money market

Your Tax Refund – Why Is It So Small?

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This time of year, W-2 forms are coming in, shoe-boxes are coming out and kitchen tables are disappearing under a pile of documents.  It’s tax time, and the most common set of questions we hear revolve around the same issue: Why is my refund so small? How can I make it bigger? While we are not tax professionals, here are some observations we’ve had while serving our members over the years. You may want to discuss them in further detail with your tax advisor. 

Question:  Why is my refund so small?

Answer: There’s no secret to withholding. You tell the IRS factors about your life, your employer holds money back to “guess” at how much you’ll pay in income taxes, and then whatever has been withheld is paid to the IRS for covering your annual income tax burden. If, in fact, you’ve withheld more during the year than you need to pay, the IRS will pay you back any extra income you’ve withheld.

If your tax refund is smaller than you expect, then you didn’t withhold enough money to cover your tax bill. If the amount is surprising because it doesn’t look like last year’s refund, then you probably had something different happen this year. Did you pick up extra income? Did a child move out? Did you stop paying the interest on your mortgage or student loans? Knowing this, if you’re looking for a reason why your refund was smaller, start with the changes in your life.

If you still can’t figure it out, look at how much you made this year as well as your total withholding.  If you made significantly more than last year while withholding the same amount, that could be the reason.  If you want better, more specific answers, take your information to a tax preparation professional. 

Question:  So, should I withhold more?

Answer:  We hear this one a lot. Many of our members were raised on “the IRS savings plan,” particularly if they came from poorer or lower middle-class backgrounds. Families that had trouble getting ahead would plan on tax refunds for a once-a-year spending spree. Now, as the children of those families have grown up, they want to have that type of spree as well.

It’s not a good idea to withhold more money so you can have a bigger refund. In fact, it’s about the worst investment you can make, because you get paid no interest on it. Your money will even lose value due to inflation while the government holds it, so it’s like you paid someone for the privilege of not accessing your money while it earned zero interest. Imagine a free checking and savings account, except the exact opposite in every way: It’s not free, you can’t access it like a checking account, and you don’t earn interest on it like a savings account. It’s a free checking and savings account you set up for someone else. 

Question:  How can I get more money back?

Answer:  The obvious way to get more money back is to find more deductions or withhold more during the year. However, there are other ways to make tax time more profitable. 

Imagine that, instead of withholding an extra $100 every month, you invested it in a savings certificate, money market, or Christmas club account.  Over the course of the year, you’d accumulate $1,200 in principle, just like you’d have an extra $1,200 coming from the IRS. In other words, this method is just as good as the IRS savings plan: If something crazy happens on your tax return or you have some money to avoid a big tax bill, you can have a big annual spending spree.

But it’s better than withholding for a variety of reasons. First, you can access it if you’re putting that money into a money market or other savings program. (Try the high yields on our Kasasa Cash Rewards Checking account with a Saver attached.)  Second, your money will be protected from inflation, and then it will grow. Earnings on different programs vary based upon what you choose to invest in, along with other factors. But even earning a couple of percentage points above inflation could lead to another $100 in your pocket on top of the principle, and save you $100 that you would have lost to inflation. $200 isn’t chump change, particularly on a modest investment, and it could even be more depending upon how much you invest and the program you choose.  Even if you don’t earn much, though, it’s still better than giving that money away.


Even better, you can use that money to double dip.  If you withhold that extra $100 every month, then deposit it into one of our tax-exempt college or retirement savings funds, you can have a big payday while building deductions for next year, so you’ll get even more back.  Obviously, your specific situation will vary and there are limits to how much you can put into each of your tax-exempt accounts, but if you’re interested in starting the snowball effect of compound interest, tax deductions and long-term savings, give Destinations Credit Union a call at 410-663-2500 and we’ll get you set up in no time.  

Investing In New Media

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It sounds like free money:  Everywhere you look, people are glued to their mobile phones, whether they’re in line at the post office, watching TV in their living rooms or cutting you off during the morning commute. All you have to do is throw some money at the stock offerings for Facebook or Twitter and wait for the cash to start rolling in, right? But, if you’ve checked recently, Twitter’s stock has plummeted, they’re laying off workers and investors are panicking. Facebook had the same growing pains, and anyone old enough to remember Y2K also knows the names etched on the gravestones in the social media graveyard: Friendster, Myspace, Google Buzz, etc.

How can you protect yourself from disaster without missing out on what appears to be the wave of the future? You don’t want to end up kicking yourself because you missed out, just like you don’t want to kick yourself for buying too much. Below are some tips for investing in emerging technologies without losing your shirt. 

