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Why & How to Plan Ahead for Health Care Expenses

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Health care is something that most Americans overlook when budgeting. Medical debt child with nursecan get out of control if you don’t have health insurance or you don’t plan ahead for unexpected health care expenses.

But how do you plan ahead for health care expenses?

Here are a few tips that can help you start the planning process:

  1. Research health insurance plans and medical costs. To plan ahead for your health care expenses, you will need to understand what type of health insurance plan you have and the medical costs that you may incur in the upcoming year.
    • Determine how much to save based on your deductible, co-payments/co-insurance and/or out-of-pocket maximums. You can contact your health insurance provider to find out the amount of your deductible.
    • Estimate how much to save based on any medical bills you received in the previous year.
    • Calculate how much to save based on any prescriptions you had to pay for in the previous year.
    • Attend workshops and seminars presented by your employer or health insurance organization to get a better understanding of how to get the most out of your health insurance plan (and spend the least amount of money out of your own pocket).

Everyone’s situation will be different. Use what you think will be best for you to determine how to save money on your health care costs.

  1. Start the planning and budgeting process. A best practice is to use a budgeting tool to outline all of your monthly expenses, including any estimated health care costs. A visual map of your financial plan will give you something to follow to ensure you are meeting your savings targets every month.
  2. Consider Opening a Health Savings Account (HSA) or Flexible Spending Account (FSA). These enable you to save for health care expenses in advance (on a pre-tax basis). Not only are the funds untaxed, they can also be used to cover the cost of co-payments, co-insurance, out-of-pocket maximums, and prescriptions.

The Bottom Line: You’ll Save Money in the Long Run

Ultimately, planning ahead for health care expenses is like planning ahead for retirement. With retirement, you plan ahead to cover all of your bills in the future. The same concept applies for health care expenses. The money you save will enable you to cover the costs of any medical expenses you incur in the future.

Courtesy of Accel Members Financial Counseling, Destinations Credit Union’s partner to provide its members free unlimited financial counseling.

Rethinking Your Money With Apple Math

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When it comes to your finances, it can seem like all the advice you get is deadly boring, unbearably abstract or both.  For example, when it comes to paying off debts, how can you be expected to make a dent without first having a spreadsheet that compares all your credit cards and loans with columns for principal, interest rate, fees and maybe even frequent flyer miles?  It’s intense. At the same time, when it comes to spending, you’re no better off. How do you compare the value of a fancy dinner to buying a new outfit for the kids?

In 1986, The Economist created “The Big Mac Index” as a way to compare currency values across eras and national borders.  The index shows how many hours of labor it takes to earn the cost of a Big Mac. So, if it took you 10 minutes to earn the cost of a Big Mac last year and it takes you nine minutes today, you are – in theory – better off than you were before. That’s true whether those gains come from getting a raise, moving to a town with a lower cost of living or improvements in McDonald’s supply chain to save consumers money. While the value of a dollar changes over time, the value of a Big Mac to a hungry customer remains constant.
We’re going to use the same Big Mac concept here, but we’ll use it to explain personal finance. If you’re a fan of Apple products, fabulous. If not, feel free to substitute other luxury goods of your choosing.  As an added benefit, if you’re looking to talk about money with a young person, you may find the Apple index to be a helpful tool for starting a conversation.  After all, that young person is probably staring at their phone, tablet or laptop right now. 
The price of luxury 
If you’re carrying an iPhone, it’s probably the most expensive thing you carry every day.  You might not think so, because you might be used to those two-year contracts that artificially decrease the price of a phone by several hundred dollars.  In reality, though, a lot of companies, from your service provider to the handset manufacturer, stand to make money by concealing the price from consumers.
Even then, you could be skeptical.  “After all,” you might say, “I’m currently wearing a very expensive watch.  This Omega Speedmaster Moonwatch is the same model as the one that’s been on the moon.” Or maybe you’re glancing at your Hermès Clemence Birkin purse, believing no phone could cost as much as a bag for which a noble alligator gave its life.
Actually, it does.  You see, when a person buys a luxury watch, he or she usually expects to hand it down to their son, daughter or whomever so they may stay in a family for generations.  The same is true for Hermes bags, particularly because they have to last long enough to get back to the top of the waiting list.  A Hermes reservation can last a family for generations, too.  A $10,000 watch or bag that lasts 100 years actually costs $100 per year.  Similarly, a basic two-year phone contract typically came with a $200 credit toward a phone purchase, so even a free phone on that plan costs $100 per year, the same as an Omega watch or Hermes bag.  A $649 iPhone 6s costs more than three times that much. 
The price of five bucks 
Most phones sold this year don’t have 2-year plans.  Instead, AT&T, Verizon and many of their competitors offer plans that can be canceled at any time, with the cost of the phone spread over two years or more, disguising the total price of the product.  After all, the difference between spending $25 per month and $30 per month seems negligible. If you’re already writing a check to your service provider for $200 worth of data, talk, taxes and fees every month, what’s another five bucks, right? Of course, that difference over two years comes out to $120.  If you have three lines on your account, the bill comes to $360.
When are you planning on paying off that smartphone?  When do you expect to not have to pay another phone bill?  The smartphone manufacturers assume a two-year lifecycle, and intentionally do not design their phones to last forever. Five years ago, one of the best selling phones was the original Motorola Droid. Go back another year, and it’s Nokia at the very top of the sales charts, capping over a decade of the company’s dominance.  It’s hard to remember that environment, but it included 3G networks and sliding keyboards.
Phones have short shelf-lives, so you can probably expect to make payments on a phone for most of the rest of your life.  If you made that $5 payment into your savings account instead, that would be around $16,000 in time for your retirement.  That’s an expensive five bucks.
It’s not a Big Mac, but hopefully the iPhone works just as well to explain the value of money when it’s difficult to understand.  Buying a product that lasts a lifetime can actually be quite affordable in the long run.  On the other hand, a mindlessly squandered five dollars can be quite expensive.  We’ve got a lot more lessons from the Apple index coming up, so stay tuned! 
Sources: 
https://www.therealreal.com/designers/hermes  
http://www.economist.com/content/big-mac-index  

