Your Real Net Worth


For accountants, your personal net worth is one of the simplest calculations they might be asked to perform. Add up your assets in column A, add your debt in column B, then subtract B from A to find your net worth. It’s a number you should know, or at least be able to estimate, and it’s good to check it every year.  Since it’s March, which is the sweet spot between New Year’s resolutions, January credit check-ups and tax time, there might not be a better time to figure out your net worth than right now.  When you do, don’t forget all of the value that might not translate into worth. We’ve got a short breakdown for you, along with a way to maximize the value in your life while minimizing how much it costs you: 

Your education increases your net worth, even though it may not look like it. Very few investments offer the rate of return that continuing education does. Those who finish their college degree earn, on average, about twice as much as those with a high school diploma over the course of their lifetimes, and the gap has been widening for at least 35 years. Still, your future earning potential doesn’t show up on your net worth, even though your student debt does. If you’re trying to decide whether to go back to school, take a few extra classes or get a new certification, the cost may seem intimidating since there’s no immediate benefit. Don’t let that fool you. 

An education can also increase the value you get out of your life, helping you find a job that makes you happier or getting that promotion you’ve been wanting at your current employer.  Outside of work, going back to school can help you learn a new language or skill you’ve always wanted to learn, get you up-to-date on current technology and trends in your field, and model good life choices for your children.  Just wait until they see you doing homework on a Friday night!

It also doesn’t have to cost an arm and a leg, and you don’t have to try for federal financial aid.  We have a variety of products designed to put some money in your pocket now, whether it’s a home equity loan, a personal loan, or any of our other financial plans.  If you’re thinking to yourself, “But I’ll be 40 (or 50, or 60) by the time I finish,” remember, you’ll be 40 (or 50, or 60) anyway.  


Find out information about our loans that could make it happen.

Your kids are a drain on your net worth, but a blessing in your life.  Let’s face it, kids are expensive. The Department of Agriculture estimates that raising a child born this year to the age of 18 will cost about $250,000.  While a quarter of a million dollars is a lot of money, that only gets them to age 18, but with tuition prices skyrocketing and kids staying at home longer than they have historically, the actual figure of raising children today gets much higher much faster.  Financial analysts predict the average four-year tuition for a public university in 2030 will be $250,000, or about the same as it cost to raise that child from birth to dropping them off at the dorm.  If you have two children, you could easily spend one million dollars on them before they leave college.  In your net worth, this is only reflected as a constant drain on your savings, a net negative.

The value of children is probably pretty obvious to you, but there has to be a way to lower the cost of raising them, right?  First, let’s cut down those college costs, because that’s half the battle.  We’ve got a Coverdell IRA college savings programs that offer good returns while also being tax-deductible.  Getting to $250,000 might seem like a pipe dream, but saving even a little every month can add up quickly, thanks to compound interest.

Next, let’s find a way to save money on school while helping your child now. There are a lot of ways to encourage a gifted child, from tennis camp to musical instruments.  If your child wants to stare at the Internet all day, maybe you should talk to them about a new laptop and some software engineering classes for kids.  If they like the outdoors (or you’d like them to go outside occasionally), try a digital camera.  All of these ideas cost money now, but could result in scholarships down the road, all while giving them a head start on a career or passion they can follow their whole life.  If you’re wondering how you can pay for all of that, check out our savings accounts.  You can contribute a little money every month, and you’ll have enough for those classes or that camera before you know it.

Your home is your biggest investment.  When was the last time you checked up on it?  When you bought your house, it might have been the best available house in the neighborhood for the price. After all, if it weren’t, you would have bought some other house, right?  Is it still the best in the neighborhood for the price?  Is the neighborhood still regarded the same way by home buyers?  How do you know? This weekend, it’s time for window shopping. Take the value of your home from your last appraisal and check the Internet for houses in your area in the same price range.  How does your house stack up? Make a list so you can compare between houses.  Next, check your decor. When you moved in, did the house feel a little dated?  Did you do anything about it? How many of the houses you saw online seemed newer or more fashionable? 