1. Understand the product.  You’d never buy Coca-Cola stock if you didn’t know what a soft drink is, so don’t buy stock in social media unless you understand their business. Social media sites are in the business of selling data to advertisers.They make their money by developing sophisticated algorithms that claim to understand you very well, so advertisers don’t have to spend big money to broadly distribute their message. What this means is that users are the product and advertisers are the customers. 

Facebook and Twitter have very different ways of displaying content to users, and therefore have different pitches when they talk to advertisers. The best example of the difference between the social media giants is from summer 2014: Facebook was filled with Ice Bucket Challenge videos while Twitter was full of unrest in Ferguson, Missouri. At the time, this was seen as an indictment 

of Facebook: Its vaunted algorithm was weighted too heavily to favor users’ immediate network and content that utilized Facebook add-ons like its video player.  Twitter was correctly identified as the better medium for serious news. In retrospect, the seriousness of Twitter is its problem – users go to Twitter for news, revealing less of themselves and making themselves less easy to target for ads. 
2. Understand the market.  Facebook is preferred by Baby Boomers, while Twitter is preferred by millennials, mostly because Boomers (their parents) are on Facebook. As of right now, Boomers are a more lucrative market because they have higher incomes and net worth. However, over the next five years, Millennials are expected to comprise more than half of all workers in the country and have an even larger share of personal spending. Boomers will be retiring as millennials are buying houses, minivans, golf clubs and all of those markers of suburban middle age. They can’t just buy coffee, cellphones and tattoos forever.
If you’re buying Twitter stock, you’re planning on holding it until the millennials come of age, and therefore you’re betting on Twitter figuring it out over the long term. If you’re buying Facebook, you’re planning on selling sometime before the Boomers disappear from the workforce. Remember, all of those headlines about Boomers spending more in retirement are looking at Boomers at the beginning of retirement – when time seems ample, energy seems infinite, and all of those hobbies put off for decades need new supplies.  Even America’s most mercurial and surprising generation will eventually succumb to the comforts of retirement. 
3.  Understand the risk.  There’s never been a guaranteed safe play in the history of tech stocks. It’s doubly so for social media. Bear in mind that Facebook and Twitter compete directly with Google, Microsoft and increasingly with Apple for generating data to sell to advertisers. Of those companies, Google has always been tethered to the massive losses from YouTube, Microsoft took a major hit with its antitrust suit, and Apple nearly went belly up during Steve Jobs’ absence. It’s easy to read that last sentence as a list of great businesses beating the odds and overcoming adversity, but it ignores all of the companies that failed to do so.  Buying Facebook or Twitter is going to be risky.
There are lots of ways to combine those three ideas to better protect yourself. If you want to offset risk, there isn’t much of a better investment than the savings products we have at Destinations Credit Union. Take a look at the Kasasa Saver account you can pair with Kasasa Cash Rewards Checking! By stocking up on our certificates or a High Yield Account, you can use low-risk investments to protect yourself, while still getting a higher return than one of those corporate banks can offer. Check out our rates.

If you’re worried about the time involved in your investment, our savings products can help there, too. If you’re buying Twitter now, you’re making a deal with yourself that you won’t sell it too soon and miss out on profits. But what if you need the money soon? Our Kasasa and High Yield accounts have no penalty for withdrawing your cash if you need it, helping put your mind at ease.

Whatever your plan for investing, we can help you fill out your portfolio to help you reach your goals. Just give us a call and let us know what you want to do. We’ll sort out the rest.
Sources:

http://www.kiplinger.com/slideshow/investing/T052-S003-25-best-stocks-for-2015/index.html 

http://www.americanpressinstitute.org/publications/reports/survey-research/millennials-social-media/ 