http://www.gartner.com/newsroom/id/1543014  

http://www.omegawatches.com/watches/speedmaster/moonwatch/dark-side-of-the-moon/catalog  

Tax-Free Weekend … Every Weekend

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Tax-free weekend will end this Saturday (8/15/15) for Marylanders.  It’s a heady rush, getting our Black Friday fix in the sunshine of August  The kids are ready to head back to school with new clothes (that they don’t yet hate) and school supplies (they haven’t yet lost).  But what about the people who missed out?  What about the kids who just need one more thing? What about mom and dad who deserve a tax-free spree, too?  Is there a way to shop tax-free every weekend without ending up with the IRS coming after them?
The answer is yes, you can shop with a 10, 15, or 20 percent discount every day and do it without breaking the law. Some of our favorite tips for keeping costs down are below. They also come with a plan for turning your shopping savings into long-term savings, because it’s not enough to keep money in your pocket, you’ll want to put it to good use, too.
When you’re done reading, hit up our Twitter feed or Facebook page to share your favorite tips and post pictures of your best hauls.
Bring your smartphone.  Don’t buy anything in a brick and mortar store without pricing it online first. If you’re the kind of shopper who frequently buys on impulse, just bring your smartphone and do a few searches of the most likely places you’d find the item you’re looking at, like eBay, Zappos or the website for the store where you’re shopping.  The Amazon app even lets you scan a barcode with your phone’s camera and does the searching for you.  You can save a lot with this simple 30-second step.
Shop for used gift cards.  We all know the feeling of getting a gift card we’ll never use.  Well, a variety of websites offer a place for people to sell their unwanted gift cards, often for well below the face value of the card.  Everybody wins: The seller gets some value out of a gift card that would otherwise be sitting in a junk drawer and the buyer gets a nice discount.
So, before you check out online or in-store, search Gift Card Granny and Gift Card Zen.  They have some gift cards that will transfer to you in five minutes or less, allowing you to save 10-15% right away.  All gift cards are backed by the site, so you don’t have to worry about scams.  For many of the big chain stores like Target and The Gap, those online codes work in store as well, so you can save money while you wait to check out.
Clear your cookies.  Retailers are smart, so they know that getting you to make a quick purchase on your first visit means they’ll probably get you to shop at their store for life.  They’ll offer you a coupon for 10 or 20 percent off of your first purchase if you sign up for promotional emails on your first visit. Those offers often expire within 24 or 48 hours.  As smart as retailers are, their websites are not quite as intelligent.  It’s easy to make websites think it’s your first visit so you can get that coupon every time you visit.  All you need to do is visit the site from a different browser than you usually use.  If you don’t have more than one web browser, you can download Chrome, Mozilla or Opera for free, and use that for this trick next time, too.  Sometimes you just have to use your phone. If none of that works, try clearing your cookies and browser history. Then, all you need is an email address you haven’t used at that site, and most of us have a few of those just waiting to be used.
Turn your everyday savings into long-term savings.  It’s great to save a few dollars every now and then, but it doesn’t always feel like you’re really getting anywhere.  But you were going to spend that money anyway, so if you put it in savings, it wouldn’t be a sacrifice.  You can pull up our website at www.destinationscu.org or use mobile banking and transfer that money to savings before you even leave the store.  If you put an extra $25 away every month, that’s $300 per year … without really trying!
If that seems like a lot of work, you can also work the gift card trick into your monthly budget.  If you normally spend $25 per month on coffee, buy a $25 Starbucks gift card online from Gift Card Zen for $20 at the the beginning of the month, then put $5 into your savings.  Now you’ve got the savings and an easy way to stay on budget.  The gift card can go into their app so the whole family has it on their phones – it’s like Starbucks is paying you $5 to make your life easier.
You can do this for all the places you shop.  For instance, do you budget $100 for clothes, $300 for gas, $50 for eating out, $25 for coffee and $25 for movies each month?  If you get gift cards for those stores at 10 percent off, you’ll save $50 each month, totaling $600 per year.  If nothing else, you can put that in one of our Holiday Club accounts and have it at the ready to take care of your holiday shopping!  
Sources:

