8 Financial Steps To Take Before You Turn 30

College is over and late nights followed by even later mornings are all but a thing in the past. You may find yourself thinking about your future in ways that you never have before. Focusing on things like marriage, children, careers, homeownership or a combination of all. “What could this shift in thinking possibly mean?” you might ask. Yes, you got it, you’re growing up. Don’t worry this is good thing, but as your lifestyle and priorities change, certain financial practices should begin to change too. Below we have compiled a list of 9 financial steps to take before you hit the glorious 3-0.

Step 1: Make a game plan

You know the old adage, “those who fail to plan, plan to not retire until they’re 100.” I think that’s how it goes. The point is make a plan. If you’re starting out fresh in a new career or have been working for a few years, now is the time to start setting financial goals for yourself. Here’s the thing: if you have a goal with no written plan of action, you are far less likely to achieve it. Sit down, put pen to paper or download one of the many financial planning apps and get to it!

Step 2: Save your money

If you’re in your twenties I’m sure you still remember a time when Top Ramen and Cupcake wine were your college staples. They were good and they were cheap, right? So why give up a good thing? Ok, maybe you don’t have to revert back to your college diet but you should maintain a thrifty lifestyle even though you’re seeing an increase in your income. It can be tempting to go out and blow your disposable income simply because you can, but that doesn’t mean you should. Without many of the financial responsibilities you’ll eventually inherit as you grow older, now is the perfect time to build your savings account.

Step 3: Say goodbye to debt

Student loans are the absolute worst and if you went to a traditional four-year university, chances are you have some. In fact, 70% of college graduates have student loan debt so don’t worry, you’re in good company. Most repayment plans you set up with your lender are anywhere between 10 and 25 years! However, paying down interest and paying more than the minimum can get you debt free much sooner. Incorporate a three or five year payment strategy into your game plan and while you’re at it, add in your credit card debt. Start now and make it your goal to be debt free by 30!

(read about the growing debt for new grads)

Step 4: Establish and maintain good credit

We live in a credit based society. Say you want to take out a loan, lease a car, rent an apartment or even get a job, having a good credit history makes all of those things possible. Yup, you read that right. In today’s job market, employers checking candidates’ credit background is becoming a common practice to determine an individual’s financial responsibility. So if you’re one of the many college grads with less than stellar credit, there is hope! First and foremost, you must learn self-control. Having a credit card or two is a great way to build positive credit but it can also be tempting to spend well beyond what you can pay off in a month. If that is you, work on becoming more disciplined before applying for more credit. Nothing feels worse than maxing out a card that you can’t afford to pay off!

Step 5: Live below your means

No, that’s not a typo and I know what you’re thinking, but living within your means is the end goal, the after 30 goal, not the right now goal. Right now we are preparing for your healthy financial future and that means learning to live a frugal lifestyle; learning to live below your means. Ok, so how is it done?  First, write down all of your fixed expenses (e.g. bills, rent, utilities and other necessary and fixed payments). Next, write out all of your flexible expenses- this is where people get into trouble. Create a reasonable (spending less than you earn) budget for food, gas, entertainment and grooming, and then stick to it. Easier said than done, yes, but with the right motivation you’ll be reaping the benefits of increased savings and great spending habits that will pay-off in the long run.

Step 6: Emergencies happen; plan for it

Wouldn’t life be better if nothing bad ever happened? Yes, yes it would, but that’s not reality and unexpected car damages, job loss, or medical expenses are bound to happen at some point. Unfortunately for many, when tragedy strikes, few are prepared to take on the financial burdens. They then end up relying on credit, but with such crazy high interest rates your financial troubles could snowball and put you in a hole that’s tough to climb out of. This is why creating an emergency fund with about 6 months worth of living expenses is vital. However, with hard work and discipline, you could save that, and then some, for your emergency cushion before your 30th birthday.

Step 7: Don’t neglect your retirement fund

Savings, savings and more savings. I know it seems like a lot but it’s all setting you up for a happier, less stressful financial future. Speaking of the future, contributing to a retirement plan is the epitome of future planning, especially if you’re in your 20’s. You may think that retirement savings is a bit premature, but many experts would argue that any age after 20 is late.  Because of compounding interest, now really is the most lucrative time to invest in your future as you will reap more return than if you were to wait until you turned 30. Don’t believe me? Consider this popular example:

Two people save for retirement. One person puts away $3,000 per year from age 22 to 30, then nothing until 65. The other person started putting away $10,000 per year from age 30 to 65. They both have the about the same amount of money when they finish at age 65.

