Getting The Most Out Of Your 401(K)

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No matter your age, it’s always a good time to start, or continue, educating yourself about your retirement plan and how you can make the most of what’s offered to you.

Many individuals have heard of 401(k)s, but they may not be entirely aware of how they work, or how they can benefit from them.

A 401(k) is an investment retirement plan offered by most corporations to their employees. You specify the percentage of your paycheck you’d like to save and your company deposits that money into your account through a payroll deduction. Although they are sponsoring the plan, your company doesn’t actually invest the money, but instead hires a company to handle employee investments.

Company Matching Contribution

Every year maximum limits are determined by the IRS on how much an individual can contribute to their 401(k) depending on inflation. Currently, individuals under the age of 50 can contribute a max of $18,000. Many financial advisors encourage investing the maximum amount, if you have the means, in order to reap the benefits of valuable tax breaks.

If the maximum amount is out of reach for you, many employers offer a matching contribution that you must qualify for by contributing a specified percentage into your 401(k) plan. You should strive to contribute enough to meet the requirements of your company’s matching contribution so as not to miss out on virtually free money.

What am I investing in?

401(k)s are simple, in that all you must do is specify how much you want to invest, and then your company does it on your behalf. However, where you choose to invest your money is a decision you must make.

There are a number of investment or mutual fund options you can choose. Figuring out the investments that are best for you is something you should take time researching and receiving financial advice on. Stocks generally have the best return in long-term investments, such as retirement, because they typically produce yields that outpace inflation. There’s also the possibility of considerable gains with a diverse portfolio of investments.

How and when do I receive my funds?

At the golden age of 59½ individuals can begin withdrawing money from their 401(k)s without penalty. Withdraw at any age before that and you could get hit with an early withdrawal penalty tax. There are some exceptions to the rule, but for the most part, withdrawing early isn’t a great idea; In addition to the 10% penalty, you will lose out on the tax-deferred growth advantage and have to pay income tax on the full amount distributed.

If you don’t need, or want, to take money out at 59½, you can legally hold off on distributions of funds until age 70½. Then, you are required by law to make minimum withdrawals from your plan. Once of age, you are able to receive funds through the following distribution options: Cash out, rollover, income annuity and installments.

For more money saving tips, check out our post on Building your Emergency Fund

Building Your Emergency Fund

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Unfortunately, humans don’t have the capacity (as of yet) to predict the future, so until that time comes, we must prepare for the unexpected.

Making sure to put aside money for an emergency fund is one of the wisest financial decisions one could make. Natural disasters, car accidents, medical emergencies and job losses are just a few scenarios that can set your funds back by a considerable amount.

Related: Are your expensive habits costings your hundreds?

Don’t let surprise circumstances leave you in financial ruin. Check out our tips below on how to grow your emergency fund.

1. Set a Goal

Without a goal in mind, you decrease the likelihood of actually building a fund. The general rule of thumb is to set aside 6 months’ worth of living expenses. Depending on your income and bill obligations, this may take a while to build up, but  even starting with a small amount will help you get on the right track of hitting your target goal.

2. Get a separate account

Separating your funds helps you stay focused as well as diminishes confusion between what’s emergency savings and what’s not. It helps to set up an account separate from your regular checking to reduce temptations of dipping into the fund for non-emergency spending.

3. Set up a recurring transfer

Treating your savings like another bill is one of the best ways to make sure you’re stashing away money every month. When you set up your monthly budget, plan how much you want to take out for your savings and set up an automatic transfer into your savings account on the same day every month like any other bill payment. You may even decide to setup a direct deposit from your paycheck so that you never see the money that’s being taken out.

4. Determine rules for spending

Depending on circumstances, you may find yourself contemplating what exactly qualifies as an emergency and dipping into your savings for things you justify as such. This is why it’s wise to set up restrictions beforehand. Ask yourself, what types of things constitute an unexpected emergency, and what kinds of things don’t; lay the ground rules and then stick to them!

5. Start somewhere

One of the hardest parts of any goal is getting started. Building a 6-month emergency fund won’t happen overnight; it takes time. Start small and over time as more money frees up increase the amount you save. For instance, if you were making a $45 credit card payment every month and you paid off the balance, add that $45 payment to your monthly savings transfer.