https://www.starbucks.com/card

http://www.giftcardzen.com

http://www.giftcardgranny.com/

Four Ways To Repay Your Student Loans With Help From Destinations Credit Union!

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Graduation day seemed like it would never come. As a freshman, you saw
seniors swaggering about like they owned the place. Then, just a few short years later, there you are. You’ve crammed for your last final, written your last paper and said tearful goodbyes to your friends. For many graduating seniors, though, leaving college isn’t “real” for quite some time.

For many college students, the reality of moving on from college doesn’t set in when they throw a mortarboard. It comes a few months later, when they get their first billing statement for their student loans. Seeing a balance of $30,000 can make the gravity of adult life hit home in a very real way.

It’s easy to put making the minimum payment on auto-pilot and to treat your student loan bill like your cellphone bill or rent payment. It gets sorted into the pile of bills to pay and never gets a second thought. However, you might be leaving money on the table by using the loan company’s bill pay service.

Destinations Credit Union can help you pay back your loan in more ways than you might realize, and save you money in the process. Here are four convenient ways you can pay for your education and get greater flexibility. You might be able to get some extra rewards out of the deal, too!

1.) A savings account for college students

You can’t start paying off your student loans while you’re in college. But that doesn’t mean you have to sit and wait to get buried under an avalanche of debt. You can take proactive steps while you’re in school to make your life easier.

Your student work or part-time job might not make a dent in astronomical tuition costs, but it can still help you get out of debt faster. Setting up automatic savings account transfers will force you to put away a little bit each month. Check out Destinations Credit Union Kasasa Cash or Cash Back (free checking with rewards) to see how you can get extra money for your savings every month.  You can use that once you’re out of school to make a big first payment. It’ll really take the sting out of the debt load.

Make sure to put this money into an account you won’t be tempted to use for other things. The $100 or $200 you put away every month could rapidly disappear through dinners out and concert tickets. Automating savings is a way to keep yourself disciplined and on target.

2.) Automatic bill pay

Your student loan provider is a business, and they’re out to make money. All aspects of their operations, from the materials they send you when you start borrowing to the bills they send you each month, are marketing materials. They’re designed to maximize profit. For lenders, that means keeping you paying the minimum amount for as long as possible.

That’s why their bills make it as easy as possible to pay the minimum and require extra work to pay more than that. They want you to pay the “amount due” every month. It’s more profitable for them that way.

You can get the advantage back by setting up automatic bill pay. When you do, you can designate an amount of your choosing to be paid to the lender every month. You can pay your bill back at your own pace and save some money on overall interest while you’re at it! As a bonus, you can often get around nuisances like “technology fees” with automatic bill payment.

3.) Pay with a Destinations Credit Union credit card

One of the benefits of a student loan is the bump you get on your credit score by paying it regularly. Lenders see your management of student loan debt as evidence of responsible borrowing, making them more likely to trust you in the future. If you want to maximize the benefit to your credit score, you can use a credit card from Destinations Credit Union to make your student loan payments.  You can earn rewards with each “purchase” but make sure you are paying down the credit card as you make these payments.  There’s not much point in trading one kind of debt for another unless there is a long-term benefit.

This advice deserves some qualification. Many lenders don’t accept credit card payments, and many others charge handling fees. A 1% transaction fee for using a credit card should be seen as a 1% increase in interest. Also, credit cards can be an easy way to get into trouble. Don’t use them if you don’t have an emergency fund to fall back on. Credit card interest rates are frequently much higher than student loan interest rates and missing a credit card payment is just as detrimental as missing a student loan payment!

Still, if you’re careful about it, you can build your credit score twice for the same loan. Both your student loan and your credit card will show as paid each month, which will make you look twice as responsible for paying one bill. You will be able to earn a few rewards points as icing on the cake.