After you finish your house hunting, you’ve got three options:  If you saw a house that you like as much as the one you’re in now, but it’s going for less money, you could think about moving there.  After all, mortgage rates are incredibly low for the time being, and if you could be just as happy in a less expensive house, then that’s money you could use on something else.  If your house is as good or better as the others in the neighborhood, but could use a facelift, you might want to think about remodeling.  Remodeling your home can increase its value and make it easier to find a buyer, so part of what you spend now may come back to you when you sell, with the added benefit of living in a nicer house in the meantime. Finally, if your house is still the best around, think about refinancing while rates are low.  You’re probably not going to find fixed rates this low for a long time (if ever), so locking in that lower rate now can save you tons of money going forward, while cashing out some equity can help knock down any pesky credit card debt you need to take care of, so you only need to write one check every month, while paying far less in interest.

Brought to you by Destinations Credit Union

Your Tax Refund – Why Is It So Small?


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.  

New Year’s Resolutions


By the end of January, many of us will have forgotten all about our New Year’s resolutions. It can be difficult to change our lives, even when it’s for the better. Knowing this, we want you to know that, in your financial life, there are changes you can make today that will last the entire year. Here are three resolutions you can set today and some follow-up goals for the rest of the year. 

Today:  Save money automatically.  If you want to improve your net worth, build financial security or make a big purchase at this time next year, the easiest way to do so is simply to automate your savings. You can set up an automatic transfer to savings so you won’t be tempted to spend it. With many of our savings products, you can even access the money if an emergency arises. 

Later:  Set up an emergency fund.  How much do you have set aside for a rainy day or to cover the unexpected?  If an emergency came up, would you have to sell investments, cash in your retirement or borrow from family?  Make this the year for setting up your emergency fund.  You’ll eventually want to have at least six months of income put aside where you can get to it. for now, start with $1,000, a month’s income, or whatever feels realistic.  It might be difficult to get in the habit of saving money, but this is the resolution you’ll be really happy you kept if something unexpected happens. 

Today:  Pay down your debt.  If you’re struggling with debt, there are three basic solutions for paying it down, getting your payments under control and getting ahead of debt.  You can make more frequent payments, pay more each month or lower your interest rates. 

Paying more frequently makes sense if you get paid every two weeks: You might already know about the advantage of bi-weekly payments, which let you make the equivalent of an extra monthly payment every year.  If you’re already doing that or you don’t get paid on a weekly schedule, you can also increase the amount you pay every month. Even an extra $25 per month is $300 per year, and you can set up those payments automatically. Make sure you increase your payments the most on the bills with the highest interest rates first, even if they don’t have the largest balances. 

Finally, you can get ahead of your debt by lowering your interest rates. You can call the creditors who are charging you the highest interest rates and pay the bill, transfer the balanceto a credit card or loan with a lower interest rate, or see if they’ll offer you a lower rate due to improved credit. One way to make this work is to arrange a home equity loan at a lower fixed rate, then move your balances with the highest interest rates to the loan. 

Later:  Get control of your spending. It’s time to make a budget and stick to it. Build rewards into the budget so you’ll actually be happy to follow it. Take a look at what you use your credit cards to buy, then budget at least some money for those items or activities. You’ll never keep a resolution like “stop eating out,” but you have a good chance of keeping a resolution like “don’t go over the eating out budget.” This also gives you 12 chances to succeed: Every month you can do better than the month before. 

Today:  Make a drawer.  Many of us who have had the misfortune to act as the executor on a loved one’s estate have had the terrible task of finding all the savings, debts, insurance policies and other financial parts of their lives.  Don’t do this to whomever is taking over your life. Empty a drawer in your kitchen or study and put as many relevant documents in it as you can find.  Make a list of everything in the drawer and everything that’s missing. Put a copy in the drawer and another with your will so it’s as easy as possible for the grieving individual in charge. As with any sensitive, personal data, keep this information in a safe place that only you and the likely executor(s) of your estate will have knowledge. 

Later:  Fill the drawer. What’s missing from the drawer? Do you have a will? How much life insurance do you have?  Do you have enough savings to take care of your children? What about a plan for how they will receive that money? 
Talk to a financial planner and insurance specialist to make sure you’re set. With any luck, 2016 won’t be the year you need it, but if it is, it’ll be better for everyone involved if there’s a plan.
And that’s it … three things to do today and three projects to complete during the year.  None of them are out of reach, so you’re setting yourself up for success by making resolutions you can keep.