Holiday Spending Is Getting Smarter, But You Can Be Smarter Still

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The average American will spend nearly $900 on holiday presents this year. If you have two adults in your household, that’s almost $1,800. The odds are good that you’ve already spent a good chunk of that on Black Friday, Small Business Saturday, and Cyber Monday specials.  In looking at the sales numbers from the weekend, Americans are getting smarter about how they spend that money.  Brick and mortar stores suffered about a billion-dollar decrease in sales from 2014, largely avoiding many of the big-ticket items that lure customers into waiting overnight in cold parking lot lines.  Instead, consumers pushed online purchases to a record high of $4.45 billion, roughly 20 percent more than last year. At the time of this writing, Cyber Monday sales had not yet been released, so we can’t compare those. 
In addition to this, sales numbers indicate earlier spending, more diversified spending and shopping carts that were more full at fewer locations.  All of this points to people purchasing items they had selected before the big weekend sales, then spending less time browsing and far less time in the harsh winter conditions and occasional inhuman violence that only cheap electronics and toys can provoke.
Even with the transition to warmer, quicker and more pajama-clad shopping, the money being spent is astounding.  The odds are also good that you don’t remember everything you bought for the holidays last year, and even if you do remember what you were given, it probably doesn’t add up to hundreds of dollars worth of things you still use.  If you don’t remember or use what you were given, the people who received gifts from you probably don’t either.  So why do we insist on spending so much of our hard-earned money on cheap plastic junk? Is there a better way to spend that money?
Yes, we’re getting smarter about how we spend on the holidays. But let’s set up a plan today to be in an even better position at this time next year. 
Step One:  How much did you spend or will you spend this year? 
Consider how much you’re going to spend this year.  If you’ve finished your shopping, then you can use your receipts.  Otherwise, you can estimate what else you plan to buy or just use the $900 per person national average.
Next, add to that how much you’ll spend in interest on credit cards while you pay off the balances.  If you’d like to avoid the math, you can estimate that the total cost is $1,000, because that’s a nice round number for this exercise. 
Step Two:  Putting away that money for next year. 
To use this money as intelligently as possible, it’s a good idea to save as much as possible ahead of time.  That way, compound interest is in your favor instead of working against you.  Start with one of our savings plans. A great option is our Holiday Club, which offers easy automatic deposits and doesn’t let you withdraw prior to the due date without a penalty. If you are more disciplined and not worried about using the money prior to the holidays, another option is our High Yield Account, which will pay a higher dividend if you’re ready to put the money into savings today.  
Step Three:  Paying off this Christmas. 
It’s time to get those credit card payments down so we can move into the new year with a clean ledger.  If you’ve got the extra income, pay them down with that, but we also know times are a little tighter for many of us.  Luckily, your credit union has a variety of solutions for paying down credit card debt: 
  • Home equity loans are great for high balances, because they turn high interest credit card debt into low interest home equity debt.  Also, if the Federal Reserve raises the prime interest rate early next year, you’ll be protected by a fixed-rate loan.  If you don’t want all the math, a home equity loan reduces the interest you pay, so you can pay off your loan more quickly.
  • If you don’t want a home equity loan, your credit card debt isn’t that high, or you don’t own a home, you could also consider transferring your higher rate balances to a Destinations MasterCard Credit Card.  We offer incredibly low rates, so you can transfer your higher interest balances onto a lower interest card, which will let you pay off the debt more quickly. Plus, there is no fee for balance transfers and no annual fee for the card.

Step Four:  Cutting costs. 

Make a list of everyone for whom you’ve bought gifts and how much you spent or will spend.  Then, go through and imagine what would happen if you got them nothing.  Would life be worse?  Would it be embarrassing?  Do you really need to give everyone something?  For those you feel an obligation to gift, keep them on the list for next year. For those you don’t, send them a card.  For anyone about whom you’re unsure, how about a gift of home baked cookies? Simply cutting out a few people can save you several hundred dollars every year.  Ask yourself:  would I rather avoid a potentially awkward situation or have a new … well, you probably know what you’d rather buy with several hundred dollars.
If you’re worried about last minute awkwardness in case someone gets you something, there’s a really simple solution:  Buy a few cards, write a general inscription inside, sign them, and add a gift card to a big store you’d shop at anyway.  Would anyone be upset at an Amazon gift card?  Then, if you need it, you can write the name of the person in question on the envelope and hand it to them.  If you happen to have any of these standby gifts left at the end of the holiday, the gift cards are yours to keep:  call it profit. 
Step Five:  What will you do with your money? 
At this point, you’ve paid off holiday 2015, and by the time holiday 2016 rolls around, you’ll have saved more money than you need since you saved enough for this year but cut costs for next year. Interest has worked in your favor, and suddenly your next December is one in which your pockets will be full.  That gives you 12 months to decide what to do with your money.  Reinvest it in a savings plan? Buy supplies to open that web store you’ve always wanted? Take a class or learn a language? Maybe your dog needs a little brother or sister.
Whatever you do, it’s probably going to be better than that necktie you got for Bob in accounting this year, and it’s all for you. 
Sources: 
http://www.zacks.com/stock/news/199560/why-did-black-friday-sales-fall-by-1-billion?cid=CS-GOOGLE-FT-199560&google_editors_picks=true   
http://www.statista.com/statistics/319562/us-consumer-spending-by-seasonal-event/ 
http://fortune.com/2015/02/12/nrf-retail-forecast-2015/  

How Will I Ever Retire If They Keep Moving The Finish Line?