4.) Consolidate and refinance

College is about the journey, not the destination. If your journey was a longer one than usual, you may have debt from several places. You may have used your credit card to finance your living expenses or taken out unsubsidized loans from private lenders. These variable interest rate loans can really hurt you financially.

It might be time to consider refinancing. You can take a personal loan for all your outstanding debt and consolidate it into one monthly payment. You can lower your interest rate and simplify your financial life at the same time.

This process can also include one-on-one time with a trained financial professional at Destinations Credit Union. You can gain advice on budgeting and make a roadmap to a truly debt-free future. To see if consolidation is right for you, call, click, or stop by Destinations CU today!

SOURCES:

http://www.bankrate.com/finance/college-finance/repay-college-loans-fast-4.aspx

Bubble Bursting

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The economy has always moved in cycles. There are times of vigorous expansion followed by periods of slower growth or retraction. It’s been happening since the dawn of recorded history and will likely continue to go that way for generations to come. There are a million theories to explain this phenomenon, from sun spots to demographics, but the “why” is less important than the demonstrable fact of the business cycles.

When people talk about “bubbles” and “bursting,” they’re putting this widely observable fact into panic-inducing language for the purpose of sensationalism. A headline reading “Economy doomed due to bursting bubble” sells a lot more papers than one that reads “Economic cycles continuing as normal for past and foreseeable future.” Yes, some periods of economic retraction are more intense than others, but the sky is not falling.

Federal Reserve meetings have begun regularly discussing the possibility of raising interest rates. Such a move might make several investments that have been lucrative for several years, such as insurance companies and financial service providers, suddenly less attractive. Such a shift, particularly by investment-generating annuities and other managed funds, will drive down prices in these sectors.

Changes are likely coming in the economy and it makes sense to modify your investment strategy. Sensible investors respond to market conditions to protect their portfolio. There are a number of seasonal adjustments that can help to insulate you from the inevitable retraction. You should discuss these moves with a qualified financial advisor.

1.) Sell off risky investments

Most people who predict a bubble bursting have some idea of what industries are exposed to the greatest levels of risk. Popular choices include real estate, financial services and manufacturing. These industries are generally more exposed to volatility in the market, so it makes sense to shade your portfolio away from these sectors.

This isn’t a permanent move. This is part of the most basic wealth-building strategy: sell high and buy low. Stocks and funds that comprise these sectors are likely near a temporary high. Their prices will fall and investors who sell will have the opportunity to reinvest at much friendlier prices.

2.)  Shift to non-cyclical stocks

“Sell in May and walk away” is common stock market advice. Many sectors, especially cyclical consumer goods, tend to notice dropoffs in their stock prices during the summer months. Families choose to spend their discretionary money on vacations and other experience-related items instead of electronics or fancy clothing. While this advice is generally good, it’s incomplete.

Rather than leaving your investments in cash, move them into less volatile options. With interest rates poised to go up, bonds and other savings instruments can be a good way to shield yourself from risk. This is called “defensive investment.” When you expect stocks to perform slightly worse than average, investment vehicles, which are less influenced by market forces, become smarter picks.

3.) Adjust your retirement plans

One of the only dangers to the coming retraction is to people who are planning to retire in the next year or two. Those folks may experience a dramatic dip in their available retirement funds right at the time they need it. If retirement plans are flexible, it makes sense to wait out a market downturn. Postponing retirement by a year or two can improve your standard of living dramatically.

Otherwise, not only will you not be pulling out money from your retirement account at the time you can least afford it, but you’ll also lose out on years of buying cheaper stocks. Those prices will rebound eventually, which will magnify the return on those dollars. Earnings invested in down economic times are worth more in retirement than those invested in boom times.

4.) Stay calm

If you’re invested in managed funds, you may not need to take any action. Mutual funds, which are widely diversified, will likely continue to experience a similar rate of return. Individual securities will fluctuate wildly in price and sector funds will also be subject to some day-to-day volatility. Market-wide index funds will have slightly higher day-to-day changes in price, but on the whole, will still experience the same gradual rate of return. Odds are good your retirement account is in one of these funds if you selected it in consultation with a retirement planner.

As always, you need a certain amount of money available easily in case of emergency.  This is where Destinations Credit Union can help.  We have lots of savings options that will help you get the best return on your safe (insured) and liquid cash.  Payroll deductions or automatic transfers can help you save painlessly.  
You don’t need to panic about your 401(k) and put all your money in a mattress. You don’t need to quit your job and run for the hills. You may need to adjust your portfolio to take advantage of changing market conditions, but you shouldn’t stop planning for the future. Keep calm and save on!

