Lessons from the Richest Nation Ever

As of June 2015, America is the richest society ever, after a strong spring in which Americans accumulated $1.4 trillion in total assets. With the Dow and NASDAQ recently hitting record highs and home prices finally reaching pre-bubble levels, there’s no telling what records might be broken in the future.

Not everyone is enjoying this windfall, though, and you may be one of those who are wondering where your gold-plated Ferrari is or why your etched crystal brandy decanter isn’t as jewel-encrusted as your neighbor’s.  If so, it might be a good time to take stock of your surroundings and draw some lessons from the country about accumulating wealth.

Who has all that money?

A very small number of people have a very large share of American wealth in 2015, as many middle class families are still feeling the effects of the 2008 financial crisis and The Great Recession.  A recent Pew study found the gap between the rich and the middle class is at a 30-year high, and most of the typical American’s net worth is tied up in their home.

While America’s total net worth is at a record high, the typical American household’s net worth is $81,200, down two percent in the last five years.  The top 10 percent of households are worth about 40 times more than the typical household, with an average of $3.3 million.  The top one percent of the top one percent of American households is even more staggeringly rich, with about 16,000 families owning 12 percent of American wealth, about $630 million each, on average.  More distressing, about half of  

Americans have a net worth of $0 or less.

Who are the rich people in the country?

The rich tend to be older than the country as a whole, with millionaires being 57 years old on average, while the typical American is in his or her late 20s. Millionaires typically come from more humble backgrounds, with about 80 percent being first-generation millionaires.  They are likely to be married, have two children and live in middle-class neighborhoods.  In other words, millionaires look a lot like the middle class, except a few years older and wiser.

What do I need to do to become a millionaire by my 50s? 
The first steps to accumulating wealth are the things you’d expect: 

  • Spend less than you earn
  • Save the rest
  • Invest patiently and
  • Own your home

It might seem obvious, but those four steps can be difficult and the difference between understanding the concepts and achieving them can be daunting.  If you’re looking for some guidance, Destinations Credit Union can help. Our online accounts and tools such as MoneyDesktop make budgeting a breeze and we offer a variety of savings products for members of any financial background. We have home-buying specialists who can guide first-time homebuyers through the process, from putting together a down-payment to securing one of our competitive mortgage rates. 
What might be more surprising is that the rich tend to own their own businesses, with about 4 out of every 5 American millionaires identifying as self-employed or retired from self-employment.  There are 28 million small businesses in the United States, defined as companies with 500 or fewer employees, and small businesses have created nearly 2 out of every 3 net jobs in the last 20 years, currently employing more than half of all working Americans.
Owning a piece of the American economy is a clear path to wealth, and with the knowledge base that comes with 21st century technology, that path is more well-worn than it has been in the past.  Seven out of 10 new small businesses with more than one employee survive for at least two years, half last for at least five years, and a quarter of those new small businesses are expected to still be going strong in 2030.  Over half of the small businesses created this year will operate out of their owners’ homes, often starting as an extension of their founder’s favorite hobby. 
Are there any other ways to grab the brass ring?
If you’re not interested in starting a business, you can still build a comfortable savings account by putting away part of each paycheck. It may be difficult, but it’s not impossible.  Of course, there are other options too. One woman in Las Vegas won the lottery four times in the last 25 years, so you might want to borrow her lucky rabbit’s foot.



Financially Productive Summer

Summer vacation is a quintessentially American innovation. Nowhere else in the world do kids have months on end free from school or any other responsibility. On one hand, it’s great to spend more time with them. On the other, how do you keep them entertained without breaking the bank?

Fortunately, there are a few ways to have the kind of summer break that builds memories without building debt. You can use these months to teach your children valuable lessons about financial responsibility, spend quality time together as a family, and save (or make!) a little money along the way. Try activities like these 5 for a fun, financially responsible summer! 

1) Have a yard sale! 

If there’s one lesson to impart to children about saving, it’s that less is more. It can be hard to impart that lesson with toys from birthdays and Christmases past crowding the closet, collecting dust. Encourage them to find one or two things per day that they could contribute to a yard sale, then have it at the end of the month.

Involve your kids in as many aspects of the plan as possible. Ask them to help you advertise on Craigslist and other social media. Have them tell their friends or their friends’ parents about it. Show them how to do research to price items, and have them work the cash box. All of these are valuable skills that can help them with summer jobs in the future!

When the sale is done, have a conversation about what you can do with the money. It could go toward a family vacation, or into a savings account or college fund. Let them contribute ideas for fun things the family can do with the yard sale proceeds. This can be a chance to teach kids about budgeting while encouraging them not to hold on to things that don’t bring them joy. 

2) Start a (very) small business! 

One way children learn the value of hard work is to earn a wage for doing a job. Paying your kids an allowance to do a job is one way to do that, but certainly not the only one. Getting your kids to help with a very small business is a great way to let them see the rewards of hard work while making a little money on the side.

Business services will vary, but demand for many services is higher in the summer. Businesses need window washers. Elderly neighbors may need help with weeding, mowing, planting, or other landscaping projects. Many people clean house in the summer and list old furniture for sale, which can be rehabilitated and resold for a profit. Any of these small projects would make a fun way to spend some time together this summer.

The business doesn’t need to make a lot of money to be valuable. In addition to quality time, your children can gain an appreciation for the hard work that goes into making a successful business. This could be a great addition to a college application essay or a resume for a first job. 

3) Fix up the house! 

There are tons of great, simple projects that you can tackle as a family to improve the efficiency of your home. Some of the easiest, like installing a new front door, can be done in an afternoon and improve the aesthetic appeal and insulation of your house. These are great projects to tackle as a family.

Any repair or upgrade that you’ve been putting off can be a great summer project. Kids can earn a wage for their labor, or they can work in exchange for some privilege, like going to a sleepover at a friend’s house. Doing this kind of work can help them understand how much hard work goes into home ownership.

These little improvements can add up to significant savings. You’ll start feeling the benefits in lower electricity bills in the summer, and continue to feel them all year round. When you sell your house, these improvements will reflect in the higher value of your home. 

4) Plant a garden! 

Believe it or not, planting a garden is one of the most cost-effective things families can do together. For every dollar you spend in green bean seeds, you’ll get up to $75 back in fresh produce! You can pickle, dry, preserve or can the extras and sell them to friends and neighbors for an even better return!

There are many ways to squeeze additional savings out of a garden. Instead of costly fertilizers, you can compost kitchen waste. You can find reclaimed wood, especially from pallets and shipping containers, to make raised beds. Save seeds from produce, and water with rain collectors.

Planting a garden doesn’t just save money. It can also be a way to encourage your family to eat more vegetables. Tending and caring for a patch of vegetables can be a great way to build responsibility and have fun outdoors this summer! 

5) Plan a stay-cation! 

The average cost of a family vacation is creeping up. For a family of 4, a week of vacation, excluding travel, costs $1,700! Even if you’re taking a road trip in a reasonably efficient family vehicle, that could easily amount to $2,000 or more.

The best parts of a vacation are the shared experiences, and there’s no need to go too far to get those. Find a local festival or cultural event, and plan a vacation in your home town! Check out local historical sites and museums, eat out at nice restaurants, and come home to your own beds at night.

What’s more, a stay-cation can show your kids the rich culture of their surroundings. Use your stay-cation as a time to visit sites of personal interest, like where you and your partner met, or where their great grandparents went to school. They’ll appreciate the deeper knowledge of where they come from, and you can appreciate the togetherness… and the savings! 


Credit Repair Scams Are Back, Don’t Let Them Fool You

Earlier this month, the Better Business Bureau warned the country to keep an eye out for criminals masquerading as credit repair agencies, an old scam that keeps coming back every few years.  The scam is easy to spot if you know what to look for, so here’s what you need to know. 

How the scam works:

Companies advertise a service that can give customers a “new credit identity” and will immediately fix their credit score.  The scammers charge their customers an upfront fee in exchange for a 9-digit code, sometimes called a “Credit Profile Number” or “Credit Privacy Number.” They might say the number protects customers from identity theft, builds their credit or enrolls them into a new government debt-relief program.

The numbers they give to customers are not magic numbers that fix bad credit; they’re stolen Social Security numbers.  Not only won’t they improve your credit, but anyone who pays a scammer has unwittingly bankrolled an identity thief. 

How the scam can hurt you:

If a company sells you a stolen Social Security number and you use it to apply for a loan, you’ve committed fraud, even if you had no idea that the number was stolen.  If you lie on a credit or loan application, misrepresent your Social Security number or obtain an EIN under false pretenses, you’ve committed a federal crime.  You could face fines, or in some cases, time in prison.  If you suspect this might have happened to you, seek legal advice immediately. 

How to spot a scam:

Credit reporting scams are one of the many kinds of criminal activities built around identity theft. If you’re not sure if you’re dealing with a criminal, listen for some of these key phrases credit repair scammers use:

·        “We just need a small fee to get started”  – In the U.S. and Canada, credit repair companies can only receive their fee AFTER they’ve performed a service.

·        “We dispute all of the charges on your credit report, even the ones that are correct.  The worst thing that can happen is that they say ‘NO’ and you might even get lucky” – Legitimate credit companies will not encourage you to lie to credit agencies because that’s a crime.  It is a good idea for you to check your credit report for inaccuracies from time to time, but don’t lie to those agencies.

·        “If a loan asks for your Social Security number, put in this code instead” – There is no magical code to fix your credit.  If it seems too easy, proceed with caution.

Remember, some credit repair companies work hard and treat their customers fairly.  They’ll write a contract, make their loan rates known and follow the law.  When you call an honest company, you’ll know the rates and terms.  Scammers tend to make outlandish promises or omit details, so if a deal seems too good to be true, or if it’s hard to find out what you’re getting into, you might want to walk away. 

What to do if you think you might be a victim:

If you’ve been the victim of this kind of scam, you have some legal options.  You can sue them for any money you lost, seek punitive damages on top of that or join a class action suit.  Talk to a lawyer immediately.

You can also file a complaint online atftc.gov/complaint 

Who can I trust to repair my credit?

If you have bad credit, it can feel like everyone is trying to scam you.  If you need to repair your credit, and you don’t know who to trust, talk to Destinations Credit Union‘s counseling partner Accel.  Accel can help you make a plan to get out from under your debt, build your credit successfully, and plan for the future.

If you don’t have any credit, then Destinations Credit Union can help you, too. Unlike the multinational corporate banks and credit cards, we’re local and personal.  You’re more than a number to us, and we look forward to helping you.


Take Your First Steps Before They Take Theirs: Financial Planning For The New Parent

The first few days after you bring your baby home is an exciting time that can also be a bit stressful. So can the first few weeks. Many parents also find the first few months stressful, while others are stressed over their parental commitments a while longer. It’s easy to get caught up in sleepless nights, organic baby food, and reading every book you can find, but sometimes parents forget an obvious priority: teaching and helping your child to save money as they grow up.

1.  Set up a savings account for your child and make regular deposits.

You don’t have to know what you want to do with your child’s savings yet. However, the first step is as simple as opening a savings account for your child. Studies show that young adults who had savings accounts as children make better financial decisions, are more prepared for financial emergencies and plan better than their peers who didn’t grow up with savings accounts. So, for now, open a savings account, put a few dollars into it every paycheck and invite your child to participate by making deposits of their own when he or she is old enough. Destinations Credit Union offers savings accounts specially designed for kids. They offer dividend rates and we have educational resources so your child can learn to be smart with their money. You can find out more here: http://www.destinationscu.org/accounts/savings/youth-accounts.html.

2.  Start saving for college now.

Most parents know they need to save for their child’s college education, but few seem to realize how much college will cost. Education costs have been rising much faster than inflation, and if you’ve been out of school for a few years, you might be shocked by the costs. To make matters worse, and more expensive, many universities are receiving fewer public dollars, and getting a larger portion of their income from tuition, thus passing the cost on to students.

All told, experts expect four years of public school to cost around $250,000 by 2030. It could be even higher. While it’s difficult to imagine saving that much money, don’t give up or neglect to even try. First, think of college costs as a pie that’s been split into thirds. The first third will be paid for by your loans and awards your child earns. You’ll pay for the second third using the income you earn at the time. Only one-third needs to come from a college savings fund. Granted, one-third of $250,000 is $83,333.34, and that’s a lot of money. Take a deep breath, because you have decades to save it, and you have a secret weapon: compound interest, which Einstein called the most powerful force in the universe.

Destinations Credit Union offers Coverdell Education Accounts, which allow you to contribute up to $2,000 a year and withdrawals are tax-free.

3.  Focus on what you can control.

If you’ve been a parent for more than a few minutes, you’ve had at least one moment of pure panic while thinking about the future. Perhaps, on one of the few nights your baby allows you to sleep, you decided to keep yourself up by listing every terrible thing that could happen to you, your partner or your child. There’s so much you can’t control, of course, so place your focus on the things you can control.

Disaster sometimes strikes, and when it does, it’s usually unexpected. But there’s nothing you could do to prevent it. We don’t like to think about life ending, but it is inevitable. Instead of panicking over it, plan for it. While you’re at it, start planning for some of the less dramatic problems that might crop up. Start with life insurance, then look into other savings products and programs that are designed to protect your family.

One mistake many new parents often make is to immediately start throwing money at college savings while ignoring their overall financial picture. If you read the numbers in the previous point, it’s easy to see why. Start by building a nest egg that can carry you through 6 to 9 months of lean time, and then build your retirement fund. Money market accounts are a good way to build your short-term nest egg, because you can access your money if you need it.

As for retirement, you may not have given it much thought since your initial conversation with HR. Now is the time to see what else you need. Remember, you can take a loan to pay for college, but you can’t get a loan to retire. Even if you want to put college money away now, you can still get tax incentives if you contribute to your retirement at the same time. Browse Destinations Credit Unions‘s retirement options, or call us at 410-663-2500 if you want some help figuring out what’s right for you.