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What happens if you’ve made it to the day you thought you’d be retiring, but you’re simply not financially ready? Perhaps you passed your “Plan B” date. Maybe even “Plan C” has come and gone. You know you’ve been making the right moves, but a temperamental stock market, kids who stayed home longer than expected or an unlucky series of events keeps pushing back your time frame.  So, in exasperation, you ask … 

Question: “How will I ever retire? When will it be safe to stop working?“ 

Answer:  Well, hopefully very soon.  We’re going to show you some ways to put luck back on your side.  It’s going to be part planning, part faith and a good deal of ingenuity, but we can get your pictured future back within sight again. 

Question:  “OK, so how do I know when I’ll have enough money?” 

Answer:  The first thing you need to do is realize that enough money is possible.  It’s scary to read headlines about Boomers running out of money because they lived so long, especially when they’re coupled with stories about how the 4% rule isn’t enough.  If you take these articles at face value, you’ve got to come up with 40 years of savings, assuming you’ll be taking out as much as 10 percent of your nest egg every year.  Because it’s difficult (if possible at all) to get to that point, it’s easy to give up. 

Instead, go back to 4%.  Or, if you’re being conservative, make it 5%. That’s a 25% raise! That’s a lot! Then, remember the lessons of your working life: Anything that happens far in the future should be weighted far less, because you never know what might happen between now and then.  You might find you don’t care for fly fishing that much or you no longer need that annual trip across the country. Your neighborhood’s home values could rebound.  Maybe you’ll stumble onto a strong investment.  There’s too much uncertainty in life to freak out about what’s going to happen far away into the future. Take 5% out, per year, until you’re 85.  That’s plenty. Anything beyond that is too much. 

Question:  “How can I make sure I’ve got enough retirement income?“ 

Answer:  One of the easiest ways to produce panic is realizing that money only flows one way once you stop working. You’ve been conditioned to treat any month in which you spend more than you earn with revulsion, shame and guilt. Now, that’s going to happen every month – for the rest of your life.

A lot of retirees feel more comfortable with money coming in on a regular basis. You can accomplish this in a variety of ways.  First, try to put off Social Security as long as possible.  The higher payout will make retirement much easier. Second, try to create passive income using investment products.  In the same way that dividend-producing stocks pay out on a regular basis, you can create passive income that can be accessed any time by moving chunks of your retirement into high yield savings products like money market accounts.  That way, you can still budget the way you used to without having to sell your stocks (while hoping you guessed the right time to sell).

You can also create passive income by using your home equity to fund a business venture.  Right now, mortgage rates are low, but a lot of Boomers are missing out because they paid off their homes in order to retire.  You use a home equity line of credit to buy a rental property (which builds equity at the same time it gives you a paycheck) or start an online business built around your hobbies.  If you love to knit, sell handcrafted items on Etsy.  Do you like to fish? Start manufacturing lures with the equity in your home.  These ideas can generate a monthly income for you and also give you something else to leave to your children.  In a pinch, you can even sell the rental property or sell shares in the business for a quick cash infusion. 

Question:  What about my health?  That can be a big cost, even with Medicare. 

Answer:  One of the best places to put some money when you retire is into various forms of insurance. You probably already have life insurance, homeowners, and insurance on your other big purchases, but you also probably only have Medicare to cover the health side of your insurance portfolio.  What happens if you need something Medicare doesn’t cover?  Is it worth it to go on Healthcare.gov and try to find a supplemental plan?

One way to keep your options open is to try a “do-it-yourself” Health Savings Account (HSA).  While traditional HSAs gain their benefits from your employer paying into them, you can get a lot of the same benefits simply from putting some spare cash into one of our high-yield money market accounts.  That way, you’ve got money put aside for a health emergency, but you’re not spending on a premium you’ll only need very rarely.  As an added benefit, you can access that money if you need it for things that aren’t health-related if some other kind of emergency comes up.

Hopefully, you’ve gotten a better idea of how to tackle retirement.  You need to have faith and protect yourself at the same time.  The best way to do that is to put your money with someone you trust and give yourself access to it, just in case.  If you need any more info, want more guidance, or just need someone to talk to about taking the leap, give Destinations Credit Union a call at 410-663-2500.