SOURCES:

Rebuilding An Emergency Fund

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A significant financial crisis can wipe out your emergency savings.  If this has happened to you, rebuilding your savings must be a priority. 

All the best financial experts agree you need to keep an emergency fund. Keeping 3-5 months of living expenses in a savings account, certificate account, or investment account can be the difference between a temporary hardship and a life-long debt trap. Using that money instead of credit cards or short-term loans is a lot less expensive in the long run.

There are many reasons why you might need to use that money. It could be from an unexpected expense, like a medical bill or a car repair. It could also be job loss that forces you to tap out your savings. Whatever the cause, it’s a whole lot cheaper to pay for it out of savings than to have to borrow, and it’s much less embarrassing than having to beg friends or family to cover your bills.
In the midst of a stressful crisis, it can be hard to focus on the positive. It’s important to take a moment to congratulate yourself for having the foresight to manage your problem. Things could be much worse than they are now. In addition to all the stress you’re currently feeling, you could have a big ball of debt to add to it. It’s not because of luck, it’s because of good planning.
Despite that relief, you’re not out of the woods yet. Without savings, you’re in a position of significant insecurity. Another crisis right now, even a very minor one, can cause financial problems that will create a ripple effect on into the future. You could find yourself in a much worse position in three months’ time than you are now.
Getting back to a position of financial security should be your highest priority. That means rebuilding your emergency fund as quickly as possible. These three steps will have you back on track before you know it.

1.) Make an emergency budget – and stick to it! 
Without an emergency fund, you’re one blown tire, one missed shift or one broken arm away from a financial catastrophe. That’s why an emergency fund is so important. Cut spending wherever you can. If you can do without cable for a few months, call and suspend service. Temporarily cutting back on media, clothes, and other discretionary spending is also a great idea.
Also, consolidate your savings. If you’ve been saving for a vacation, a new car or some other big ticket item, stop putting money into those “buckets” until you rebuild a few months’ living expenses. Once you return to having a decent cushion, you can get back to saving for your other priorities.  Visit a Destinations Credit Union Member Service Representative to see if there are higher rate options for your saving or if refinancing a loan from elsewhere could cut your payment amounts.
If these cuts aren’t enough, finding money in more extreme places might be helpful. If you can, spend a few months taking public transportation. If it works out well, you might find yourself thinking about selling your vehicle for another quick infusion of cash.
Remember, a budget is only as good as your commitment to it. If you make extreme cuts that you can’t keep, you’ll end up spending even more because you feel entitled to it. Make sure your budget is realistic and humane! 
2.) Build income wherever you can 
There’s no secret about building your savings. You can only save the difference between your income and your expenses. In your budget, you worked on the minimizing expenses part of that equation. Now, it’s time to turn your attention to the income side.
Raising your income at work could be as easy as asking for a raise. It could also mean taking additional hours or picking up extra shifts from co-workers. You don’t have to do so for the rest of your career, just for a few months until things get better.
You may also need to boost your income outside work. Selling old clothes and books can be a source of quick cash. Picking up freelance or contract work can also be a way to earn extra money. It’ll create a stressful few months, but it’ll be worth it to get back to security. You might also make connections that could help your career over the long term. 
3.) Build a backup plan 
The worst thing that could happen right now would be another crisis with no way to pay for it. You may not have the money to deal with it, but you’ve still got your financial smarts. It’s time to make a plan. 
Think about what you’d do now if you lost your job, even without your emergency fund. Make a list of phone calls you can make to find temporary work. Who in your network do you know who could use your skills on a temporary or contract basis? Do you know anyone who, if you absolutely had to, you could call for a quick loan? 
There are a few other questions to ask. What stuff sitting around your house would you sell if you had to? What does your food budget look like with $50 taken out of it? It’s easier to make these decisions when you’ve got the time and space to reflect on it. Making these choices with a past due notice in hand is much harder to do. 
Hopefully, you’ll never have to use these ideas, but you’ll feel better for having thought about them beforehand. It’s also something pro-active you can do instead of worrying. Taking action, any action, to remedy your situation can help fight the stress involved in insecurity and get you in a better head space. That alone is worth the effort. 

SOURCES:

Borrowing Against Your 401(k) – Is It Ever A Good Idea?