Investing In New Media


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

Financial Lessons Of The Big Short



A friend of mine teaches at a university where the 2008 financial crisis came up during one of his recent class discussions. He asked his students, “If you had one million dollars and a time machine, could you go back to 2008 and make a profit?” The class replied that they couldn’t.  Not one student believed he or she could have turned a profit from the financial crisis. He was troubled by that, so he asked his other classes the same question and no one indicated that they understood what happened well enough to do so. Finally, he asked his colleagues, and even they were stumped.  A few of them had vague ideas or suggested they would just buy stock in Google or Amazon while it was low. Still, none had a firm enough grasp on the events of that autumn to confidently explain how they could have made money. 

There are financial lessons to be learned from many movies and figures in popular culture, and The Big Short is no exception. Obviously, we haven’t seen the film, but the Michael Lewis book from which it is based, provides the single best explanation of how the financial system crashed. Like Lewis’ other books, including The Blind Side, Moneyball, Boomerang, and Liar’s Poker, it’s an immensely readable book because Lewis is a gifted writer who can explain difficult concepts because Lewis starts with people rather than statistics.  The people in The Big Short are some of the most interesting characters he could have chosen: He profiles the people who made an enormous profit from the financial crisis, even though they didn’t have a time machine.
Here are a few of the lessons the book (and hopefully the movie) has to offer:

Don’t avoid risk, particularly with your home.  While a generation of would-be homeowners let the financial crisis scare them away from homeownership – a surprising number of Millennials say they’d prefer not to own a home, even if they had the money. The real lesson of the financial crisis is that it’s better to be in a home than not.  It’s scary to see people lose their homes; evictions are terrible and it’s easy to see why young people who saw the wave of Americans losing their largest investments, jobs and nest eggs would be spooked.  However, the people who had taken out loans that they could afford didn’t lose their homes.  That was incredibly important, because … 
If you own your home, it’s a lot easier to lose money on paper. Lewis reports that, during October 2008, Americans lost a combined one trillion dollars.  The thing about that trillion dollars is that it was everywhere we looked: The federal government had a shortfall, so it passed it to the states, which passed it to the locals, so it cut back all government services. Look no further than spending on higher education and tuition costs.  People stopped retiring at the rate they had been, which was rough for Boomers, and it also meant that they weren’t opening up spots for Millennials in the workforce.  Even the divorce rate plummeted because people couldn’t afford to split up a household.
In the end, that trillion dollars became three trillion in government spending to start the economy back up. That is an insanely large amount of money.
But, and this is the key, most individuals who kept their jobs and homes didn’t actually lose money. In a lot of cases, they lost future income and they lost some value in their homes, but unless they cashed out of the stock market or sold their homes for less than they put in, they didn’t lose actual money; they lost money on paper.  It’s not like losing money on paper is fun, but in the worst financial crisis in nearly a century, owning a home was still the best way to keep safe.  If you lost some of the value of your home, but waited the recession out, you’re probably back to where you were before 2008, if not ahead. That’s as safe as it gets.
Something that’s equally as secure is saving your dollars at Destinations Credit Union.  We’re insured by the NCUA, so there’s very little risk and your money isn’t being invested in high-risk/high-reward propositions like mortgage-backed annuities, which brought down the economy in 2008. 

One trillion dollars is a lot of money. If you’d like to imagine that, think of a heist movie where the protagonist walks off with one million dollars in a duffel bag.  Now, imagine there are one million duffel bags, each with one million dollars in them.  Or, if you’d prefer, think of the Dallas Cowboys, who were valued at $1.7 billion in 2009, one of the few NFL franchises to gain value during the year after the financial crisis.  That same year, Cowboys Stadium, now known as AT&T Stadium, opened with a price tag of $1.2 billion.  As the most valuable NFL franchise playing in the most expensive stadium in the country, both could be had for just shy of $3 billion.  So, America lost as much money that month as it would take to purchase the entire NFL 10 times. 

