits are developed, they can be hard to break. Building good financial habits can provide a rhythm, or sense of control, for your financial life. Here are ten good financial habits that can help you build a sound financial foundation and help you reach all your financial goals:
Good Financial Habits
- Make sure your financial information and records are organized. Knowing where important financial information is located and having a system for paying your monthly bills will save time and aggravation.
- Use direct deposit for your paycheck. This saves time and gets you money working for you faster. It is also safer.
- Use automated savings plans to save for near term purchases and long term financial goals. This involves having the bank or your employer transfer a set amount each month into your savings account to be available for a vacation or a major purchase. It also includes participating in your employer's retirement plan to save for your retirement.
- Prepare a household spending worksheet. The process of preparing your first one will help you identify potential areas for reducing expenses. Analyzing your spending on a regular basis (perhaps annually) will help you monitor your spending and develop savings habits.
- Prepare a personal balance sheet periodically. Having a current, or relatively current, personal balance sheet can be handy when you are considering applying for a loan. Over time, you will be able to monitor your progress toward your long term financial goals.
- Reconcile your checking account monthly. This avoids bouncing checks and fees that may be charged if your balance is too low. It is much easier to do this every month than to skip a month or two and then have to deal with multiple statements.
- Review all your bills and statements as soon as you receive them. Even if you are not going to pay the bills immediately when you receive them, by reviewing your bills and statements you can identify and correct any errors.
- Make credit card payments promptly and pay more than the minimum. Avoid late payment fees and reduce the amount of interest you may owe on unpaid balances by making sure your payments arrive before the due date. Paying only the minimum will cost you more interest and it will take much longer to pay off the balance.
- Be sensitive to fees. Some fees cannot be avoided, but choosing to walk an extra block to use an ATM that does not charge a fee instead of using an ATM outside your network can be worth the effort. Also, be sure to understand any fees that may be charged on your checking or savings accounts based on minimum balances or excess transactions. There is no sense in paying fees if you do not have to.
- Learn more about handling your finances. The more you know, the easier handling your finances will seem. Try to read the personal finance columns in newspapers or perhaps even subscribe to a personal finance magazine.
Your habit of a morning coffee may be a good start to your day. A few good financial habits can be the start of a good financial life.
Across the country, banks play a critical role in growing the economy by lending money to businesses and consumers. But what about in our local communities? Banks have a direct impact there, too. Here are four ways Waukesha State Bank is helping our communities grow and prosper.
One: We support the local economy. When you deposit money with Waukesha State Bank, we then use those deposits to make loans to local businesses and/or your neighbors. Whether it's funding a new or expanding business in your city or helping someone nearby buy a new house or vehicle, you know your money is going right back into your local economy.
Two: We create jobs. It takes a village of people to run a bank. Most consumers only see a few tellers, a lender or two, and a bank manager when they visit one of our offices, but there are many more people working behind the scenes. Loan processors and underwriters, IT and security staff, marketing experts, human resources professionals… The list goes on and on! And that's just the people employed by the bank itself. When you add to the tally all of the individuals who get work because of the loans banks make (think of all the engineers, construction workers, landscapers, and interior designers who are involved in creating a new office building, for example), the number employed because of your local bank gets even bigger!
Three: We're involved in the community. Waukesha State Bank is built on the mission of serving the community. In fact, our mission statement has been the same since our founding in 1944:
- First, serve the community;
- Second, provide for the employees; and
- Third, reward the stockholders.
Officers and employees alike voluntarily participate in a wide variety of community activities and strive to do an outstanding job of improving and investing in the communities in which we do business. Waukesha State Bank is a community bank not only in words, but also in actions. And because of this, our communities remain strong.
Each year we provide numerous non-profits, schools, churches, civic groups and other community-based organizations with support in a variety of ways—from sponsorships and silent auction donations, to free ticket printing, community notes ads in local newspapers, employee volunteers and more. In the last five years alone, we sponsored, donated and/or contributed over $1.25 million to nearly 400 different non-profit organizations, and in 2018 our employees volunteered 4,684 hours to Wisconsin-based charitable organizations and sat on 44 non-profit boards. It is with great pride that Waukesha State Bank and our employees serve our community-based groups through our daily work, volunteer time and financial resources.