Investing: Zagging

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When you talk to your friends and neighbors about investment strategies, you probably hear a lot of the same ideas. People tend to invest some amount in blue chip companies, their employer, mutual funds, 401(k)s, IRAs, 529s, and money market accounts. As you look around, you might notice that everyone looks kind of similar. They may be wearing the same casual clothes you made fun of your parents for wearing a few years ago. And you may begin wondering if investment strategies are like Old Navy cargo shorts … something we all do without thinking about it.
It’s fun to imagine a backyard barbecue for money managers – well, it’s more fun than attending a backyard barbecue for money managers, anyway – and wonder if they have the same investment conversations we do.  Do they all do things basically the same way?  Is the distinction between these professionals as simple as how they slice the pie?

In contrast, whenever one of our friends makes a great investment, they hold court at the cookout. They tell us about the detective work they did or their amazing insider info, and we eagerly gobble it all up. The same thing happens with the pros.  When one investor makes a counterintuitive trade that pays off, they become famous and charge a fortune in fees for their new fund.  The easy lesson is that when everyone else is zigging, it’s time for you to zag. Unfortunately, when everyone else zigs, they probably have a good reason for it, and zagging is a bad idea. 

The kinds of high-risk investments that sound cool at a barbecue can bring a great return, but they rarely pay off. It might not feel like it, but there are actually many more people at the barbecue who lost money zagging than there are people who made money. They’re just not going to gather everyone around to tell them about it.  In fact, 8 of 10 fund managers failed to beat the market average last year, according to CNN.

Think about it this way: If you have 100 investors and 90 take the well-trodden path full of CDs and index funds, 10 others are taking odd risks and following their gut.  If 90 percent of those people lose their money, that’s 9 out of the 10 idiosyncratic investors who lost money. If you do that again next year, that person needs to try something new again and has, once again, a 10 percent chance of success.  


Then, imagine the same scenario the following year.  The likelihood that this person can make big money three years in a row in this scenario is one in a thousand.  If you expand it to five years in a row, the odds drop to one in a million.  If it seems like there are too many investment experts living off a vast fortune for the odds to be so low, remember that the United States is a country in which being one in a million means there are 300 people exactly like you.  

That diverse and boring portfolio is your best bet for bringing in the steady return you want. So, while it might be as boring as cargo shorts, remember that no one likes the neighborhood dad who always shows up to a casual barbecue wearing a fancy jacket and trousers either.
Sources: 
http://www.efficientfrontier.com/ef/997/tough.htm 

http://money.cnn.com/2015/03/12/investing/investing-active-versus-passive-funds/ 

http://www.corepw.com.au/fund-manager-fees-fallacy-division/    

Nightmare On Your Street – Finances And Horror Movies

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As Halloween gets closer and you want to avoid the chilly darkness of October evenings, grab a blanket and stream a marathon of scary movies. Horror flicks are classic fun, whether they’re good enough to keep you up all night when you’re home alone or bad enough to laugh at while with a group of friends because we all know what’s going to happen next. The classics follow a simple formula, but it works. 

The same is true when it comes to your finances. Spend less than you earn, pay off debt and invest your money with trustworthy people.  Still, we have trouble getting all of the complex parts of our financial lives sorted out.  Let’s try applying the scary movie formula to your finances so you’ll never have that heart-racing moment of panic when you check your balances again. 

The scary cat.  In the first 15 minutes of all the classic horror movies, our protagonist gets startled by a cat. It’s a silly little trope that keeps coming up, but screenwriters use it because viewers tend to get bored without a scare in the first few minutes. Bringing out the monster too early can kill the suspense, so it’s an easy-to-insert moment to keep viewers on edge.  Watching scary movies in my household, I can tell you that it works: That stupid cat has caused my heart to race faster than any workout I’ve done.

Are you jumping from the cat?  Does every market hiccup cause you to change strategies?  Are you yanking money out of savings to throw at the stock market (or vice versa) every year?  It’s time to get past that initial scare.  The market isn’t going to kill you overnight, just like it won’t make you rich overnight (Black Tuesday 1929 and Google’s record-breaking July 15th notwithstanding). 

If you want to develop a plan with which you can feel safe during the scary cat moments, give us a call at 410-663-2500. If you want to do it yourself, we can get you into a safe plan for saving with a high yield account or certificate in just a few minutes, which can help balance the risk of your other investments.  If you’re trying to build a safer safety net for retirement or college savings, we’ve probably got more savings options than you’ve ever heard of, many of which have major tax benefits. We can walk you through a few plans, help you pick the one that’s right for you, and in many cases, we can even set it up with automatic deposits so you don’t have to think about it again.

The victim who runs upstairs when she should run out the door. Why?  Why?  Why are you running upstairs, you silly soon-to-be victim?  Of all the silly horror movie clichés, this is the one that drives me bonkers.  We always get a few establishing shots of the house early in the movie, which shows us that this house is enormous enough for a final-reel chase scene with the killer.  No one needs this much house. It’s usually a teenage girl with a single parent (who is not at home) in a house big enough to hold the entire football team of her late boyfriend.