Sometimes, it takes a psycho. One of the most striking things about the profiles in The Big Short is that the people involved all made big bets against the entire rest of the world.  They refused to accept common wisdom, they didn’t listen to their colleagues and investors who thought they were crazy, and they bet on an event which had never happened before and required an orchestrated failure at virtually every level of the American economy.  

The kind of person who can make a bet like that is a little bit crazy. Sometimes, that’s what it takes. As we think about The Big Short, it makes sense that all of those professors and students don’t know how they could make money in the recession, because making that money would require major antisocial and counter-intuitive behaviors. That’s why it’s important to believe in oneself, but even more important to look at the cost of being right: No one involved actually seemed to be both happy and well-adjusted. And we have to wonder: what’s the point of making a profit without that?
Sources:

This Guy Paid Off His Mortgage In Three Years. So, Why Does He Regret It And Why Is Everyone Angry At Him?


There’s not much in life that is more freeing than finally paying off a large bill. Suddenly, our checking accounts are flush, the future feels more open, and even our favorite jeans seem to fit better. When it comes to a mortgage, of course, that seems so far down the road it’s difficult to imagine, particularly for those just starting out.  If you’ve always paid rent or a mortgage, it just kind of feels like that bill is always there, the background noise of your life. 
So, when 30-year-old Canadian resident Sean Cooper paid off his mortgage in three years, he celebrated by burning his mortgage papers and found a news crew to film it.  But, here’s the twist: He isn’t happy about it, and judging from social media posts and comments on the news coverage, no one else is, either.  In fact, Cooper seems full of regret and everyone else is full of scorn or pity.  What’s going on?
Cooper sacrificed a lot to pay off his mortgage, and even he admits he focused too much on his financial goals.  He worked three jobs, including as a full-time CAD technician $75,000 (about USD $56,000) white-collar job, a customer service job at a local grocer, and writing freelance articles.  In addition, he supplemented his income by living in the basement of his home while he rented the house to others.  As many commenters note, that’s not a healthy way to live and it’s unsustainable.
Often, we lose sight of what’s around us when we focus on our financial goals.  That moment when the bill is paid seems so sweet that we don’t really think about everything it’ll take to get us there.  If you’d like to make financial headway on your mortgage without making yourself crazy, we’ve collected some tips below.  The key idea among them is finding a balance, so you’ll need to adjust them for your own personal situation.  If you’d like a more personal meeting to discuss your financial goals and finding balance, let us know.  Also, follow us on Facebook and Twitter. 
Take gigs, not jobs.  It’s easy to see why renting out one’s home and securing extra employment are so appealing.  Regular income feels safe and makes it easy to plan ahead.  But extra employment can also be confining; It’s difficult to work full-time and still find time for your hobbies, your family, or the occasional afternoon spent binge-watching Netflix (something everyone needs occasionally).  If you don’t find time for your hobbies, you’ll find that your job has become your hobby.  If you don’t spend time with your family, you just won’t have the bonds that families need.
Instead, look at gig-based jobs like Uber and Air-BNB.  While they might not offer the steady income of a regular-hours job, you can scale your work up or down depending on need and availability. Plus, if you don’t feel like working on a given day, you don’t have to.  With Air-BNB, the owners of a rental property can cancel for any reason with as little as 24 hours notice.  That’s the kind of fantastic option that’s not available if you have renters who are playing their music a little too loud above you. 
Turn your hobby into a gig.  If you want another way to generate income, one that doesn’t require you to do mindless tasks, and you want to keep enjoying your hobby, then it might be time to turn that hobby into a gig.  Do you scrapbook or make crafts?  Open a store on Etsy.  Are you an avid collector? Start investing and re-selling collectibles on eBay.  Do you build or tinker? Time for a workshop. Have a design? Put together a working prototype and take to Kickstarter.  Want to write a novel?  Fifty Shades of Grey and The Martian both started life as fan-made, self-published ebooks. It’s never been easier to find an audience or customer base.
If you’re looking to make the move from weekend warrior to someone who can make money with your passion, get some start-up capital. You’ll need workshop space, supplies or a new laptop.  We’ve got a lot of ways for you to invest in yourself.  Who knows, that investment could be the start of a new path to leaving the rat race behind. 
The goal is financial security, not paying off a single bill. There’s no prize in paying off your mortgage. It’s just one less bill to pay.  Your goal is overall financial security.  That could mean refinancing your mortgage to have cash in hand when interest rates are low, or investing significantly when interest rates are high.  So, don’t pay off your mortgage while racking up credit card debt or neglecting your student loans.  Instead, take a look at all of your debt.  Work from the highest interest rate to the lowest, paying off each in turn, so you can pay as little interest as possible every month.
One of the easiest ways to do this is with a home equity loan.  Using the equity you have built in your home will get you a lower rate than your credit cards or medical bills are charging, and it can even be a fixed rate, so you can benefit if the Federal Reserve raises interest rates.  All you need to do is secure a home equity loan then transfer your credit card balances onto the loan.  Sometimes, simply calling the credit card companies with a check from your home equity loan in hand will get them to drop the rate you’re being charged.  Fantastic! Now you can use your loan on a different card.
Whatever you do, you’ve got to be happy.  It’s difficult to find balance, particularly with debt and obligations hanging over our heads. The solution isn’t to take on more obligations and retreat from humanity. The solution needs to be understanding that money exists as a means to an end, not an end itself. 
Sources: 