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One of the many perks available to working folk is a company-matched retirement plan, named after the part of the tax code authorizing it. These tax-deferred retirement packages are the principal retirement vehicle for just over half of all people in the United States. Americans sock away about 6% of their pay in 401(k) plans to receive employee matching and tax breaks.
One feature many people don’t realize about 401(k) funds is that the account holder can borrow against the balance of the account. About 87% of funds offer this feature. The account holder can borrow up to 50% of the balance or $50,000, whichever is lower, but the whole amount must be repaid within 5 years. There’s no approval process and there’s no interest. It’s basically a loan you give yourself, and is a popular enough option that 17% of millennial workers, 13% of Gen Xers and 10% of baby boomers have made loans against their 401(k) accounts.
Despite these benefits, borrowing against a 401(k) is a risky proposition. There are harsh penalties for failure to repay and taking money away from retirement savings is always risky. Borrowing from a 401(k) account should not be a decision that is made lightly.
As with most financial moves, there are benefits and disadvantages to borrowing from a 401(k). It can be difficult to sort through them, particularly if your need for money is acute and immediate. Before you borrow from a 401(k), though, ask yourself these four questions:
1.) Will the money fix the problem?
Many borrowers use money from their 401(k) to pay off credit cards, car loans and other high-interest consumer loans. On paper, this is a good decision. The 401(k) loan has no interest, while the consumer loan has a relatively high one. Paying them off with a lump sum saves interest and financing charges.
But the question of whether repaying that loan will fix the underlying problem remains. Take a look at your last six months of purchases. If you had made a 401(k) loan six months ago and paid off revolving debt, would your debt load still be a problem? Perhaps not – your current situation may reflect an emergency or an unplanned expense. On the other hand, if your credit cards are financing a lifestyle that is above your means, you may find yourself back in the same position a year down the road – and with no money in your 401(k).
Borrowing against a 401(k) to deal with a medical bill, a first-time home purchase or an emergency car repair can be a smart move. Using a 401(k) loan to put off a serious change in spending habits is, as one financial expert put it, “like cutting off your arm to lose weight.” Before you borrow against your future, make sure it will really fix your present.
2.) Will the investment offer a better return?
Your 401(k) is earning money for you. It’s invested in stocks, bonds, and mutual funds that are appreciating, usually at a fairly conservative pace. If you pull money out in the form of a 401(k) loan, that stops.
The statement that a 401(k) loan is interest-free is only technically true. You have to pay back what you pull out, but before you do, it doesn’t earn any interest. Therefore, the “interest” you pay on your 401(k) loan really comes in the form of the gains you never produced on the money you borrowed since you were not investing it during that time.
If you’re borrowing from your 401(k) to invest in a business, ask yourself if your new venture will beat the return you’re currently getting. If you’re planning to pay off your mortgage, compare the interest rate you’re paying to that return. Don’t worry about trying to time or forecast the market. Assuming a 4% return (a safe average) is the most prudent course of action.
3.) Is your job secure?
If you’ve recently been promoted or gotten new training on an important job duty, you can be pretty confident you aren’t going to be let go from your job any time soon. If your recent performance reviews haven’t been stellar, or if your company has some layoffs pending, you might want to beware. If you’re at all hesitant about your future at the company, hold off on borrowing from a 401(k).
If you lose your job or retire with a loan outstanding, you have 60 days to repay the loan in its entirety. Otherwise, it counts as a “disbursement.” You’re responsible for taxes on the entire amount and you’ll have to pay a 10% early withdrawal penalty. Staring down big bills like that after you’ve just lost your job is not a fun predicament.
While job loss can happen at any time, you want to make sure you’ll be happy and welcome at your current employer for the next five years before you pull money out of your 401(k). You may also want to consider accelerating your repayment plan to get your 401(k) refunded as quickly as you can. Unlike some loans, there’s no penalty for early repayment. Plus, the sooner the money is back in your account, the sooner it can start earning for you again.
4.) Do you have other options?
If you’ve identified your need for money as immediate, consider what other options you may have available before you dig into your retirement savings. For home repairs, using your home equity line of credit can be a smarter choice. For an outstanding car loan, refinancing may make more sense. For a medical bill, it may be wiser to negotiate a repayment plan with the hospital.
If you’re purchasing a first home, consider the tax implications of mortgage interest. In many cases, you’ll receive preferential tax treatment for interest paid on a home loan. You won’t receive that same benefit from a 401(k) loan.
Borrowing from a 401(k) can be a good way to solve a short-term, specific problem. It does have risks, however, and the consequences to your future can be severe. If you’ve got another option, that’ll be better option for you more often than not.
SOURCES:

http://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp

Don’t Be Scared Of Retirement: Refire And Get Ready For The Best Years Of Your Life

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More than half of our nation’s current workers have done nothing or next to nothing to save for retirement. Some might call them lazy, but it might be more realistic to call them terrified. They’re not scared about not having enough saved for retirement; they’re scared about retirement itself.