Step 8: Have a little fun

So maybe you think steps one through eight are anti-fun and maybe you’re right, but that doesn’t mean there isn’t any wiggle room to have a little fun! In moderation of course. For many pre-30 year olds, you’re not bound by the same responsibilities that come with age. This is a prime time to have fun. We make money to spend it in some form or another and investing in fun is an investment in long term happiness.

(check out our article on how to reduce your debt-to-income ratio)


Growing Debt For New Grads

It’s 2016 and a fresh new crop of students brimming with knowledge and ready to enter the work force are merely weeks away from graduation! Many of these students will go on to secure well-paying jobs and begin growing their savings in order to invest in their very own home just like their parents before them, right? Well, maybe not. According to a study by Newamerica.org, the average student loan debt of a 2016 college graduate is $37,172, rising from 2015’s average of $35,051.

Individuals who have degrees fit the demographic of the typical first time homebuyer, but with such staggering debt being held by 70% of the graduating class and millennials making up 40% of the unemployed, we can only expect to see a more distinct drop in the amount of first time homebuyers. The Wall Street Journal released a report in 2014 that predicted student loan debt could decrease the annual national sales around 8%. This decrease in home sales is directly correlated to the nation’s decrease in economic growth. Big purchases, such as a home, are what drive our economy and with the country’s student loan debt totaling a whopping $1.2 trillion, we will continue to see the trickling effects this has on real estate purchases.

In a time where tough job markets with low earning potential and high student loan debt dictate the decisions of young Americans, homeownership is often looked at as unattainable. However, even with the daunting predictions ahead, there may be a silver lining. While economic prospects continue to improve, recent graduates may begin to see the advantages of investing money into a home. Since fixed mortgage rates have remained at or close to historic lows, renting isn’t always the most affordable option anymore. In fact, owning a home could become a valuable asset and means to build wealth.

Yes, there is a long journey ahead in providing affordable education, but don’t let student loan debt hold you back from investing in your future. There are still many options for young American graduates and the class of 2016 has a bright future ahead.


Home Ownership. How Soon Is Too Soon?

So, you’re debating whether you should purchase a home and many questions are running through your mind. “Is this the right decision for me?”, “Can I afford a house?”, “Is it worth it to own?”

Well, we have the answer for you! We don’t know. Deciding to purchase a house depends on a number of personal factors and only you can truly make that decision. However, we can list some of the benefits of homeownership that could help you determine what it really means to own your own home, and then you can decide if it’s right for you!

1. Consistent Payments

When renting, depending on the market rates, your monthly rent payments could increase from year to year. This means owning could possibly be a more cost efficient option and with mortgage loans that offer fixed rates, you don’t have to worry about an annual change in your monthly principal and interest payments.

2. Investments and Equity

A home is an investment. Real estate purchases may have long-term benefits; as you pay down the principal, you build equity in the home.

3. Security

With ownership, you have a certain level of security that you may not have with renting. When you own your property, you don’t have to worry about someone selling your home and putting you out, leaving you searching for a place to live.

4. Freedom

Part of the fun in homeownership is decorating and designing your living space to fit your tastes and needs. When you buy, you have the freedom to decide on home renovations and painting the walls, that you usually wouldn’t have if you were renting.

5. Pride

Owning your home can be a big accomplishment. Many experience a sense of pride after purchasing their first home. It is a huge milestone and something that you should be proud of.


How Much Should You Save For Retirement? Four Factors To Consider

When it comes to saving for retirement, many people have no idea how much money they should put aside to retire the way they want to. An ideal retirement figure depends on a wide range of factors, from desired retirement age to percentage of income saved every year. Here are four common factors used to calculate retirement goals.

1. Starting age – As any retirement advisor will tell you, you should start saving as early as possible. By putting away part of your income in your early 20s, you can greatly reduce financial strain as you approach retirement and even generate a surplus.

2. Deferral rate – Although it might be difficult to commit 10 to 15 percent of your monthly paycheck to retirement savings, you should attempt to keep your deferral rate in this range. After a while, you will grow accustomed to the deferral and adjust your spending habits accordingly.