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


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: 

Passive Income And Rental Properties

Investing can feel pretty distant.  It’s hard to imagine the tiny fraction of Disney or Google that you own, your savings accounts can look a lot like a bunch of numbers with no meaning and mutual funds are about as easy to conceptualize as advanced trigonometry that’s taught in the original Greek. That’s why a big part of building a savings plan you can stick to begins with finding one you understand.  Passive income is one such simple concept. It is a valuable addition to your wealth-building strategy because it can put cash in your hand every month while also being tied to something tangible, like real estate.

Through passive income, you can develop a variety of ways to get paid every month with little or no day-to-day effort on your part.  One of the most traditional ways to generate this kind of income is to own a rental property, because you then receive a rent check every month while only needing to occasionally call a maintenance professional or list the house for rent every couple of years.  The benefit is obvious – if the rent you charge is greater than the cost of the mortgage, insurance and incidentals, you’ll earn a profit every month.  It might not be a large amount of money, but you’ll build equity along the way, and you can always sell the house at some point down the road.  

If you’re young and trying to figure out a retirement plan, owning a rental property can be fantastic because you’ll earn a few bucks every month, which will eventually turn into a larger payday on a regular basis when you pay off the mortgage. If you plan it right, this can be right around when you retire so you have retirement income without having to sell any stocks or liquidate any accounts. Also, if you ever hit a rough patch or need to raise cash for another investment opportunity, you can sell the house.  If you’re looking to get a great rate for a rental property, you can even use the equity you’ve got in your current house with a home equity loan, locking in a fixed rate while mortgage prices are at historic lows.


Sources:

The Government’s $3 Trillion Dollar Plan


So, whatever happened to that interest rate hike?  It was supposed to happen all spring, then all summer, and now we’re supposed to be fully confident that the Federal Reserve is going to raise interest rates by the end of 2015.  But so far, it hasn’t.  On one hand, that’s great news: You still have time to lock in a fixed-rate mortgage or take out a low, fixed-rate home equity loan to pay off those credit cards before the rates go up. By the way, if you’re interested, that’s only a click away.  

On the other hand, it’s a little worrisome.  Raising the prime interest rate is how the Fed tells us that the economy is doing well and it’s time to save money.  So, why haven’t we seen an interest rate hike? The answer is more interesting than you might think, because it involves a multinational chain of events and a $3 trillion gamble with your tax dollars on an interesting new idea. It’s an idea that falls somewhere between efficiently practical and boringly immoral, just as many decisions often are when they’re made by folks who have spent too much time staring at spreadsheets and not enough time breathing fresh air.