Four: We're relationship-based. Unlike getting a loan through an online lender where all you interact with is a computer program, when you walk into Waukesha State Bank you'll be greeted by a familiar face, or even by name. Because we're based right here in the community and employ people you know (and who know you), we excel at building relationships with our customers. Those deep connections lead to collaboration between customers and bankers.
Banking with a local institution has many other benefits for both you and your community. If you have any questions about how Waukesha State Bank in contributing to our local communities, feel free to reach out.
Interest rates are still historically low, but rising. The housing market is strong. The economy is on the upswing… You've decided now's the time: you're going to buy your first house. It can be an intimidating process, so here are a few tips to help your transition from renter to owner go smoothly:
1: Do Your Research
The first—and most crucial—step in home buying is to determine how much you're able to spend. That includes knowing how much of your savings you're willing to apply to the down payment and how much you can afford each month for your mortgage payment. In general, housing costs (including property taxes, utilities, maintenance, and insurance) should not be more than 28 percent of your pretax income. Another good baseline is to make sure your mortgage is less than five times your annual income. So, if you make $45,000/year, shoot for a mortgage less than $225,000.
2: Build a Great Team
Purchasing a house isn't a one-person job; it takes a team. Assemble a group of experts you trust to work with your best interests in mind. Find a real estate agent and a mortgage lender you get along with and trust to give you good advice. Often, if you find one, they'll recommend the other, since professionals in these fields work with one another frequently.
3: Get Pre-Approved
Loan pre-approval is a free service at most banks and will boost your credibility with real estate agents and sellers because it shows you're able to get financing and are serious about buying a house. It will also make the process of applying for your mortgage faster, especially if you obtain the loan from the same bank that pre-approved you for credit. First, review your credit score and clear up any errors you find. Then, go to your bank (or online) and get pre-approved for the largest mortgage loan you can; keep in mind you probably won't end up signing a mortgage for this "stretch" amount, but it will give you wiggle room while you're house hunting.
4: Ask Questions
Buying a house is the most significant financial commitment most consumers ever make, and it can also be an emotional, stress-inducing process. Asking questions—no matter how silly you think they are—is a simple way to reduce some of that stress. Not sure what the difference is between a fixed-rate loan and an ARM? Ask! Don't know how long it will take to close? Ask! Especially when it comes time to sign the final documents, be sure to read everything and ask for clarification on anything you find confusing. That awesome team you assembled will help you understand what you're committing to.
With most car purchases, the biggest contributor to the total cost of ownership is the financing, especially if you consider the fact that a car is a depreciating asset and has a finite useful life. So, if you want to keep your total cost of ownership to a minimum, you need to find the least expensive way to pay for your car. Cash would be best, of course, but if you have to finance - and most people do - it's important to thoroughly understand the ins-and-outs of auto financing, what to look for, and what to avoid.
Go Big on Your Down Payment
The biggest mistake people make when buying a car is to try to finance it with as small of a down payment as possible. First, if you don't have the money for a sizable down payment, then you're probably not financially prepared to buy a car. Second, with a minimal down payment and the speed at which new cars depreciate, you are very likely to be upside down in your car the minute you drive it off the lot. It's far less expensive to save for a few extra months to accumulate a bigger down payment than it is to finance the difference over the period of five years. What's a sizable down payment? As big as you can possibly muster; but, it should be no less than 20 percent.
Avoid Auto Dealer Financing
If there was just one key piece of advice car buyers need to heed it would be don't succumb to dealer financing. Car dealers have crunched the numbers in such a way that, whether you are offered zero percent financing, or a cash rebate, they will always come out way ahead. Nothing puts you into a better bargaining position than cash. Before walking onto the car lot, be sure to have your cash already lined up.
Go to the bank
Banks are still the best source of auto financing, offering competitive loan rates and terms. As with any type of financing, the better your credit standing is, then the better your terms will be. In many cases, you can secure an auto loan the same day you apply.
Tap your equity
Some financial planners will question the wisdom of borrowing from your home's equity for purchasing a depreciating asset such as a car. But if you simply consider the dollars and cents, a home equity line of credit will usually provide much cheaper access to money for a car purchase. Presently, HELOC rates are generally lower than auto financing rates. Plus, the interest expense of a HELOC may be tax deductible (always seek the guidance of a tax professional on such issues). The downside of a HELOC is that it's a variable rate and the possibility exists that it could increase.