For a life-long worker, retirement may be a tough pill to swallow. Work is the anchor for your day. It’s why you get up when you do. It’s why you go to bed when you do. You divide your conscious hours between “work” and “not work.” There’s also a sense of identity in a job. Providing a simple answer to “What do you do?” can help you connect with others and yourself.

What’s retirement anyway? One might say it is just sitting around, doing nothing and waiting for death. In that mindset, continuing to work provides a meaning to your remaining years that can’t be found in a rocker, on a couch or in front of a TV.

It’s no wonder people aren’t saving for retirement. It’s a whole lot of extra work and sacrifice for something you may not even want. If this resounds with you, take a look at Refire! Don’t Retire: Making the rest of your life the best of your life.

Coauthors Ken Blanchard and Morton Shaevitz bring their entrepreneurial experience to life with the story of Larry and Janice Sparks. The Sparks begin their retirement unsure of what to do, but quickly discover ways to grow in their relationships, engage their minds, broaden their spiritual horizons and strengthen their bodies. They re-fire the flames of all their interests and take bold steps toward leadership in their communities.

Refire is an easy and engaging read that’s more motivation than practical guidance. In fact, critics have noted the lack of practical advice. Yet It’s received glowing reviews from other authors, industry leaders and even NCAA legend John Calipari.

If you’re thinking about retirement, Refire is a worthwhile investment. If you’re NOT thinking about retirement, it’s a must-have. Blanchard and Shaevitz will put you on the path to financial independence and security with imaginative ways for encouraging a generation that’s about to retire to make the most out of its retirement.

America Saves Week – Saving For The Future Can Save The Day

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The week of February 23-28 is America Saves Week. The event, put together by the American Savings Education Council, began in 2007 as a way for organizations and individuals to talk about one of the most serious problems facing American consumers: the lack of savings. While American consumers are in a better position than they were at the height of the economic crisis in 2007, we still have a long way to go.

Only 64% of households have sufficient emergency funds to cover temporary crises like car repairs, medical bills, job loss or some other serious life change. That number is down 7% from 2010. 68% say they are saving more than they are spending, down from 73% in 2010. It seems as though the lessons of the great recession have been forgotten.

This lack of savings puts individuals at risk of financial ruin, but it also places the economy itself in jeopardy. Declines affecting one industry are bad news for the economy, but they don’t trigger a credit crunch without a number of other problems. Low rates of consumer savings and high lifestyle maintenance debt can make job loss a vicious cycle. Consumers with high debt loads find themselves unable to spend, which slows growth in the rest of the economy. This leads to job loss in other sectors, snowballing throughout the economy.

Savings and low debt represent a way to fight back against this cycle. Reducing debt and increasing savings provides a way for consumers to maintain their lifestyles through career setbacks, which prevents the worst parts of economic crises. That’s right: You can save the day with your savings.

If you’re interested in participating in America Saves week, here are three great ways to do so.

1.) Make a pledge and set a goal

By making a commitment to spend less, save more and get out of debt, you can motivate yourself to do just that. The America Saves week website, www.americasavesweek.org, has a pre-written pledge you can sign. It’s a great first step toward building personal wealth and making yourself a backstop against recession.

The site also lets you set a monthly savings goal. If you’re just starting out in trying to get your finances under control, you might set a small goal – such as save $40 a month for 3 months. The website has a calculator that lets you see how much small savings add up over time. If you’re a veteran saver looking for a way to keep yourself on track toward a goal, the tool will let you work backward from a vacation budget or loan balance to see how much you need to save each month.

Let Destinations Credit Union help with your pledge. Sign up for automatic transfers from checking to savings (or create your own within online banking) to keep yourself honest to your pledge. With a Kasasa Rewards Checking, you can attach a savings account and your rewards are automatically swept into the savings.  With these tools, you’ll be at your goal in no time!

2.) Show the world what you’re saving for

It’s easy to get discouraged when your goal is something abstract. “Savings” is hard to compare in your head to a new cellphone game or a dinner out. That’s why it’s so important to make your goal something concrete. Save for a vacation, or for a new vehicle, or for your education.

Picking a concrete savings goal is step one in keeping yourself motivated. Next, you’ll want to document your goal. Snap a picture of yourself with what you’re saving for. If you want to pay off your mortgage, take a picture of yourself in front of your house. If you want a new car, take a picture of yourself behind the wheel at a dealership. If it’s a tropical vacation you’re after, take a picture of yourself in a swimsuit in front of the giant piles of snow outside. Document your goal so you’ll always have something to look at when you get discouraged.

Best of all, snapping that picture could get you $500 toward your goal. Share your picture on Facebook, Twitter, Instagram, or other social media. Use the hashtag #imsavingfor. Then, navigate to the America Saves Week website and let them know what you did. You’ll be entered in a drawing for $500 to kickstart your savings and you’ll inspire your friends to set and follow their savings goals as well!