If you have a meager savings that you’d like to grow, or you have no savings whatsoever, there’s no better time than the present to start actively preparing for the unexpected. Your bank account will thank you later.

For tips on easy ways to save money, check out our blog How to Save Money Without Doing Anything!

Reduce Your Debt to Income Ratio

Reduce Your Debt-To-Income Ratio

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In the wake of the home finance crisis that began in about 2008, obtaining a mortgage is now more difficult than it was before, but knowing the obstacles will help prepare you for buying a home.  Today’s lenders want to avoid the mistakes that bankrupted yesterday’s lenders.  Additionally, Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac have set much tighter guidelines that lenders must follow.  There are numerous factors considered when determining eligibility for a mortgage, but the three big ones are credit history, income and debt.

The debt-to-income ratio (DTI) is a valuable number that underwriters look at heavily when determining your borrowing ability.  To put it simply, DTI is the amount of debt you have compared to your overall income.  A low DTI shows lenders that you have a favorable balance between debt and income.

There are two main kinds of DTI and they’re expressed as a pair (front-end/back-end).  The front-end ratio indicates the percentage of income that goes towards housing costs (principal and interest, mortgage insurance, property taxes and homeowners’ association dues).  The back-end ratio is the percentage of income that goes towards paying recurring debts, including the housing costs covered in the front-end, plus credit card payments, car payments, student loans, child support, alimony, etc.  AmeriSave, one of the nation’s largest online lenders generally requires a DTI of 45% or lower for conventional conforming loans.

If you haven’t guessed it yet, one of the keys to unlocking the door of homeownership is reducing your debt-to-income ratio.  There are many things you can do to actively reduce your DTI so you can apply for a mortgage.

Increase your income – This might mean working some overtime, asking for a salary increase or taking on a part-time job.  Be advised though, as we mentioned earlier, income verification standards have increased greatly in the new age of lending so be mindful that cash or otherwise non-reported earnings will likely not count toward your “income”; although it could be used to reduce debt to the same effect.

Reduce spending – Review your bank and credit card statements to see where you are spending most of your money.  Cut back on unnecessary expenses and research other providers of insurance, phone, cable and other utilities to see if there are lower-cost alternatives.  Plow those savings into reducing your debt.

5 Ways to Cut Costs and Save

Reduce debt – A high DTI is not necessarily bad if you’re actively reducing debt.  For example, if your income is $2000 per month and you’re putting $1000 towards debts, your DTI is temporarily 50%, but will be reduced to 0% when you’re finished.  If you have any cash saved, you might want to consider paying off some debt.  While credit cards have high interest rates, the minimum payments are typically lower than, say an auto loan. Consider this scenario:

You have credit card debt of $5000 with a minimum payment of $120 and an auto loan with $5000 remaining and a payment of $600.  The $600 per month towards the auto loan reduces your borrowing power by $100,000, so you may want to consider using the savings to eliminate the auto loan and continue paying monthly towards the credit card.

If you plan on paying off any debts in full, ask the creditor the date they report to the credit bureaus, then apply for the mortgage after your account has been updated, revealing less debt.  You can also track changes to your credit report with free services like Credit Karma.

Tax Tips For Last Minute Filers

Tax Tips For Last Minute Filers

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When it comes to filing taxes, procrastination plagues a large number of Americans every year. In fact, based on data collected by the Internal Revenue Service, up to 25% of tax filers wait until the last two weeks before they even begin preparing their tax documents.

Of course, procrastination isn’t the only reason individuals delay the tax filing process. For those that owe money, waiting to file can help them earn interest on their money before they pay back the government. Whatever your reasons may be for postponing your taxes, we are down to the wire and the deadline is upon us, so we put together a list of tips that may help you get your returns filed and all squared away! Check out our list below!

1. Write a list

Yes, this may seem arbitrary, but trust us; when a deadline is approaching many find themselves feeling stressed and anxious which usually leads to worrying about what they need to do instead of actually doing it.

A list of documents needed and tasks you need to complete will keep you organized and on track to get everything done on time!

2. Don’t make hasty sacrifices due to time

Itemized deductions could help you save more than the standard deduction. Take time and compare your total deduction amount and make a decision based on what fits your situation.

3. File online

There are awesome tax filing services that streamline the process and make filing easier than ever, and for many Americans, depending on their income levels, it’s free! For those with more complicated financial situations, this may not be the best path, but many individuals have had great success with e-filing services.