Additionally, because HELOCs usually only require interest payments, there is the temptation to simply pay the minimum interest instead of paying down the portion of debt attributable to the car. A HELOC really only makes sense if you have the discipline to pay down the auto debt within a three-year period. Otherwise it could end up costing you as much or more than any other financing method.
Never Charge Your Down Payment to Your Credit Card
Unless you absolutely, positively plan on paying it off immediately, putting a car down payment or even a mortgage down payment on a credit card completely goes against the purpose of the down payment, which is to increase the equity of your asset. With a car, it's a depreciating asset, so you are likely to be upside-down in your equity the minute you drive off the lot. And, if you don't have the down payment available in cash, it's just foolish to charge it. The car will wind up costing you much more than you anticipated which could put you in a deep hole for a long-time to come.
Watch Out for Car Financing Scams
�If you are unable to qualify for an auto loan through regular channels, you definitely should avoid any type of financing schemes that smells like the following:
- Loan/Lease Payoff Offer: This is a very common offer made by dealers of all types. They will pay off your loan or lease "no matter how much you owe." At first blush it seems like a very generous offer; however, it is nothing more than a manipulation of the numbers that makes it appear that your current loan disappears. In reality they have simply rolled your loan balance into a new loan. Because the new loan is amortized over five or six years, it's hard to notice; however, in most cases, buyers drive off the lot already upside down in their new car loan.
- Yo-Yo Loans: You can be victimized by this scam even with a "legitimate" car dealer. It generally targets people with poor to fair credit who are most likely to accept whatever terms a dealer is willing to give them. When a deal has been made on a car purchase, the finance person sees that your credit is questionable; yet, you are still allowed to drive off the lot with the car. Why? Because he knows that the final terms of the purchase are not final until the loan is approved, and he has your down payment and/or trade-in. A couple of days later you receive a call from the dealer telling you that your loan application was declined and you are asked to either return the car or sign a new loan document with less favorable terms, i.e. higher interest rate. If you choose to return the car, chances are you won't get back your down payment or your trade-in.
- Buy Here, Pay Here Dealers: These dealers know that their buyer prospects can't otherwise qualify for a car loan, so, they entice them with easy financing. In doing so, they also mark up their prices significantly. In most cases, the dealer requires that the payments be delivered to the lot each month, and, because nearly a third of these buyers can't maintain the stiff payments, the dealer profits even further by repossessing the car and reselling it.
For most people, buying a car is the second biggest purchase they will make in their lives, which is why it is so important to keep the cost of ownership down as much as possible. If you have to finance your purchase, every effort should be made to understand how auto financing works as well as the pitfalls that can turn your car buying experience into a financial nightmare.
Everyone seems to have an opinion about the best time to buy a new car – the best day of the month, the best month of the year, even the best hour of the day. The consensus seems to be that buying a car near the end of the month is the best time because the sales people are anxious to meet their sales quotas. While that is true, there’s more to it than that, and understanding what really motivates the car dealers can help strengthen your negotiating position. Sales quotas are important to the sales people, but bonuses are crucial to the car dealers.
Bonuses, such as cash and paid vacations are offered by the car manufacturer when the dealer exceeds a certain sales volume each month. It could mean the difference of tens of thousands of dollars to the dealer. A dealer could be right at the bonus threshold near the end of the month and then be willing to move cars off the lot at most any cost because they will make up their lost margin through the bonus. Bonuses are not offered every month, but the months that they are sure to be offered are in the fall when the manufacturers are anxious to get their new models into inventory. The month of October seems to be the sweet spot for bonus and inventory clearing activity. And, you thought you were too old for “trick or treat.”
This biggest misconception about saving money is that many people think it's something you do at the end of the month with what you have left over after all of your expenses. The truth is, nobody ever has leftover money. There's always something to spend it on. The better way to think about saving is as something you do first, before you spend anything. This is often called the "pay yourself first" method. Here are a couple of strategies for paying yourself first to build up your savings.
