Category Archives: Finance

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What Would You Do with an Extra $1,000?

5 Smart Things to Do with $1,000

By Barbara Pronin

It’s a great feeling: you received a hard-earned bonus at work, or an unexpected gift from a relative. The impulse to buy something you pine for is strong.

Before you spend that $1,000, think what it can help accomplish if you take one of these five steps, say investment advisors at the Motley Fool:

1. Create an Emergency Fund – Statistics say 62 percent of Americans have less than $1,000 in savings—not nearly enough to pay for emergencies. If you’re one of them, take that $1,000 to the bank and crank up your emergency fund. You’ll feel a lot better when you find your car needs repair and you don’t have to haul out the plastic!

2. Pay Off Debt – Carrying credit card balances wastes money on interest payments, affording you less spend-able cash. Use that $1,000 to pay down debt, which may also improve your credit score—ideal if you need to borrow money or apply for a home loan down the line.

3. Save for Retirement – Add that $1,000 to your 401(k), IRA or savings account. Those in their 30s who invest it in stocks could generate an average annual return of 8 percent—or, if you put it into savings, could grow it to $15,000 by age 65.

4. Invest in Your Child’s Education – While student loans are an option, the less debt your kids take on, the better positioned they’ll be to start adulthood on financially solid ground. If you’re on track for retirement, have adequate emergency savings, and aren’t carrying credit card debt, put that $1,000 in a traditional brokerage account, a 529 or another type of college savings plan.

5. Invest in Yourself – If a degree or certification stands between you and a promotion and a raise—or if you plan to launch a side business or a new career—put that $1,000 windfall into making your dream a reality.

 

Q: What Should I Know about Mechanics Liens?

A:  A mechanic’s lien is a “hold” against your property that provides contracdeed-transfer-paperworktors and suppliers legal recourse to assure payment for services.  The liens vary from state to state and allow for a cloud on the title of your property and foreclosure action.  Also, if you paid the contractor, but he failed to pay the subcontractors and laborers – who do not have a contract with you – then the workers may file a mechanic’s lien on your home.  This could result in a double payment by you for the same job.  You can protect yourself from unwarranted liens by selecting your contractor carefully and managing your construction project responsibly.  Also, most construction lenders will specify a payment distribution process that involves the securing of lien waivers.  The remodeling contract should address this as well, assuring that the general contractor is responsible for all payments as well as any costs required to remedy lien disputes that may arise.  

Reprinted with permission from RISMedia. ©2016. All rights reserved.

Millennials and Personal Finance: New Technology, Old Challenges

Millennials and Personal Finance: New Technology, Old Challenges
Millennials have conflicted feelings about their personal finances; they are uncertain but lean toward optimism. This conclusion is in accordance with a recently released Experian report originating from a survey of more than 1,000 millennials, ages 19-34, about a variety of personal finance topics – from their future views, to loan status, to credit knowledge, to use of technology.

The survey follows a July 2015 report from Experian that analyzed credit bureau data and placed millennials last in generational credit score rankings.

Topline survey results include:

  • A surprising number lack knowledge about credit – or show apathy toward it
  • A majority have had their credit, loan or lease attempts impacted – positively or negatively – by credit scores
  • Millennials embrace technology and are quick to try new offerings – at the expense of loyalty

“Millennials are coming of financial age at a very unique time,” says Guy Abramo, President, Experian Consumer Services. “They’ve experienced a recession and the explosive advancement of personal technology. As a result, they’ve developed different views toward managing money, using credit and how they expect financial services to be delivered. The survey also showed that millennials will abandon loyalty for better products and services, which is something the entire financial services sector should consider; the pressure is on to keep innovating.”

Perception vs. Reality:

  • Millennials miss the mark when estimating their generation’s average credit score (654 [est.] vs. 625 [actual]), average debt $26,610 [est.] vs. $52,210 [actual], and average debt, excluding mortgage ($12,580 [est.] vs. $26,485 [actual]).

Current Debt:

  • Despite being associated most closely with student loan debt, credit card debt takes first position as the most common millennial debt (38%), followed closely by student loans (36%). Others, in descending order, are: auto loans (28%), home loans (20%), personal loans (17%) and “other” (14%).

Pushing the Edge of Personal Finance:

  • The majority of millennials (57%) use financial mobile apps to manage their finances
  • Millennials have, on average, three financial apps on their phones
  • Most (57%) millennials are willing to use alternative companies/services that innovate to better meet their needs
  • A significant number of millennials (39%) are familiar with “non-bank” lenders (e.g., Prosper, Lending Tree, Upstart) and 13% have already used such a service
  • Nearly half (47%) will likely use alternative lenders in the future, citing easier application process, not dependent solely on credit score, more accessible, faster review process and digital savvy

Loyalty to a Financial Brand Is a Tough Sell:

  • Many millennials (46%) look for new financial companies/services that better meet their needs
  • More than 3 out of 4 millennials will switch financial accounts if they find a better alternative
  • Most frequently mentioned reasons to switch include: better interest rates (47%), better reward programs (43%), better identity protection (32%) and better customer service (35%), among others

Credit Knowledge Deficit:

  • Most millennials feel confident of their credit knowledge (71%); however, 32% don’t know their credit scores and 67% have questions as to how their scores are created
  • Among those who check their reports less than every three months, reasons for not checking reports and scores include: not necessary (35%/37%), afraid it will hurt their scores (24%/22%), unsure how to check their credit reports/scores (19%/18%)
  • Millennials are very aware of how credit scores impact them; nearly 3 in 4 had a lending or leasing experience helped or hurt by their credit scores

Youthful Angst, but Optimism Prevails:

  • Despite most having a handle on their finances (73%), more than half feel that they are “going it alone” (59%) and that “the odds are stacked against them” (57%)
  • Top financial future concerns are supporting a family (30%), retirement savings (28%) and financial independence (25%)
  • Nearly 3 out of every 4 survey participants had their loan, credit or rental applications impacted – positively or negatively – by their credit scores
  • Despite the concerns, 83% of respondents says being debt-free is an attainable goal; 71% feel confident about their financial futures

View the full report here.

Reprinted with permission from RISMedia. ©2015. All rights reserved.

The Student Loan Effect: How Debt Impacts Homeownership for Millennials

¨The Student Loan Effect: How Debt Impacts Homeownership for Millennials

Freddie Mac’s Insight & Outlook report for September focuses on the challenges faced by three types of student loan borrowers, and how loan down payment mortgage loans could help, or not help, make homeownership possible.

“The low homeownership rate among millennials is still something of a puzzle—it cannot be explained solely by the increase in student loan debt,” says Sean Becketti, chief economist, Freddie Mac. “However, student debt plays a role—higher balances are associated with a lower probability of homeownership at every level of college and graduate education. And recent data has confirmed that not all student debt is created equal. Students who attended schools with less-certain educational benefits have not fared well. Borrowers who did not complete their studies have fared worst of all. These groups are likely to continue to affect the pattern of homeownership among millennials. Moreover, a change just this month in Federal Housing Administration policy will make it more difficult for some student loan borrowers to qualify for a mortgage.

Insight Highlights

Is the student debt overhang holding back homeownership among millennials?
 While the homeownership rate has been declining for all age groups, the rate among millennials is particularly low.
Student debt tripled over the past 10 years, reaching $1.2 trillion in the fourth quarter of 2014. Aggregate student debt expanded for all age groups, however, the balances are concentrated among those under 30 years old and those between 30 and 39 years old.
Before the crisis, homeownership rates of 27-to-30-year-olds with student loans (evidence of at least some college education) were 2 to 3 percent higher than homeownership rates of those with no student loans. That gap began to close during the recession and reversed in 2011. By 2014, the homeownership rate of borrowers was about one percentage point lower than the rate of non-borrowers.
Recent findings suggest that it may be useful to think of student loan borrowers as being divided into three groups: successful investors, disappointed earners, and at-risk borrowers.
The at-risk borrowers group is a particular focus for Freddie Mac’s efforts to support prudent, affordable lending to low-and-moderate income borrowers. The impact on credit scores of poor repayment performance may make it particularly difficult to assist some members of this group.
For the disappointed earners—and even some of the successful investors—Freddie Mac’s Home Possible Advantage(SM) program, with its option to pay as little as 3 percent down, may provide help in purchasing that first home.
“Our Outlook this month shows the economy has not kicked into gear yet, and the Fed’s recent decision to defer increasing short-term interest rates suggests they share this view,” says Becketti. “At the same time, the housing market is on its way to having the best year since the recovery began. Keep in mind that the housing sector is coming back from rock bottom and housing activity remains weak compared to historical norms. At the same time, Fed watchers must feel they are watching a revival of ‘Waiting for Godot.’ Approaching every meeting of the Federal Open Market Committee, the market braces itself for a Fed tightening, only to watch the Committee delay any action for at least one more meeting.”

Outlook Highlights

At the current pace, home sales this year are expected to be the highest since 2007. Existing home sales in August fell a little short of expectations, but the inventory of existing homes for sale remained below the six-month mark.
The faster-than-expected decline in the unemployment rate is boosting demand for homes. However, a more significant contributor is likely the continued low level of mortgage rates, which has kept affordability high despite impressive gains in house prices. The interest rate on 30-year fixed rate mortgages averaged 3.9 percent in August, and the rate on 15-year fixed rate mortgages averaged 3.12 percent.
Based on upward revisions of the 2014 Home Mortgage Disclosure Act (HMDA) data on mortgage origination, and stronger-than-expected housing activity in the first half of 2015, Freddie Mac has increased its estimate of 2015 mortgage originations to $1.53 trillion and 2016 originations to $1.40 trillion.
A video preview, along with the complete monthly Insight & Outlook commentary, is available here.