4. File an Extension

When it comes down to it and you realize you aren’t able to file by the deadline date (April 17th), the next step is to file an extension. Head over to irs.gov to find the IRS free file application and apply for the 6 month extension. Filing after the deadline without an extension could put you at risk of receiving a late filing penalty.

5. Start tracking your docs

If you haven’t before, a proven way to eliminate tax stress is by keeping track of your records throughout the year. Start now so that you can have a happy, stress free filing year for your 2018 returns!

Get An Early Start – Prepare Your Taxes!

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Year after year around this time, government workers, small business owners, entrepreneurs and all other taxpaying citizens find themselves dreading the return of one of the most hated seasons – tax season. We understand how stressful this time of year can be with trying to make sure you get all of your paperwork filed accurately and on time, so we’ve compiled a list of ways to stay organized and on top of your taxes. Get started today!

Decide now how you want to file

Whether it’s through a software, traditional paper filing or your family’s accountant, deciding ahead of time what you’re going to do will help you know what steps you should take first.

Know about any changes

Being aware of changes ahead of time will not only help you stay prepared for what’s to come, but it will also lessen your stress by reducing unexpected surprises. Here’s a freebie; April 15th, which is known amongst most as tax day is actually not the tax deadline this year; its April 17th since the 15th falls on a Sunday.

Organization is the key to success

Don’t let your tax documents get lost in the clutter of your kitchen counter, or wherever you dump your mail. Store these documents in a specific place whenever you receive them in the mail. Also, if you didn’t do such a great job at it this year, make it your tax season resolution for the following year to track mileage and save your receipts and records if you’re a business owner or freelancer.

Know your deductions

Ever heard the phrase “don’t leave money on the table?” Every year American’s do just that by not claiming their tax money. Know beforehand what you can claim as a deduction such as interest you pay on student loans/mortgages, or miles you drove while volunteering.

File Early

Last year, out of 152 million tax returns, 111 million resulted in a refund. So, if you’re expecting to get money back, why not file as soon as possible? You can get your refund faster by filing your taxes early. Track your refund through the IRS “Where’s My Refund” link.

Remember, filing taxes can be stressful, but nearly everyone has to do it. The earlier you get started and the more organized and prepared you are, the easier it will be. Take advantage of all the free tools out there that can help you make the best decisions during tax filing season. Good luck!

What-you-need-to-know-about HELOCs and the new tax reform bill

What You Need To Know About HELOCs And The New Tax Reform Bill

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On December 20, 2017, President Trump signed into the law the Republican tax reform bill which went into effect at the start of 2018. With that, a number of changes have been made to our tax code, specifically, home equity loans and lines of credit. In the new bill, you can no longer claim a deduction for the interest paid on HELOCs. So, what does this mean for you?

First, let’s start by defining what a home equity loan is. Basically it’s when a homeowner receives a loan using the equity in their house. The equity is the difference between the home’s mortgage balance and its market value. Homeowners can either take out a onetime loan with a fixed interest rate, or a line of credit which is similar to a credit card with a debt limit based on your home’s equity.

Previously, homeowners who took out a home equity loan could deduct up to $100,000 in interest from their taxes; under the new law, that is no longer the case. For homeowners with available home equity they want to borrow against, they may find themselves at a crossroads. Now that interest isn’t tax deductible, the benefit of home equity loans and lines of credit may be reduced, but homeowners can utilize a different financing option such as a cash out refinance.

A cash out refinance is a way to receive cash for your home’s equity. It works by refinancing your mortgage for more than you currently owe and receiving the difference in cash. Right now, rates are still looking great, and if you’ve increased your credit score or equity in the past couple of years, a cash-out refinance could be a viable option. For more information on starting a cash out refinance, visit refinance.

AmeriSave Mortgage Corporation does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Saving Money During The Holidays

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The most wonderful time of year can also be the most stressful. Between making holiday travel plans, and finding the perfect gifts for your loved ones, saving money can feel impossible. However, putting aside money and taking care of holiday expenses is still doable with a bit of preparation and serious discipline. Check out our 10 tips on putting aside extra cash during the chaos of the holidays.