Create a budget. Perhaps the most important "save first" technique is to figure out how much you can afford to put away each month. Add up all of your essential expenses for the month (bills, loan payments, etc.) and then subtract that amount from your total income. The bottom number tells you how much money you don't need to spend each month. Use that number to decide on the amount you want to "pay yourself" at the beginning of each month. Remember: Don't try to save every penny available. Leave yourself some wiggle room by only committing to saving half or a third of that bottom number.
Make it automatic. Many Americans with a savings account also have a checking account, and vice versa. Link your accounts together and set up an automatic transfer from checking to savings on the day of or the day after your payday. That way, the money you want to save will never appear in your checking account, making it easier to avoid the temptation to spend. Start small, with amounts in the $25 - $50 range, then gradually build it to $100 - $150 as you find ways to cut your spending each month.
Use direct deposit. If you're not already taking advantage of paycheck deductions through your employer, start as soon as possible. Many employers offer direct deposit to their employees, and one option is to earmark a portion of each paycheck for a savings account, CD, or IRA. Even if you only save $25 each paycheck this way, that money will go directly into your savings fund.
Consider a CD. No, not the thing "old people" used to play music on back in the days before iPods and smartphones… Certificate of Deposit accounts are federally insured (so you cannot lose the money, even if the financial institution is sold or fails) and mature after a specific period of time (usually one month to five years). Not only is it more difficult to withdraw funds from these accounts, most CDs earn much higher interest rates than savings accounts. They can be a great tool if you find yourself dipping into your savings account on a regular basis for unnecessary expenses.
Put simply, phishing refers to the act of trying to get personal information under false pretenses. Phishers who initiate these attacks may try to get user names, passwords, bank account information, credit card details, and more from their victims ultimately resulting in identity theft.
Phishing attacks usually occur through an e-mail that looks like it’s from a legitimate source. The e-mail (or website or phone call) will appear to be coming from a place the victim recognizes, like their bank, credit card company, or even a social network site. Thinking the source is legitimate, the victim will then answer questions or enter information that gives the phishers their personal details.
The crude, poorly formatted phishing emails of a few years ago have largely been replaced with professionally designed phishing attacks that are hard to distinguish from legitimate messages without careful examination.
In a new variation known as “spear-phishing,” hackers will research a target — usually a business executive or someone with a high net worth — to learn personal details or the names of connections to help legitimize their attack messages. Several financial executives, for instance, have been fooled by spear-phishing attacks that purported to be urgent requests from those executives’ bosses.
Understanding that these types of attacks occur allows you to be on the lookout for them. Here are a few specific tips for recognizing a phishing attempt:
- Legitimate businesses or financial institutions will rarely ask you for your personal information by e-mail.
- Phishers often use scare tactics and emotional language to intimidate their victims into responding. For example, “you need to respond now or we will put your account on hold.”
- Phishing e-mails often have spelling and grammar mistakes. While reputable organizations proofread carefully, phishers do not.
- Links in phishing e-mails may be not quite right. For example, an O being replaced with a zero or additional text at the beginning or end. Before you click on a link, hover over the text to see where it is pointing.
If you think you’ve received an e-mail that’s an attempt to get your information, you could just delete it.
However, if you’re concerned that it could be legitimate, your best option is to contact the company directly through other means. For example, if you receive an e-mail that looks like it’s from your bank, but you’re not sure, call the number on your statement. That way you’ll be sure the person on the other end is who they say they are. It is better to be safe than sorry when it comes to your security.
The number of consumers and companies affected by cybercrimes continues to increase every year. October is Cybersecurity Awareness Month and is the perfect time to learn how to better protect yourself. The number one protection against cybercrime is an informed consumer.
#1: Use More Than One Password
Many people use the same password for multiple accounts, which means that if your credentials are stolen for one account all your accounts are in jeopardy. Do you really want to give criminals access to your bank account because you used the same credentials for your free online music account?
#2: Use Stronger Passwords
No matter how secure a financial institution or shopping website may be, if your password is easy to guess you are still at risk of fraud. Do not use your name, birthday or pet's name, as this information is readily available to many people, especially if you post it on social media. The best passwords are often derived from an entire phrase, rather than a single word, and incorporate letters, numbers and special characters. For example, the song lyric "Don't worry; be happy" can be transformed into this password: d0ntwry_Bhpy.