Do you have too much house?  Are you cleaning extra bedrooms you don’t use? Do you have a home gym, office, or library that you never visit?  Maybe it’s time to simplify.  You can sell that house and move into something a little sleeker, and use your windfall to put in all of the custom features you’ve ever wanted on that new house.  Which would you rather pay for:  the storage room that’s basically a walk-in junk drawer or a dressing room with a walk-in closet?  Give us a call to find out how we can help you. 

The killer who just won’t die.  In every great horror movie, there’s a killer with an uncanny ability to survive anything the protagonists throw his or her way.  In your finances, sometimes large debts can feel that way.  No matter how fast you run, they just keep coming, like Michael Myers chasing Jamie Lee Curtis through two decades of Halloween movies.  You throw cash at the balance every month, but nothing happens.  What can you do?

If you want to kill a scary movie monster, you can’t do anything that the protagonist does in a scary movie.  After all, the scary movie wants to make a sequel, but that’s the last thing you want out of your debt. Instead, let’s adapt a strategy from the Terminator:  Even an unkillable robot from the future can’t stand up to a vat of molten steel. You need to submerge your debts in one large vat that can consume them all: Turn all of your high-interest, variable-rate, hidden-fee credit card debts into one simple, low-interest, fixed-rate homeequity or debt consolidation loan with all of the transparency and confidence you’ve come to expect from Destinations Credit Union.  The first step is calling a Loan Officer to discuss your goals. Through our partnership with Accel, you can also get free unlimited financial counseling to develop a plan. 

Hopefully, your finances aren’t a horror movie.  Horror movies play on our fears for entertainment, but it’s not as fun in real life.  If they are, though, it’s better to call in some help than it is to split up and try to explore the woods alone. That’s why we’re here.  With a little help, your money can look more like a swords-and-sorcery epic:  Everyone’s a hero and everyone gets a happy ending.

It’s Almost Halloween, So Let’s Talk Christmas

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Football has begun, the leaves are changing and the kids are back in school. Clearly, it’s time to start thinking about Christmas.  Some of you are reading this on your phone while waiting in line at Starbucks, preparing to buy your first Pumpkin Spice Latte of the season, but it’s time to start thinking of peppermint mochas instead.  Even if you’re the “Bah, Humbug” type of person who regularly posts Facebook rants about the neighbors putting up their lights before Thanksgiving, making financial plans for the holiday is still a really good idea.  It might be too early to hang a stocking, but it’s never too early to sock money away.

Question: How much will I be spending on the holidays this year?

Answer:  Recent studies have pegged the price of the holidays at roughly $300 per child, while one in 10 shoppers admit to spending over $500 on gifts for their children.  Overall, Americans spent about $600 billion on Christmas last year, which comes out to around $2,000 per person. This includes decorations, hams, ugly sweaters, and whatever else you tend to buy.  That’s a lot of money.

Question:  Ugh.  Why are we even talking about that money now? It’s not even Halloween!

Answer:  Halloween is exactly why we should make plans now.  Since 2005, American spending on Halloween has spiked.  Last year, we spent about $7 billion on Halloween, including $350 million on costumes for our pets!  It’s easy to overspend in October, let that lead into an indulgent Thanksgiving in November, and then find ourselves putting all our Christmas spending onto a high-interest-rate credit card.  Planning ahead is a necessary step to prevent you from a holiday hangover in the New Year.

Question:  How bad is it to put Christmas on a credit card?

Answer:  It might be worse than you think.  It’ll cost you about $200 per month to pay off an average Christmas debt in time for next year if using a typical high-interest credit card. And if you don’t pay it off by next year, you’re suddenly trying to pay off two holidays at once. That’s bad news.  Even if you think you can handle the extra debt load, remember that the Fed just raised rates, and it may do so again. Whenever it does, you can expect your credit card bill to go up.  On top of all that, paying around $400 in interest charges and fees over the course of the year is still $400.  That’s probably enough money to turn your average Christmas into something worthy of a televised Christmas special.  If you have to use a credit card, make sure it’s a low rate card like your Destinations MasterCard.

Question:  Is it too late to get ahead for this year?

Answer:  Not at all.  You have a lot of options to save yourself from your own spending.  You can sign up for a Holiday Club account, a High Yield Account or a variety of other plans.  But that’s not the only approach.  You can also get ahead of the rate hikes by moving all of your credit card debt into a home equity loan (check out our rates) or signing up for one of our low-interest credit cards.

