Tips

There are a couple of key notes:

1. This couple would have been approved for a much higher mortgage loan based on their income. However, in order to accomplish all their other goals, they needed to keep their mortgage payment (Principle, Interest, Taxes, and Insurance) just under 15% of their gross income (banks typically approve approximately 30%).
2. If one spouse stays home to raise the children, the cost of childcare is greatly reduced. In this case study, the working spouse would need to earn a gross income of approximately $160,000.
3. The assumed gross income replacement need at retirement is only about 35% of their current $200,000 household income. This is because the mortgage is assumed to be paid off, saving for retirement is accomplished, the kids are financially independent, and their taxes have reduced.
4. This case study makes several assumptions and is intended to be based on averages. The figures can be easily argued as too high or too low depending on many factors.

If you would like to speak with a CFP® professional about reaching your financial goals, please call Sharkey, Howes & Javer at 303-639-5100.

6-8 Years of Age:

The Huffington Post reports that only 13 of 50 states require a personal finance course for students before they are able to graduate from high school. Because these lessons are not being taught in the majority of our schools, it is important to incorporate financial lessons at home starting at a young age. Children ages 6-8 years old are at a great stage for pretend play that utilizes money along with practical lessons from things like lemonade stands or doing additional chores for money. While playing supermarket, help your child to count out change. During the summer months, help them set up a lemonade stand and teach them how to determine what to charge based on the cost of the products they utilize.

9-11 Years of Age:

A key financial concept that is important to teach children is budgeting. While you can begin to teach the concept earlier, 9-11 year old kids will likely have a little better grasp on the idea. Consider giving your child a set spending amount to purchase snacks or toys from the store. Make a list together of things they would like, and encourage your child to determine the appropriate amount of money for each item. The important piece here, according to US News & World Report is not to bail them out if they make a mistake. Experience is a great teacher and allowing them to work through solving this type of problem is important.

12-15 Years of Age:

Investing has become a necessity for Americans who plan to retire as saving enough money for the golden years has become more difficult over time. Teaching children to invest can be fun and could make a lasting impact if it’s done well. Do some research together and discuss different types of investments and how risk and timing affect an investment. The Mint suggests setting up a fake account with your child or children and then tracking it with them over a year’s time. Not only can this provide a fun bonding experience, but it will help to plant the seed that investing is a long game.

16-18 Years of Age:

The day your child turns eighteen, they are officially eligible to open a credit card in their name. Teaching kids about credit and interest before they have access to it is crucial for their financial well-being. Discover reports that those with credit card debt carry, on average, $7,500 per credit card! With high interest rates and low minimum payments, the total cost over time for items purchased can grow out of hand rather quickly. This issue, along with the consequences of bad credit, can set someone up for a lifetime of financial trouble.

Sit down with your kids and explain how credit cards work. If you are able, consider offering your child credit through you, then allow them to make a purchase and payments with an agreed upon interest rate. Help them to track the total cost, including interest, for the item once it is paid off and compare it to what the original purchase price was of that same item. Helping teens learn this lesson early can potentially save them a lot of money and a lot of headache in the long run.

For a conventional loan, the borrower must use one of the following:

• The student loan payment amount listed on the credit report.
• 1% of the outstanding student loan balance.
• The actual standard plan repayment amount reported on the credit report. Your credit report will always show your standard 10-year amount for “Amount Due”, not the amount you actually pay.
• A calculated payment that will fully amortize the loan over the repayment period (this means that you have to calculate a payment with no forgiveness after 20/25 years).

For an FHA loan, the borrower must use the greater of:

• 1% of the outstanding balance on the loan.
• The monthly payment reported on the borrower’s credit report.
• The actual documented payment, provided the payment will fully amortize the loan over its term.

The ability to save for a downpayment is another factor in determining if a borrower qualifies for a conventional loan or a FHA loan. Conventional loans typically require a minimum downpayment of 5% (10% for condominiums) while FHA loans can go as low as 3.5%. With both FHA and conventional loans, there are premium costs and monthly private mortgage insurance payments to consider. However, for individuals with large student loan balances, it raises the question: should borrowers focus more on paying down student loans or saving for a downpayment? In some cases (and against conventional wisdom) it may make sense to prioritize paying down student loans to take pressure off your debt to income ratio in lieu of targeting a higher downpayment.

If you are considering purchasing your first home but didn’t think it was achievable due to student loans, contact Sharkey, Howes & Javer to meet with a CERTIFIED FINANCIAL PLANNER™ to review your options and how to qualify for a mortgage that best fits your needs.