#3: Beware of phishing scams
The dangerous thing about phishing scams is they don't rely on weak website or network security. Instead, they attempt to crack the human firewall: you. Phishing scams attempt to obtain personal information or plant a virus or malware on your device by sending a fake email requesting that information, or instructing the recipient to click a link in order to reset their account.
Never give out your personal information over the Internet, phone, or via text message unless you know exactly who you are dealing with. If you receive a suspicious email from a business or charity and you're not sure if it's legitimate, close the email, open a new browser, visit their official website and contact them through their customer service. There is often an increase in phishing scam attempts after heavily publicized security breaches (pretending to offer account security) or natural disasters (fake charities), so be especially on guard in those situations.
#4: Avoid using public Wi-Fi to Buy
If you frequently shop online, keep in mind that any purchases made via the web require transmitting your credit card and/or bank account information over the Internet. Using a public Wi-Fi connection to do so puts that sensitive information at risk. Hackers can tap into unsecured Wi-Fi connections at hotspots like coffee shops and airport terminals to capture that information. If you're using a wireless connection to shop, be sure that it requires a password or WEP key. Websites that have additional security protections have https:// instead of http:// on all pages of the site.
#5: Monitor Your Credit Report
Your credit score affects many aspects of your life, including interest rates on large purchases, obtaining loans, and even renting an apartment. Make sure you check your credit report three times per year (one for each of the three major credit reporting agencies: Experian, TransUnion and Equifax). You can do so for free by visiting www.annualcreditreport.com. Watch for unauthorized accounts, loans or purchases because they will damage your credit and signal that your identity may have been stolen. If you find inaccuracies in your report, you can dispute those errors online, by mail or over the phone by contacting the credit bureau where you found the inaccurate report (contact information will be on the report itself).
#6: Be careful what you throw away
Dumpster diving doesn't just apply to paper statements and discarded credit cards anymore. Before you recycle or donate old cellphones or computers, be sure to remove any personal and financial information. For computers, the best way to do this is to use a wipe utility program to overwrite the entire hard drive. For mobile devices, check the owner's manual, service provider website, or device manufacturer's website for information on how to permanently delete information. In addition, remove the SIM card from the device.
#7: Take Action
If you hear about a data breach or other fraud that might possibly affect your account, be proactive and change any related passwords. This is especially critical if you use the same password on multiple accounts (which you should avoid doing anyway). If you notice suspicious charges on your credit card or transfers from your banking account, contact your bank right away to notify them of the issue. They may put a freeze on the account to prevent further fraud, but this will keep the criminals from emptying your account.
Many life events are directly related to (or cause) financial events that are faced at the same time. Preparing for the financial aspects of these events can help to reduce the stress that often accompanies major changes.
Remodeling your home or making major repairs. Home equity loans have become a major source of funds used when making improvements to homes. The application process is usually easy and inexpensive with funds available when needed. This avoids paying interest on funds you don't need. Home equity loans usually have attractive interest rates and the interest may be tax-deductible.* If you are considering a major home improvement, you may want to investigate this source of funds.
Buying a home. Buying a first or new home can be one of the largest financial transactions of your life. Investigating the mortgage options before you start looking at homes can help you focus on a home you can afford and help keep you focused on the home selection and purchase negotiation parts of the process. You should also talk to a mortgage lender to get pre-approved, which can make your offer more attractive to the seller.
Changing jobs. It is seldom easy to change employers. New responsibilities, new co-workers and a new environment can be stressful. In addition, you will probably get a distribution from your old employer's retirement plan. Once you get that distribution, you have important decisions to make. You must move the funds into another qualified plan or IRA within 60 days to avoid paying taxes on the distribution. You must also make investment decisions. Retirement plan distributions are often the largest single sum an individual ever has to invest at one time. Sometimes, a new employer's plan can accept transfers as well. If changing jobs is in your near-term future, investigate your options early to make the transition less stressful.
