Rashid Sheikh

Rashid Sheikh

6477093400

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7050 Telford Way
Mississauga, Ontario L5S 1V7

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World Financial Group

Debit Or Credit? What's The Difference?

August 4, 2020

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Which Debt Should You Pay Off First?

Which Debt Should You Pay Off First?

Nearly every type of debt can interfere with your financial goals, making you feel like a hamster on a wheel – constantly running but never actually getting anywhere.

If you’ve been trying to dig yourself out of a debt hole, it’s time to take a break and look at the bigger picture.

Did you know there are often advantages to paying off certain types of debt before other types? What the simple list below doesn’t include is the average interest rates or any tax benefits to a given type of debt, which can change your priorities. Let’s check them out!

Credit Cards
For most households, credit card debt is the place to start – stop spending on credit and start making extra payments whenever possible. Think of it as an investment in your future!

Auto Loans
Interest rates for auto loans are usually much lower than credit card debt, often under 5% on newer loans. Interest rates aren’t the only consideration for auto loans though. New cars depreciate nearly 20% in the first year. In years 2 and 3, you can expect the value to drop another 15% each year. The moral of the story is that cars are a terrible investment but offer great utility. There’s also no tax benefit for auto loan interest. Eliminating debt as fast as possible on a rapidly depreciating asset is a sound decision.

Student Loans
Like auto loans, student loans are usually in the range of 5% to 10% interest. While interest rates are similar to car loans, student loan interest is often tax deductible, which can lower your effective rate. Auto loans can usually be paid off faster than student loan debt, allowing more cash flow to apply to student debt, investment accounts, or other needs.

Mortgage Debt
In most cases, mortgage debt is the last type of debt to pay down. Mortgage rates are usually lower than the interest rates for credit card debt, auto loans, or student loans, and mortgage interest may be tax deductible if structured properly. If mortgage debt keeps you awake at night, paying off other types of debt first will give you greater cash flow each month so you can begin paying down your mortgage.

When you’ve paid off your other debt and are ready to start tackling your mortgage, try paying bi-monthly (every two weeks). This simple strategy has the effect of adding one extra mortgage payment each year, reducing a 30-year loan term by several years. Because the payments are spread out instead of making one (large) 13th payment, it’s likely you won’t even notice the extra expense.

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Should I Buy Or Rent?

May 27, 2020

Should I Buy Or Rent?

Home ownership is a big dream for most people.

But sometimes it might seem more convenient (or economical) to rent rather than buy. Here are two things to consider if you’re looking to buy a house instead of renting.

How long will you live in the house?
When you own a home, the hope is generally that it will increase in value and that you would be able to sell it for more than you bought it. The best way to do that is to plan to stay in your house for the long haul. So if you’re looking to remain in an area for a while and put down roots, buying a house is a strong consideration. But let’s face it, not everyone is in that position. Maybe you’re young and hopping from opportunity to opportunity. Perhaps your job requires you to travel frequently or change locations. You might just prefer discovering new, exciting places and not being tied down. Unless you plan on renting out your property, it may not make sense for you to buy. Renting might give you more flexibility to move about as you please!

Can you afford to buy a house?
So you want to settle down in a city or a certain neighborhood for the foreseeable future. Does that automatically mean you should buy a house?

Well, maybe not.

You simply may not be able to afford a house right now. Do you have significant debt in student loans or a car? Have you been able to save up enough for closing costs and a down payment? Mortgages might be cheaper than rent at certain times, but that might flip-flop before too long. Are you ready to maintain your house or pay for unexpected damages? These are all questions to ask before you decide to become a homeowner.

Still weighing your homeownership options? Let’s talk. We can review your situation and see if now is your time to buy!

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Are You Prepared For a Rainy Day?

April 1, 2020

Are You Prepared For a Rainy Day?

It’s never a bad idea to prepare for a financial emergency.

Unexpected expenses, market fluctuations, or a sudden job loss could leave you financially vulnerable. Here are some tips to help you get ready for your bank account’s rainy days!