But even all those options don’t represent all the various ways to save money. Remember that Christmas spending doesn’t have to be an all-or-nothing proposition.  You can combine savings, credit cards and budgeting to attack the holiday from several angles.  Start now, and by Christmas you’ll have a well-stocked war chest, or in this case, toy chest, to give you a variety of options.

Question:  What about the holidays between now and then?

Answer:  Between Halloween and Thanksgiving, Americans spend around $150 per person on average, which is far more affordable than Christmas. But that can still add up quickly, especially in larger families.  It can also be difficult to tighten the belt at this time of year, because it can mean less candy and less family time for the kids.  If you’re worried about this spending, one way to rein it in is to make a combined holiday budget you pay into every month.  Figure out how much you plan to spend on birthdays, holidays, anniversaries and the like, then divide that by 12.  That’s how much you need to put away every month.  Does that sound like a lot of money?  Then you can cut down all year long.  Maybe you don’t need to send birthday gifts to as many people or your anniversary can be a smaller occasion this year. The bottom line: If you start planning ahead, you can keep your holiday spending from being an obstacle to your financial future.

Sources:

http://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx?MSA=&&&&

http://theeconomiccollapseblog.com/archives/guess-how-much-americans-plan-to-spend-on-christmas-and-halloween-this-year
http://www.today.com/parents/yes-we-spoil-our-kids-6-000-moms-come-clean-1C7397939
http://www.theatlantic.com/business/archive/2011/10/the-halloween-economy-2-billion-in-candy-300-million-in-pet-costumes/247531/
http://abcnews.go.com/WN/mailform?id=14998335

High Yield Investment Fraud

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Whenever the stock market takes a hit, unscrupulous individuals will try to find a way to use the misfortune of worried investors to make a quick profit.  In light of this year’s problems on Wall Street, it’s no surprise that old scams are coming back, and like all of the classic scams, this one is based on the oldest premise there is:  make a lot of money, really fast, with no work.

High yield investment fraud is most commonly found on the Internet, where it’s much easier to put together a website that appears trustworthy and professional than it is to create the same appearance in person.  Such sites claim to provide amazing returns, sometimes as much as 40 or 50% per month, and are supported by dubious charts and testimonials from people who may not actually exist. Between a quality website, impressive charts, and some meaningless investment buzzwords describing a “magic pill” of an investing philosophy, unwary consumers can be easily fooled into forking over a chunk of their savings to an investment broker who is not licensed by the SEC and makes claims the SEC would call illegal.

The clearest warning signs of these scams are easy to remember, just like avoiding them should be simple to do: don’t trust anyone who offers to-good-to-be-true returns, dismiss cutting-edge investment opportunities if they come from anyone but an investment professional with whom you’ve worked before, and ignore any evidence of success that can’t be verified by an outside party.
Big returns are appealing.  You want to retire someday, send your kids to college, or start a business to get away from the morning commute, and the more money your investments make, the quicker you can do so.  But it’s important to trust the process.  Return on investment is tied to the risk involved in spending money on that investment.  The stock market offers better returns than treasury notes because it’s far riskier to bet on United Airlines than on the United States.  High-yield investment scams are successful because we want to believe that someone can beat the market so well and that we can have returns that are better than the stock market with risks that are lower than treasury bonds.  It just doesn’t happen that way.
At Destinations Credit Union, we believe we’ve created a nice sweet spot with our savings products. No matter what your preferences are, we can fit into your investment portfolio. In times that the market does well, the money you have with us will keep you moving towards retirement, but when the market slows down, you don’t have to worry about losing your financial security because the money your entrust us with is safe.
To put it another way, the U.S. economy has traditionally done three things very well:  lower prices, create jobs, and price risk.  The last recession was caused by doing a poor job of pricing risk, and that hurt our ability to do the other two.  But that’s exactly the point.  As an economy, we are so good at pricing risk that when we screw it up, it’s an enormous, world-altering event.  If you find someone who can price risk so much differently than every other investment professional in the world, you need to also be ready to bet that the economy is going to take a radical shift in an entirely new direction, because that’s what happens when we do a bad job pricing risk.
Finally, if you want to avoid all kinds of investment scams – and the SEC, FTC, and USA.gov all have many pages listing the variety and creativity of these scams – the best thing to do is remember why you bank with us.  We’re part of your community, not a giant multinational corporation.  We share our revenue with our members, not shareholders who may not even be connected to our local community. Our kids go to school with your kids and you can always come in to talk to us for helpful advice. 