3. Rate of return – Because it is impossible to predict the rate of return on your retirement savings, you should always use a conservative estimate when factoring in rate of return to your retirement goals. Better safe than sorry, as the saying goes.

4. Salary growth – If you base your retirement goal on a multiple of your salary at retirement, you will need to take into account salary growth when computing your final figure. The faster your salary grows, the more quickly your retirement goal outpaces the money you can save every month. If you make an effort to keep your marginal spending increases well below your marginal salary increases, you will be able to boost your savings considerably.

At the end of the day, saving early and often will maximize your chances of achieving your retirement goal. Stick to your plan once you’ve made it and you should have no problems retiring how and when you want.


Four Common Tax Deductions For Homeowners

During income tax season, many American homeowners will qualify for one or more tax deductions based on their real estate holdings. For some, the deductions can result in thousands of dollars in savings. Following is a quick list of four common tax deductions for U.S. homeowners.

1. Mortgage interest deduction: The mortgage interest deduction allows homeowners to deduct all mortgage interest payments. For many, interest payments comprise the vast majority of the first few years of mortgage payments, which can significantly reduce one’s tax liability. Every year, Americans save over $100 million by itemizing their mortgage interest deduction, which makes it one of the most compelling reasons for purchasing instead of renting a home.

Check today’s mortgage rates.

2. Private Mortgage Insurance deduction: In general, homeowners who submit smaller down payments (20 percent or less of the sale price) must pay for Private Mortgage Insurance (PMI). For many homeowners, PMI can represent a significant portion of their monthly mortgage payment. To qualify for this deduction, mortgages must have originated in 2007 or later.

3. Mortgage points deduction: Also referred to as the mortgage origination deduction, the mortgage points deduction allows homeowners to deduct the points they paid on the purchase or refinance of their home. To utilize the deduction, homebuyers must deduct all of the points they paid in a particular tax year. On the other hand, homeowners who paid points on a refinance must deduct the points as an amortization throughout the duration of the loan.

4. Home office deduction: One of the most commonly used deductions among self-employed professionals, the home office deduction allows homeowners or renters to deduct a portion of their rent, utilities, and other home-related expenditures. To qualify for the deduction, homeowners must use a portion of their home exclusively for their business endeavors.

Check today’s mortgage rates.


Saving Your Tax Refund Wisely

Last week we gave you some tips on ways to spend your tax refund more wisely.  Most of these tips involved reducing debt, improving your financial life and planning for retirement.  This week we have a few more tips that will help you improve your lifestyle and relieve some stress.

Saving for Education

College tuition is expensive, even for in-state students.  Some states offer scholarships for outstanding high school students, but as the number of college-bound seniors increases year after year, many states have been forced to make cuts in the amount of assistance provided.  As we discussed last week, student loans are an option, but the job market has been fairly bleak for those fresh out of college and taking out a loan with uncertainty of how it’s going to be repaid is a daunting decision.  A parent’s gift of college tuition to their child is one that won’t be fully appreciated for many years to come, when they’re surrounded by friends with student loan debts.  Clark Howardrecommends saving for college with a 529 plan.  A 529 plan will allow you to save money tax-free and spend it tax-free on a child’s college education.

Read Clark Howard’s 529 guide here.

Save for a Down Payment on a Home

With changes in mortgage regulations and lender’s tightening their belts, it’s more difficult than before to purchase a home with zero money down.  FHA loans require a minimum down payment of 3.5% for new purchase loans.  The required down payment may increase based on credit worthiness.  When shopping for conventional loans, you’ll get a better interest rate with a larger down payment.  If you can save up enough to put a 20% down payment on your home, you’ll have enough equity to avoid having to pay a monthly private mortgage insurance (PMI) premium.  Saving for a down payment in a traditional bank savings account earning less than 1% interest won’t do much for you.  If you plan on purchasing a home within the next few years, consider a money market account or CD with upwards of 5% APY.

Check current mortgage rates from AmeriSave here.

Invest In Your Home

If you’re already a homeowner and plan on staying a while, put the money back into your home to make it more enjoyable.  A $3,000 tax refund will go a long way towards refreshing a powder room or guest bathroom with a new vanity, toilet, paint and lighting.  Even installing new tile can be done by the relatively inexperienced and save a boatload, consider practicing by installing a new tile backsplash in your kitchen first.  If you enjoy spending a lot of time outdoors in the spring and summer, spend that cash on a new deck or patio with brick pavers.  Don’t forget to add some landscaping, outdoor lighting and a new grill!