1. Set a spending limit

This is the key to not overspend when doing your holiday shopping. Sales tags and great deals can fool you into thinking you’re actually saving money, but after adding up your holiday haul, you may be shocked at just how much money you’ve spent.

2. Create a gift list

Between family, friends, neighbors, coworkers, etc. you may feel like your gift list is endless. Sit down and write out a list of everyone you want to give a gift to this season, and then, with your budget in mind, start making cuts. This may sound harsh, but you might not be able to realistically buy gifts for everyone on your list, and that’s ok.

3. Grab Some Cash

After creating your budget, take out the amount of cash you will need to purchase gifts. This prevents you from overspending. Once the money is gone, the holiday shopping is over!

4. Put away the credit cards

Many individuals tend to get swipe happy around the holiday shopping season, and before they know it, they’ve racked up a bill that seriously sets them back. Stick to your budget and say no to the plastic.

5. Avoid express shipping costs; buy gifts early

We’ve all been in the unfortunate situation where Christmas is around the corner, and you’re scrambling to purchase gifts that you’ve put off buying. Around the holidays, those express shipping costs are extremely high. Make your purchases now, and use regular business shipping.

6. Consider baking

The way to just about anyone’s heart is through their stomachs. Skip out on buying expensive holiday presents this year, and give the gift of baked goods! Holiday specific goodies are not only festive, but they are pretty frugal option when trying to save money.

7. Teach kids financial boundaries

Your kids have probably been inundated by commercials selling them all the latest toys and gadgets. Instead of buying them every toy on their wish list, explain to them that gifts cost money and money doesn’t grow on trees. Even Santa has a Christmas budget to adhere to.

8. Pay attention to sales

Discounts are everywhere during this time of the year. Hit them up and save a small chunk of change. Nothing wrong with purchasing last year’s hot ticket item at a discount!

9. Hit up holiday freebies

There are plenty of things to do around the holidays. Get creative and meet up with friends for ice skating, or take your family on a drive to see Christmas lights. Not everything worth doing cost money.

10. Remember the spirit of the holidays

Savings Tips For Black Friday Shopping

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The holidays are some of the most festive and financially stressful times of the year. Between travelling, purchasing gifts, and feeding a ton of hungry family members, you may find yourself strapped for cash.

Have no fear, Black Friday is here. OK, you may be wondering why would I mention savings and the biggest holiday shopping day of the year in the same blog post?

Well as hectic, and expensive, as the holiday season is, there is one place we know you can save some serious cash: your holiday shopping list!

Getting the most out of your Black Friday Shopping day takes strategic planning. Unfortunately, many store offers and “deals” aren’t deals at all. A study done by Nerd Wallet found that many major department stores have been running the same ads for the past 3 years. However, if you’re in the market for videogames and technology, black Friday, as well as Cyber Monday, are truly the best times of year to score big!

For years shoppers have been flocking to major retailers in search of the latest technologies for the best prices. TVs, cameras, video games and systems, laptops, phones and tablets have consistently topped the list when it comes to the best sales, and this year is no exception.

If you want to have holiday shopping success this Black Friday, then follow our list of shopping strategies to make the most of your time and money.

  1. Do your Research – If you’re not following your favorite stores on social media, now’s the time. Retailers will begin posting their deals on their Facebook and Twitter, to create buzz and hype around their products. Also, pick up a local newspaper the day before and scope the sales ads. Websites such as blackfriday.com are also great sources of information for insider tips on special promotions.
  2. Have a Plan in Mind – Black Friday isn’t really the time to wander the aisles aimlessly hoping to stumble upon something interesting. It happens, but for the most part, everyone shopping on the busiest shopping day of the year has a purpose, and really great deals can be sold out within a blink of an eye!
  3. Scope Out the Playing Field – The night before sales, take a trip to the store. Many businesses begin setting up and taping off aisles where in demand products will be staged. A quick walk through of the store will help you know exactly where the inventory you’re after will be located, so that you can make a bee-line directly to those items.
  4. Be on Time – As a seasoned Black Friday shopper, I can attest to the craziness and frenzy surrounding a highly anticipated sale. Shoppers will begin lining up outside of stores hours, and even days, before the sale even begins. Prioritize which items and stores you will hit up first and stay on your timeline.
  5. Stay at Home – Ok, I know I’m calling an audible here, but give me a chance to explain. Stores have created an unsavory trend of starting sales on Thanksgiving day, and as great as some Black Friday deals are, spending time with family is even more important, so stay at home during family time. Plus, its 2016 and we’re in the age of technology. Skip the lines and do your shopping on Cyber Monday!

Credit Card Tips For 2017

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When one year comes to an end and a new year begins, many people start making goals and reorganizing their lives. At the top of most goal-setter’s new year’s list (right after weight loss that is) is financial rehabilitation. That being said, making the smartest credit card decisions can set you up for a financially responsible and stable year ahead.

Check out our top four credit card tips for 2017!

1. Don’t let reward points go to waste
Did you know credit card rewards can expire? By not using your rewards points before their expiration period, you could be losing out on a ton of perks and a ton of money. A report from 2011 revealed about $16 billion in reward points went unredeemed for the year!

2. Increase your credit limit
If you’ve been holding on to a credit card with a low credit limit for a while, now is the time to negotiate a higher limit. In order to maintain or raise your credit score, you must have a low credit utilization percentage (no more than 30% of your limit). A higher limit will help bring that percentage down. This doesn’t mean you should spend more on this particular card. In fact, if your spending habits change, it should reflect less spending.

3. Pay more than the minimum
Minimum credit card payments, combined with interest, will have you paying off your debt a lot longer than you should be, and you’ll end up paying a lot more than you owe. Make a goal of how soon you want to pay down your limit, and then calculate how much you will need to pay each month to reach your goal. Then commit. Paying down debt takes discipline and strategic planning.

4. Stop missing payments
Carrying a high balance and missing payments is a surefire way to really do damage to your credit score. If you have a history of not paying your card on time, you could also miss opportunities to increase your credit card limit or receive better terms. Showing that you’re a responsible card holder will work out in your favor in the long run.
Let 2017 be your most financially stable year yet. Take control of your credit card spending habits and enjoy all of the perks that come with being a responsible card owner. Happy New Year!

Surviving The Holidays With NO Debt!

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Last year, Americans found themselves in debt averaging around $1,073 after the holiday season! According to a study done by Magnify Money, 1 out of every 4 Americans will be in holiday debt in 2016. That, on top of other debt obligations, can cause a lot of financial stress for the average family. Many times, unassuming consumers don’t realize just how long it will take to pay off their holiday spending sprees. They make goals to have everything paid off by the end of January, but more often than not, shoppers find themselves paying off holiday debt for several months, and sometimes even years.

Imagine planning your holiday spending, while still worrying about paying off your debt from the previous year! This reality is true for many, but it doesn’t have to be for you.

There are many ways to survive the holidays without going into debt; it just takes a bit of planning, and a lot of self-control.

Prepare for January

When January finally arrives, there is a sense of relief felt by most. Finally, the holiday season is over and the stress can subside. New beginnings, right?

Wrong. That’s is, if you’re dealing with credit card debt.

Receiving that December credit card statement can hit you like a ton of bricks, and all of a sudden your new year’s goals of traveling and experiencing new things becomes completely overshadowed by last year’s debts and how you’re going to pay them back.

Go into your holiday shopping with January in mind. Don’t let the new year sneak up on you and catch you off guard. Budget and plan for a financially stress free 2017; your spending habits will follow suit.

Think about Side Gigging

One of the most practical ways to afford holiday spending is to make more money, and fortunately, this is completely doable. This time of year is full of seasonal work opportunities that can benefit your spending budget, and offer flexible hours to fit your schedule.

Now working an extra job may not be ideal, but on a temporary basis the extra work could be a less expensive option than taking out loans or using credit that accrues interest. Work hard now and enjoy the rest of your year later!

Don’t Become Another Statistic

Remember, as you’re starting your holiday shopping, knowledge is power. Holiday sales are expected to jump by 3% in 2016, and consumers are predicted to spend more than ever, with 14% of consumers forecasted to spend more than the previous year. With that being said, since average American incomes have yet to see a huge increase, we can expect that holiday debt will also be extremely high. Don’t allow the draw of sales and big ticket items to ruin your financial standing.  Although credit cards are the preferred method of paying for gifts, change things up; only pay in cash.

Debt is burdensome and no one wants it lingering over their heads. Go into 2017 with no additional debt due to holiday spending, and start your year off on a great foot!