Sources: 
http://investor.gov/investing-basics/avoiding-fraud/types-fraud/high-yield-investment-programs
http://www.investopedia.com/terms/h/high-yield-investment-program.asp\\
http://www.ncpw.gov/blog/dont-get-scammed-investment-fraud-internet
http://www.dfr.vermont.gov/securities/top-ten-investor-scams

How To Take Advantage Of An Interest Rate Hike

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The last time the Federal Reserve raised interest rates, Barack Obama was a U.S. senator, but many prognosticators who watch the Fed say that a number of factors suggest we’re due for a rate hike sometime within the next few months.  If the Fed raises interest rates, it will mean a raise in the price of any new loan you take in the future as well as an increase in how much you pay every month on the adjustable-rate loans you already have.  So, even if the discussion leaves you yawning, it’s important to act quickly if you think the Fed will raise interest rates. That’s because taking the right actions before a rate hike can save you thousands of dollars in interest payments after the rate hike.  Here are some tips to protect yourself, save money and maybe even make a profit if interest rates go up this year:

If you have a high credit card balance, move it to a loan with a low, fixed rate.

Credit card rates have remained around 13 percent, on average, for several years, but a Fed hike would raise those rates.  To make matters worse for people with sizable credit card debt, those rates compound quite quickly on a revolving account like your credit card.  

One way to deal with your credit card debt is to move your balances from the cards you have now to a single high-limit card with a 0% introductory rate and pay it off in full before the introductory rate expires. However, using a credit card to pay off a credit card can be a dangerous strategy, because if you don’t pay off the principle by the end of the introductory period, whatever you have left will start charging interest again, and perhaps at a high rate (pay attention to the fine print).  You also run the risk of falling back into bad habits and filling your new card up to its limit again.  

You can also look for the lowest fixed rate card that you can find and come up with a plan to pay it off.  Destinations Credit Union offers a low-rate MasterCard with lots of benefits (ScoreCard rewards, no annual fee, no balance transfer fees, etc.).

If you want an even lower rate, you might consider a home equity loan or line of credit.  Home Equity Lines of Credit (HELOCs) generally offer lower rates than Home Equity Loans, but the rate is variable so it may go up.  Destinations Credit Union offers its HELOC at Prime minus 1% with a floor rate of 4%.  Prime would need to increase by more than 1 3/4% before the rate on your HELOC will go up.  Home equity loans have a low, fixed rate, so you can avoid an interest rate hike and save money in interest payments every month.  While it might seem a little scary to borrow against your home equity, if you have accumulated significant credit card debt, your home might be the only source of wealth you can borrow against to cover it.  The loan payments should be less than you’re paying your credit card companies every month, so you’ll find it much easier to make your payments and get out of debt.  

If you’re interested in using your home equity to get out of credit card debt, you can find out more by calling a loan officer at 410-663-2500.

If you were planning on buying a house (or refinancing) soon, it’s time to make your move.

Fixed-rate mortgages will be unaffected by any interest rate hikes the Fed might employ, so if you think a rate hike is coming, get your mortgage now.  The difference of a few percentage points in the federal rate could mean mortgage payments increasing by as much as hundreds of dollars per month for some homeowners. Avoiding that fee is as simple as getting the paperwork for a new home loan finished before a rate hike occurs.  

If you wanted the extra few months to bulk out your down payment, or you weren’t sure about refinancing this summer, it’s time to sit down with a professional who can take you through the numbers and find out how much that indecision might cost.  You can speak to a mortgage specialist with our underwriting partner, Financial Security Consultants, or follow this link to get pre-approved right now.

If you’re investing, it’s time to look at conservative options.

As long as the Fed kept interest rates low, it was a good idea to invest more heavily in stocks than investment products offered by financial institutions.  Low rates meant easy loans to businesses and expansion was easy, so it was driving up stock prices.  As rates go up, credit markets slow down, and expansion becomes less profitable for all those corporations in which you own shares.  

At the same time, as the prime interest rate goes up, so does the return you’ll enjoy on your money market account, savings certificates, or any of a variety of investment products you may have.  Find out what we can do to put your money to work by checking out our insured deposit accounts, and if you’re trying to get some money put together for retirement, don’t forget about our IRA accounts.

No one knows for sure what Janet Yellen is going to do.  Predicting the Fed’s rates is a big-money business for a lot of powerful institutions.  In the end, you’re going to have to decide if you want to leave your money in places where a rate hike could increase your costs, or put it into more stable products.  If you aren’t sure what to do and want guidance, feel free to call or come by, we’d love to help you understand your options.

Sources: