Friday, November 1, 2013

Financial Tips, Ideas and Rules of Thumb

All my life, people have been giving me tips. Some were much better than others! Here are some of the more useful tips I have picked up over my years in finance.

#1- Don’t bank at a bank. Bank at a credit union.
Save time, money, and hassle! Be an empowered member of a credit union rather than a powerless customer of a bank. Since credit unions are not for profit corporations, they give their earnings back to their members, not stockholders. Keep more money in your pocket with better interest rates on savings accounts and lower rates when you borrow. Enjoy more available ATM’s than any of the big banks can offer and significantly lower fees than banks charge.

Credit Unions also offer shared branches and ATM’s. When you need to make a deposit and you are not close to your regular credit union, you can go to a shared branch or ATM and make that deposit to your account from virtually anywhere in the nation. If you bank with Meriwest Credit Union you can make a deposit at a shared branch of any other CU! Would Bank of America let you make a deposit to your Wells Fargo Bank account at their BofA ATM? Or inside the Bank of America branch? No way! Only Credit Unions do that.

Don’t pay monthly for something that should be free!  I am talking about your checking account. Your credit union can provide you with a checking account that is free of monthly charges. We specialize in free checking accounts.

General Rules
Save 10% of your take home income. If you are over forty and just starting to save, you might want to up that to 30%. The 10% rule has been around for years. The 30% for over 40 rule is new.

Your emergency fund should equal six months’ worth of income. After college, this is the first thing you save for after landing your first job.

If you are not willing to pay cash for it, then it makes no sense to buy it on credit. If you don’t want to pony up the cash, why would you want to pay interest on it?

When buying a car, add at least 10% on to the purchase price of a new or used car to allow for sales tax, registration, and license. In states with lower sales tax than California, consider your sales tax plus at least 1% of the vehicle’s value for registration.

20/4/10 rule of thumb for buying a car. You should pay at least 20% down, finance for no more than four years, and the payment should be less than 10% of your income. The first part of this rule prevents you from owing more than the car is worth, and the last two parts prevent you from buying more car than you can afford.

No Brainer Retirement Rules

Do not invest more than 10% of your retirement savings in your employers stock. It is a good idea to diversify, no matter how much you love your employer!

Rule of 72: To determine how long it will take an investment to double, divide 72 by the annual return/interest rate. If you’re earning a 7% return, your money will double in approximately 10 years. But if you’re getting 12%, it takes only six years to double up your original investment.

Always accept the employers match on your 401k. It pays to put in at least the minimum to get all the match dollars you can.

Unless you are retired, never touch your retirement savings. Period, end of story. Retirement savings is not for buying a home, a car, an engagement ring, or anything else but retirement!

( Want to learn more about what you can do to improve your chances for a comfortable retirement? Our partners at CU Financial Partners can provide you with the advice you need to retire worry free! An appointment can be set with them at any of our Financial Centers. )

Credit Rules
Always pay off your highest interest rate cards first. There is no benefit in you paying interest to a financial institution. Work to pay off your highest interest rate cards first. After paying them off, take the dollars you were paying on the highest rate debt and add them to the money you are paying on the next highest interest rate debt, and so on down the line until all debt is paid. This process amplifies the speed with which you pay off your debt.

Don’t cosign loans for anyone. Maybe you want to help your kids and that’s fine. You know your kids and whether or not they will be good payers on the debt. It is a judgment call. But, don’t cosign for relatives, in-laws, friends, boyfriends, girlfriends, Baby Mamas, and Baby Daddies!

Refinance your home when interest rates have dropped by 1% from your current mortgage. I have trouble with this rule as every time you refinance, there are costs involved like loan fees, points, title and documentation fees. If I had a 7% mortgage rate, would I refinance when rates dropped to 6%? And again at 5%? Consider the costs of your refi, if the cost is more than 1% of the loan amount, you might wait until rates drop farther to make it a better deal for you.

Don’t take out more in student loans than you can expect to make the first year of your new job. If you are going into social work, your annual pay may be in the vicinity of $35,000. It does not make sense to have a $50,000 student loan bill. $50K in student loans would be more inline with an engineering or computer science degree. The idea here is to give the new graduate a fighting chance at paying off their student loan debt in a reasonable amount of time.

Meriwest Credit Union
 November 9th and 10th at the Meriwest Credit Union Main Office 
5615 Chesbro Ave, San Jose CA 95123
Come to see our wide selection of late model, gently used cars offered at bargain prices by our MCU approved dealers.

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