4 Home Improvement Projects With High Long-Term Return

When you’re making improvements to your home, you’re not just making your life better in the short term. You’re also making an investment in your future. Ideally,  the increase in the value of your home will exceed the cost of the improvement.

However, it seldom works out like that. The most efficient home improvements don’t pay for themselves immediately. The first item on this list has an ROI of 98%. That means you get back 98% of the money you put into it. To look at it another way, you lose 2% of your initial investment.

It takes years for the appreciation in your home to recoup the expense of an improvement. If you’re looking for an investment, putting your money in a share certificate or other long-term investment option will net you more. When you’re making home improvements, though, you’re looking for ways to improve your quality of life while being as thrifty as possible.

Calculating ROI can be difficult because the data is based on national averages. For instance, in drought-afflicted parts of the country, water-efficient fixtures, rainwater collection facilities and low-water landscaping will pay long-term dividends. In places with lots of solar exposure and high utility costs, solar panels will make your home more cost-efficient and attractive to buyers. No one will pay more for a well air-conditioned house in Alaska! Keeping that in mind, finding out what works for your market therefore depends a lot on trends and local conditions.

There is some good news if you’re looking for more universal approaches for getting the best increase in value for your home improvement dollar. There are a few simple rules to follow. Seek relatively low-cost improvements that require little to no maintenance. They should immediately distinguish your house from similar homes and, ideally, they also improve the energy efficiency of your home.

Here are four home remodel projects that can improve the resale value of your home. They’re excellent uses for your home equity line of credit (HELOC) and you may be able to save money by doing part or all of them yourself! By the way, consult your tax advisor to determine if those improvements apply for tax deductions. 

1.) Replace the front door 

There’s an old adage in real estate that suggests the features get tours, but the front porch gets sales. People make decisions on home-buying all the time by starting with a gut reaction and finding reasons to support it later.

Why not start your home remodeling project with the first thing you interact with on your house: the front door. Upgrading an old, poorly-fitting front door with a newer energy-efficient model is a cheap, quick project that can instantly improve your home’s efficiency and aesthetic appeal. Best of all, hanging a door can be done in an afternoon!

With an average price of just over $1,200, including labor, an energy-efficient front door has an ROI of 98%! It’s also a chance to be creative. A new front door can add a splash of color and window placements can break up a monotonous front profile. 

2.) Minor kitchen remodels 

Replacing major appliances and installing new flooring is a difficult, time-consuming, and expensive task. Being without a kitchen for weeks on end can be a nightmare and the number of professionals needed to install new lighting and other features is mind-boggling. The national average for spending here is $57,000, and the ROI for major kitchen remodeling isn’t great, at only 68%.

Minor kitchen upgrades, like new cabinets, counter-tops, and energy-efficient cook-tops, are comparatively inexpensive. The average spend here is just under $20,000 with an estimated return on investment at an impressive 80%. Just like with the front door, the changes are mostly aesthetic. People perceive a more modern-looking kitchen as being a better fit than a more “retro” look.

This is also a chance to customize a place where you spend a remarkable amount of time. Having a kitchen laid out just the way you like it can make it easier and more enjoyable to cook. This will encourage you to eat more meals in, and energy-efficient appliances can lower your electric bills for the life of the home. 

3.) Wooden decks 

Outdoor space is one of the hallmarks of the current iteration of the American dream. Where else can a family sit and enjoy a frosty lemonade on a hot summer day? Watch the kids play in the yard while tending the grill on a beautiful wooden deck!

Wooden deck additions were unpopular for years, as consumers see them as luxuries. During a recession, remodeling dollars tend to focus on needs, like kitchen and bedroom updates. Now that the economy is improving, more people are looking at decks as valuable extensions for their living space.

The average cost, based upon a 16 foot by 20 foot wooden deck, is $10,000. The average return on investment is just over 80%. This is because of the perception of expanded living space at a reasonable price. Adding a deck costs about $35 per square foot, while a square foot of inside space costs an average of $85! Decks are a great way to increase the play space for a modest cost.

Bear in mind that just like the air conditioning in Alaska, a deck in a climate where the climate in inhospitable outdoors for much of the year will not have as much value as one in more temperate climes. 

4.) Convert an attic space into a bedroom 

For most houses, the attic is an afterthought. It’s a place where unused craft projects and abandoned hobbies go to die. Consider turning that dead space into living space with a remodeling project!

Turning an existing attic space into a spare bedroom or office, complete with its own bathroom, can be done for a slightly steeper price. Nationally, the average cost is just over $50,000. That includes constructing a room, extending utilities to it and adjusting the exterior of the house to accommodate the new space.

This remodel provides a 77% return on investment in resale value, with the potential for more. If you have adult children or relatives visiting from out of town, an attic room can be a wonderful guest room. You could also rent it out for additional income!

Contact Destinations Credit Union if you need help in financing your next home improvement project!