Long-Term Care is Expensive

If you develop a medical condition requiring long-term care, you will quickly discover additional pressure on your finances. This means both your current income and your long-term savings could be affected, depending on the severity of the illness or condition. Furthermore, you may find that you are no longer able to care for yourself the way you once could. Many people find themselves turning to a long-term care facility in order to help maintain their overall quality of life. While this is a great method for keeping your quality of life high, it’s not such a great choice for your wallet: an assisted living facility costs an average of $43,000 per year, while life in a nursing home will run an average of $92,000 for a private room. However, it is vital to receive the necessary care to keep yourself safe, no matter the cost.

Keeping Up with Physical Health For as Long as you Possibly Can

Keeping up with your physical health can go a long way toward helping to decrease your costs, especially as you move into your retirement years. Try to keep your physical health as strong as your financial efforts.

Maintaining your physical health doesn’t have to take all of your time and attention, but making an effort to improve your wellbeing now, can help keep yourself and your bank account healthy throughout your retirement years.

Your retirement belongs to you, make sure you get the most out of it. Contact Sharkey, Howes & Javer today to speak with a CERTIFIED FINANCIAL PLANNER™ about setting yourself up for a healthy, fulfilling retirement.

Consumer Debt vs. Government Debt

Many people like to equate government deficit spending to using a credit card. While the government is using borrowed money similar to a credit card, this comparison does not hold up very well when you dive a little deeper. As mentioned earlier, government spending tends to spur economic growth during periods when the economy is not robust. In theory, a stronger economy means more people and businesses making more money, which in turn means more tax revenue for the government. Taking on personal credit card debt rarely produces more income for the individual spender.

Ultimately, both personal credit card debt and government debt must be re-paid to maintain healthy finances. To reduce debt, consumers and governments will generally employ some combination of increasing income/revenue and reducing expenses. When a consumer with outstanding debt passes away, their assets are liquidated to pay off their creditors. This results in fewer assets being passed down to heirs. Unlike humans, Governments exist into perpetuity. When the U.S. Government plans to spend more than what they receive in tax revenues, they issue new debt in the form of U.S. Treasury Securities. Governments, pension funds, mutual funds, and citizens rely on these securities as a substantial part of their investment portfolios. Yet, similar to credit cards, these Treasury Securities eventually need to be paid.

U.S. consumers should be conscious of their spending habits to make sure they are not over-leveraged. While the U.S. Government plays by different rules when it comes to deficit spending and debt, ultimately, the general goal remains reducing debt while stimulating the economy.

2. Put Your Bills on Autopay

Some companies, including many student loan providers, offer incentives for consumers who put their bills on autopay. By setting up autopay on your main bills, such as rent, utilities, credit cards, student loans, and other recurring expenses, you can take advantage of these incentives while also making sure everything is paid on time and you don’t get any late payment penalties.

3. Use Credit Sparingly

While it is true that one has to build credit in order to have credit, there are risks associated with credit cards, especially those with high interest rates. While it’s easy to make the minimum payment, it’s important to remember that you should only use credit cards if you can afford to pay the complete bill each month. You could spare yourself hundreds of dollars, or more, per year by avoiding interest charges, and you build your credit score at the same time.

4. Save for Retirement and Take Advantage of 401(k) Plans

Although it might seem too early to contribute to a 401(k) plan when you are beginning your career and just finished tossing your graduation cap into the air, the earlier you begin saving, the better you are preparing for your future. Even starting with small amounts, by investing early you will amass more money to support yourself in retirement. Furthermore, many employers encourage their employees to invest in 401(k) plans by “matching” the employee’s contributions. To see if you qualify for this win-win situation, check with your company’s HR staff as soon as possible.

5. Don’t Ignore Your Student Loans

Because of the rising cost of education, the typical college student graduates with $37,000 in debt and the biggest financial concern of many recent grads is their student loans. When you graduate, take charge of the situation and review the terms of your loan. You need to determine how much you owe and how your payments fit into your new budget.

The very first step to creating a solid financial base is to establish a cash reserve of at least 3-6 months of expenses. After this is established, and if your lender allows it, you may consider making extra payments and asking the company to put the additional amount towards the principal balance of the loan, rather than the interest. Paying more than the minimum can shave years off the length of the loan, save you money over the years, and help you qualify for a better mortgage or auto loan.

No matter your situation, reviewing your finances does not have to be an intimidating ordeal. Taking control of your finances early actually empowers you to set yourself up for a more stable and lucrative future.