3.) Stay inspired

There’s a rush of enthusiasm that comes from starting a new project. At first, it’s novel and effortless. Then the days drag on. The novelty starts to wear off. The project becomes just another routine. A missed day turns into a missed week. The enthusiasm that characterized the start of the project just isn’t there.

Make sure this doesn’t happen to you with your America Saves Week pledge. Take some time to flip through the inspiring stories, like Mary Brown. A Wisconsin resident, Brown spent 7 years in Milwaukee public housing before saving to her goal of $2,000. Now, she’s finished her B.A. and moved her family into their first home. Stories like these remind us of the power of commitment, discipline, and dedication.

Take time each day to reflect on the progress you’ve made and the challenges you’ve overcome. Take a look at your goal and think about how good you’ll feel once you’ve accomplished it. Thank yourself for helping to keep the economy strong and your career on track. Most importantly, keep saving!

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Affordable Care Act Tax Forms

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The Affordable Care Act (ACA), also called Obamacare, made a lot of changes to the tax system. This last year, people saw the healthcare side of the bill, including the healthcare exchange marketplace, pricing rules and simplified plans. This year, the funding side of the act goes into effect.

This change in regulation might seem like it’s happening somewhere far away from daily life. Most of the time, that’s true. When it comes to tax time, though, the ACA will get up close and personal.

There are a variety of new tax forms people must use to comply with the regulations of the act. They might seem confusing, but they’re no worse than any other tax form. Let’s take a look at three steps you might need to take under the new rules.

1.) Check a box on your 1040

The “master sheet” of your return, where you list your gross income and deductions, is called the 1040. This year, there’s a new line that asks you to certify you have health insurance. If you do, check that box. If you have insurance through your employer, or you’ve purchased private insurance, that’s all you need to do. Keep a copy of a statement from the company just in case the IRS needs proof and move on to the rest of your taxes.

The IRS estimates that 75% of taxpayers will have to do no more than this. “For the vast majority of Americans, tax filing under the Affordable Care Act will be as simple as checking a box to show they had coverage all year,” said Treasury Secretary Jacob Lew in a press statement. Line 61, where the check box is located, will be the only noticeable change to your tax form.


2.) Deal with new forms

Like many new government regulations, the ACA created several new forms to fill out. The most common of these is the 1095a, which provides proof of your coverage and how much of a credit you were advanced to cover the costs of your premiums.

People interested in claiming that credit will not be able to file a 1040-EZ, the simplified 1040 form used by people in straightforward tax situations. To claim the credit, they will have to fill out their return on the standard 1040 form, which is slightly longer. They will also need to fill out form 8962. This is also the form to use for reconciling the amount of tax credit advanced versus the amount due.

If you got a new job, got a raise or had another significant life event, you may have to pay back part of the subsidy on your insurance. If you had a child, lost your job or had your hours cut, you might be eligible for an additional credit. That same form, 8692, will help you figure out what your life changes mean for your taxes.

3.) Pay a penalty (or request an exemption)

The reason for the check box on the 1040 is to ensure compliance with the so-called individual mandate that requires everyone have health insurance. If a person didn’t have health insurance in 2014, they can expect to pay a penalty this year. The penalty is calculated based upon how much their family earns above a certain level. Most tax experts predict the average penalty will be $301 this year and could go as high as $600 next year.  If you need to obtain insurance, Destinations Credit Union has partnered with TruStage to offer health insurance to our members.

There are a few available exceptions to the individual mandate. Individuals who make less than the income filing threshold, for example, are not required to purchase insurance. You may also claim an exemption if the cost of the premium would exceed 8% of your household income, or if the gap in your coverage was less than 3 consecutive months. These exceptions are all certified through form 8965.

If you can’t claim an exemption, it might be time to buckle down and get health insurance. The cost will continue to rise, and the longer you wait, the more you’ll pay. You’re also gambling that your health will hold. Insuring younger people without health problems is cheaper than insuring older people with health problems.

The IRS has devoted considerable resources to public outreach about the new changes. It is encouraging anyone who has questions about the new policy to visit its website, IRS.gov, and follow the link to the ACA help page. It’s also included video tutorials showing how the new forms work and providing walk-throughs of the trickier parts.

Tax time can be confusing! If you’re absolutely flummoxed by the new forms, it might be time to find an expert. You can also used a guided system like TurboTax Online to make it a lot easier.  Destinations Credit Union has partnered with TurboTax to provide a discount to our members!  Check it out for free.  Then make sure you directly deposit your refund check into your Destinations account!

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