To explain what’s going on, we need to flash back six years.  At the height of the financial crisis, the two biggest concerns for the long-term future of the American economy were the resiliency of the big banks and the incredible number of home foreclosures.  If the banks couldn’t get their balance sheets straight, they couldn’t loan money, which would mean that anyone who wanted to buy a home, start a business, or go to college would suddenly find themselves without a loan to do so. Meanwhile, those on the brink of foreclosure, trying to keep their businesses afloat or finishing their education might lose everything they’d worked to acquire.  Of particular concern to the government were American homes, because our homes represent the largest part of our wealth, are essential to our well-being and buoy our retirement accounts.  Unfortunately, investment products built on inadvisable home loans were the centerpiece of the financial crisis, making the protection of our mortgages a difficult task.

The government’s solution was to bail out the banks, but to do so in a way that we hadn’t tried before.  Normally, the Fed puts money into the economy by buying government bonds from banks by using money it creates on a computer in its offices.  Fed managers tap on their keyboards, change a few spreadsheets, and poof, money is created.  In the aftermath of the financial crisis, however, they decided to create money by buying mortgage bonds, which made it easier for government money to flow to beleaguered homeowners, thereby protecting Wall Street and Main Street at the same time.  

However, the Fed can’t just create money without enduring some repercussions. Usually, it has to either remove the money from the economy over time, which can slow down an economic recovery, or watch as inflation eats away at the value of the dollar, causing people to dip into their savings and work harder for less actual pay. Neither option is fantastic.
This time, the repercussions could be even worse.  Because the Fed has tied the $3 trillion it created over the last six years to mortgage bonds, removing the money could cause a spike in mortgage rates. After all, that $3 trillion has been paying part of your mortgage for the last six years; that’s a profit for your lender that’s been passed on to you.  If the Fed chose to remove the $3 trillion and raise interest rates, we could see a spike in mortgage rates that all but guarantees young people will rent their homes for their whole lives.  If you were planning on selling your house in time for retirement, it could cripple the value of your home, because the same buyer who had $250,000 wouldn’t have more money, but they would have to pay more to their lender.  Not fantastic.

All year, the Fed has been staring down this crisis, warning us that it would have to raise rates, all the time hoping that doing so wouldn’t kill the housing market. Then, a really odd set of circumstances kept it from having to do so.  Twin financial crises in Europe and China drove international investors to the dollar. As they sought to sell other currencies, they propped up the value of the dollar, delaying the effects of inflation and buying the Fed more time.  

Now, a new plan has emerged, which is where a really interesting idea comes into play.  What if the Fed didn’t take the money out? Instead, it’s started paying the banks to keep savings with Washington, just like your savings account (except thousands of times larger).  The idea is that, as long as inflation is being kept under control through foreign investment, our central bank can pay about $30 billion a year in interest for financial institutions to store money. That money makes the banks want to save, which takes money out of the economy, which they pass on to some customers in the form of higher savings rates and making them want to save as well. Suddenly, the money has come out of the economy, inflation isn’t a risk, and everyone along the way is getting paid for doing so, especially big banks and their shareholders.  

Reminder: that’s your $30 billion per year.  Another reminder:  $30 billion was the budget request to keep Pell grants in line with inflation … over the next 10 years.  You’re paying the mega-banks 10 times what you’re paying to keep college funding from shrinking.

It’s a short-term solution, obviously.  Voters don’t love their tax dollars being spent to reward the same banks that caused the financial crisis, and those banks, by definition, are the ones being let off the hook.  Europe and China won’t buy dollars forever, particularly if it doesn’t look like the Fed is raising rates (which would help foreign investors who are saving their greenbacks).  At some point, the money is coming out of the economy.  Ten years from now, the Fed says, it will all be gone.  The only question is, how fast it will come out, which means we’re still waiting to hear when the prime interest rate is going up.

And that brings us back to today.  We’ve been told to expect a rate hike by the end of the year, and when it comes, it’ll cost you more to pay off your credit cards.  If you’re in a variable rate mortgage, your monthly payment will eventually go up.  The best move today is the simplest one, which is transferring over to fixed-rate loans.  Do it today, so you can save thousands of dollars.  Then, once you’ve locked in your rate, let your congressperson know that you don’t love your tax dollars continuing to bail out the mega-banks six years later.  

Sources:

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


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://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