3. A mid-2017 report from Your Castle Real Estate states “Our market inventory continues to be near record lows, with only 7,081 single family homes on the market as of June 30 2017 (16,000 – 18,000 is considered a balanced market).” When supply is low, prices increase. What would inspire an increase in supply to help create balance with demand? One option is building new homes. Colorado builders are expected to pull 23,700 single-family permits in 2017 and 26,000 in 2018, according to the University of Colorado’s Colorado Business Economic Outlook. While that looks robust compared with the sluggish pace of homebuilding seen after the recession, the CU forecast notes that builders pulled around 40,000 permits a year in 2004 and 2005, when there were 1 million fewer people living in the state.
4. The Denver Post takes a more practical view of the difference in price point: “More than 60 percent of the homes on the market in Denver are in the top third of the price distribution, while just 15 percent are in the bottom third, according to Zillow.” This issue makes home buying under $500,000 especially difficult from a competition standpoint. 5280 magazine sums it up nicely with their Panic Meter:

Your budget: $1,000,000+
Your level of panic: Low. You could find your dream home—and actually buy it.

Your budget: $750,000 to $999,999
Your level of panic: Moderate. There are houses available, but you’ll still need to match list price.

Your budget: $500,000 to $749,999
Your level of panic: High. You’ll be competing against more buyers than usual due to people stretching their budgets to get into a less intense section of the market.

Your budget: $499,999 and below
Your level of panic: Very high. You might find the perfect house, but so will 20 other buyers.

5. Contrary to popular media, millennials are “getting off the couch” and buying homes. A mortgage company reports “According to an industry-wide analysis, millennials accounted for 43% of all mortgage requests in Denver, between August 2016 and February 2017.” This statistic may help sellers understand the buying pool and how to structure a sale.

Buying a personal residence or an investment property is not a decision to take lightly and we suggest visiting with a CERTIFIED FINANCIAL PLANNER™ to see how the decision fits within your personal financial goals. Call Sharkey, Howes, & Javer at 303-639-5100 to schedule a complimentary consultation.

What Is the Time Horizon?

While downside volatility and short-term market swings are not to be ignored, assigning a time horizon to each goal is a critical step for determining appropriate portfolio construction. If a particular goal has a long time horizon, short-term market swings should be less of a driver in the asset allocation decision-making process. On the flip side, if the desire is to fund a goal within the next couple of years, market swings and volatility become more impactful. In some cases, it may be prudent to not invest the funds at all. Investing spans across an entire lifetime and it is important to pair each goal with its life stage.

Contact Sharkey, Howes & Javer to speak with a CERTIFIED FINANCIAL PLANNER™ professional about establishing a portfolio allocation that aligns with your goals and life journey.

Age 65

At age 65, you may no longer be covered under employer health insurance, which means you will need to sign up for Medicare. It is important that you enroll prior to your employer coverage ending to ensure that you have no gaps in coverage and to avoid late enrollment penalties. Once you have attained age 65, you should also refer to your county website to find out if your county has a Senior Property Discount program. As you transition into retirement, periodically review variable expenses and determine if your spending is consistent with your retirement planning goals.

Age 70

At age 70, it is good practice to do some tax planning prior to turning 70 ½ when you will be required to start distributing funds from your Traditional IRAs and any employer retirement plans that have not been consolidated to an IRA. If you delayed collecting Social Security benefits, contact Social Security to begin receiving your benefits – there is no benefit to waiting beyond age 70 to start collecting. Lastly, as difficult as it may be, take the time to start fine-tuning your estate planning and talking to your kids about your will.

No matter your age, it is never too soon or too late to meet with a financial planner to review practices for building a strong financial foundation for any stage of life. Call Sharkey, Howes & Javer at 303-639-5100 to set up a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™ professional.

Source: http://time.com/money/4329616/retirement-five-most-important-years/

Should you invest in Bitcoin?

When you purchase stock in a company, you are purchasing a share of a company’s future earnings and stocks have a tangible value based on expected future earnings of a company. When you hold bonds, you receive interest payments that make bonds easy to value (assuming the debtor doesn’t go bankrupt). Unlike these traditional investments, the value of Bitcoin is not determined by any kind of cash flow; it is purely based on public sentiment and demand for the currency.

Investing is based on taking calculated risks to achieve a rate of return on your money. We invest in stocks and bonds because over long periods of time both asset classes have shown they can outperform inflation. Bitcoin is an asset that has experienced exponential growth in the past 12 months, and no one knows where the price will go from here.