Retirement. After a career, venturing into retirement brings many changes. Along with Social Security benefits, your existing assets must pay for a major portion of your living expenses. Generally speaking, your living expenses will probably fall somewhat, perhaps by 20% to 30%. You will probably want to modify your investment strategies to be more conservative. While you are young and still accumulating assets, it can be easier to absorb a fall in the value of your portfolio because you have time to recoup your losses. During retirement, a significant fall in your portfolio can be troubling. You may want to consider a more conservative asset allocation with more of your funds in cash and shorter-term fixed income investments. It's best to speak with a financial advisor to determine how retiring will affect your unique financial situation.
Funding a child's college education. The cost of a four-year college education is expensive. Annual college costs at private out-of-state institutions can run over $30,000. Even state sponsored schools can be at least half that amount. Paying those college bills can be tough if you do not start saving early. Make time your ally by establishing a regular savings program and taking advantage of some of the new tax-advantaged programs like Education IRAs and Section 529 Plans.
*Consult your tax advisor to see how this may apply to your situation.
Building an emergency fund is an important step in reducing financial stress for many households. In general, experts recommend having at least three months of living expenses saved in your emergency fund. Be sure to include all bills (such as mortgage, utilities, and loans) and expenses such as groceries, gas, and childcare in your calculation. Now that you have a number to target, how do you reach that savings goal?
This biggest misconception about saving money is that many people think it’s something you do at the end of the month with what you have left over after all of your expenses. The truth is, nobody ever has leftover money. There’s always something to spend it on. The better way to think about saving is as something you do first, before you spend anything. This is often called the “pay yourself first” method. Here are a couple of strategies to successfully build your emergency fund.
Create a budget. Perhaps the most important “save first” technique is to figure out how much you can afford to put away each month. Add up all of your essential expenses for the month (bills, loan payments, etc.) and then subtract that amount from your total income. The bottom number tells you how much money you don’t need to spend each month. Use that number to decide on the amount you want to “pay yourself” at the beginning of each month. Remember: Don’t try to save every penny available. Leave yourself some wiggle room by only committing to saving half or a third of that bottom number.
Make it automatic. Many Americans with a savings account also have a checking account, and vice versa. Link your accounts together and set up an automatic transfer from checking to savings on the day of or the day after your payday. That way, the money you want to save will never appear in your checking account, making it easier to avoid the temptation to spend. Start small, with amounts in the $25 - $50 range, then gradually build it to $100 - $150 as you find ways to cut your spending each month.
Use direct deposit. If you’re not already taking advantage of paycheck deductions through your employer, start as soon as possible. Many employers offer direct deposit to their employees, and one option is to earmark a portion of each paycheck for a savings account. Even if you only save $25 each paycheck this way, that money will go directly into your savings fund.
To find the best way for you to save, talk to your local banker. They’ll be able to set you up with the right combination of financial products to help you reach your savings goal, whether it’s an emergency fund or next year’s vacation.
Housing costs are one of the largest components of most household budgets. With interest rates changing so frequently, you should periodically determine whether refinancing at current interest rates would save you money.
To determine whether you should consider refinancing, you need to compare the costs of obtaining a new mortgage with the savings you could enjoy with a reduced interest rate. You may also want to consider refinancing to a different type of mortgage, such as switching from a 5-year balloon to a 15-year fixed rate mortgage.
For example, if refinancing your mortgage will save you $200 a month but cost $2,000 in fees, it would take you 10 months to recuperate those costs. That's great for certain situations, like if still have a few years left on your loan, but may not make sense in others. A mortgage lender can help you figure out what is best for you.
When reviewing the feasibility of refinancing, you may also wish to consider refinancing a larger or smaller amount than the current balance of your mortgage. If you have excess funds available and believe you will have a hard time earning a return greater than the mortgage rate, you may want to pay down your mortgage and get a new mortgage that is smaller. If you have other liquidity needs, you may want to refinance a larger amount to free up some of the equity in your home.
Under the new tax law, mortgage interest is tax deductible up to a $750,000 balance if you itemize your deductions on your tax return. Consult your tax advisor to see how this may apply to your situation.
No interest rate environment lasts forever. Unfortunately, there is no crystal ball that will tell you when rates have reached their lowest level. Acting now to evaluate whether refinancing now makes economic sense and evaluating the type of mortgage you want can help you be in control of one of your largest household expenses.