Preventative Services

If you’re relatively secure in all the other areas mentioned, think about which expenses always leave you pulling out your credit card unexpectedly.  Preventative maintenance on expensive items like HVAC systems can save you money down the road and keep you from losing air conditioning suddenly at the height of summer.  Having your car inspected by a reputable mechanic can also prevent you from being stranded by a broken belt or water pump.

Rebuild Your Emergency Fund

If you’re recovering from a financial disaster, you’re not alone.  Job losses and real estate losses have been rampant the past few years.  If you’ve depleted your emergency fund, you know the value of having one, which may make the sacrifices you’ll go through rebuilding one easier to swallow.  Don’t delay in the rebuilding process, lest you get tempted to splurge on those luxuries you’ve denied yourself.  Set an initial goal and contribute to it monthly.  Setting up an automatic draft the day following payday can mentally make it seem like you aren’t loosing anything at all.


Make Your Tax Refund Work For You

It’s the time of the year where the most eager tax filers are starting to find their tax refund has been delivered to their mailbox or directly deposited to their checking account.  The average federal refund has been about $3000 for the last two years, according to TurboTax.  That amount of money is sure to leave a lot of people with scorched pockets across the country and retailers like Best Buy are sure to reap the benefits as people upgrade to the newest, thinnest LCD television available.  Guess what folks, by Christmas that new television will be replaced by one that will actually make you breakfast and clean up the mess. Let’s examine some smarter uses for your tax refund shall we?

Adjust Your Tax Withholding

Some taxpayers like the idea of a tax refund, if they make enough to live comfortably during the year; a tax refund is a welcome surprise.  Others don’t like the idea of giving the US government what is essentially an interest free loan for 12 months.  If you’re the latter of the two types, use this calculator to adjust your tax withholding to increase your take-home pay.  If you received the average refund of $3,000, you could increase your monthly take-home pay by about $250!

Tax Withholding Calculator

Prepay Your Mortgage

Applying your refund to your mortgage principal won’t reduce your monthly payment, but doing this consistently over time can drastically reduce the number of years you have to pay on it. Take this scenario for example:  You have a balance of $150,000 on a 30 year fixed mortgage at an interest rate of 3.25%.  If you applied an extra $250.00 per month to your mortgage principal, you would pay your loan off in just 18.5 years (222 months), instead of 30 years (360 months).  This move would save you over $35,000 in interest over the life of your loan.

Try the AmeriSave mortgage payment calculator.

Pay Off a Credit Card

A recent survey by the Federal Reserve Bank revealed there are 609.8 million credit cards held by US consumers.  71% of the population reports that they have one, and the average person has between three and four.  The average household has $15,956 in credit card debt, sometimes spread over multiple cards.  One popular and wise use of a tax refund is to eliminate the balance on one of your credit cards, freeing yourself of the burden of that payment.  Tip: To make this strategy really work for you, put your refund towards the card with the highest interest rate, then apply the monthly payment you’d normally make on that card to another credit card.

Pay Down Student Loans

Did you know that nearly 60% of the 20 million Americans who attend college every year borrow annually to help cover the costs?  There are currently approximately 37 million student loan borrowers with outstanding loans, and the under 30 age group has the most borrowers at 14 million.  The average income for someone in the under 30 age group with a bachelor’s degree is $45,000.  If you’re in this age group, or even if you’re not, and you have student loan debt consider applying your tax refund to your student loans.  The sooner you’re free and clear of student loans, the better.  This outstanding debt can affect your ability to take on other types of consumer debt such as auto loans or mortgages.

Check today’s mortgage rates.

Contribute (up to $5000) to an IRA

You can contribute up to $5,000 to an IRA (or $6,000 if you’re age 50 and up).  If you’re single and your modified adjusted gross income is less than $125,000 (or $183,000 or less if you’re married and filing jointly), then you can contribute to a Roth IRA, which lets you withdraw the money tax-free upon retirement.  If you earn too much for a Roth, contribute it to a traditional IRA, and convert it to a Roth later.

Enjoy these tips? Check back next week for more!