Know the difference between a rainy day fund and an emergency fund … but have both!
People often use the terms interchangeably, but there are some big differences between a rainy day fund and an emergency fund. A rainy day fund is typically designed to cover a relatively small unexpected cost, like a car repair or minor medical bills. Emergency funds are supposed to help cover expenses that might accumulate during a long period of unemployment or if you experience serious health complications. Both funds are important for preparing for your financial future—it’s never too early to start building them.

Tackle your debt now
Just because you can manage your debt now doesn’t mean you’ll be able to in the future. Prioritizing debt reduction, especially if you have student loans or credit card debit, can go a long way toward helping you prepare for an unexpected financial emergency. It never hurts to come up with a budget that includes paying down debt and to set a date for when you want to be debt-free!

Learn skills to bolster your employability
One of the worst things that can blindside you is unemployment. That’s why taking steps now to help with a potential future job search can be so important. Look into free online educational resources and classes, and investigate certifications. Those can go a long way towards diversifying your skillset (and can look great on a resume).

None of these tips will do you much good unless you get the ball rolling on them now. The best time to prepare for an emergency is before the shock and stress set in!

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Four Ways to Get Out of Debt

Four Ways to Get Out of Debt

Dealing with debt can be scary.

Paying off your mortgage, car, and student loans can sometimes seem so impossible that you might not even look at the total you owe. You just keep making payments because that’s all you might think you can do. However, there is a way out! Here are 4 tips to help:

Make a Budget
Many people have a complex budget that tracks every penny that comes in and goes out. They may even make charts or graphs that show the ratio of coffee made at home to coffee purchased at a coffee shop. But it doesn’t have to be that complicated, especially if you’re new at this “budget thing”. Start by splitting all of your spending into two categories: necessary and optional. Rent, the electric bill, and food are all examples of necessary spending, while something like a vacation or buying a third pair of black boots (even if they’re on sale) might be optional. Figure out ways that you can cut back on your optional spending, and devote the leftover money to paying down your debt. It might mean staying in on the weekends or not buying that flashy new electronic gadget you’ve been eyeing. But reducing how much you owe will be better long-term.

Negotiate a Settlement
Creditors often negotiate with customers. After all, it stands to reason that they’d rather get a partial payment than nothing at all! But be warned; settling an account can potentially damage your credit score. Negotiating with creditors is often a last resort, not an initial strategy.

Debt Consolidation
Interest-bearing debt obligations may be negotiable. Contact a consolidation specialist for refinancing installment agreements. This debt management solution helps reduce the risk of multiple accounts becoming overdue. When fully paid, a clean credit record with an extra loan in excellent standing may be the reward if all payments are made on time.

Get a side gig
You might be in a position to work evenings or weekends to make extra cash to put towards your debt. There are a myriad of options—rideshare driving, food delivery, pet sitting, you name it! Or you might have a hobby that you could turn into a part-time business.

If you feel overwhelmed by debt, then let’s talk. We can discuss strategies that will help move you from feeling helpless to having financial control.

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The starter kit for building good credit

February 27, 2019

The starter kit for building good credit

Having a good credit score is one of the most important tools you can have in your financial toolbox.

Your credit report may affect anything from how much you pay for a cell phone plan, to whether you would qualify for the mortgage you might want.

Getting and maintaining a good credit score can be advantageous. But how do you achieve a good credit report? What if you’re starting from scratch? The dilemma is like the chicken and the egg question. How can you build a positive credit report if no one will extend you credit?

Read on for some useful tips to help you get started.

Use a cosigner to take out a loan
One way to help build good credit is by taking out a loan with a cosigner. A cosigner would be responsible for the repayment of the loan if the borrower defaults. Many banks may be willing to give loans to people with no credit if someone with good credit acts as a cosigner on the loan to help ensure the money will be paid back.

Build credit as an authorized user
If you don’t want or need to take out a loan with a cosigner, you may want to consider building credit as an authorized user of someone else’s credit card – like a parent, close friend, or relative you trust. The credit card holder would add you as an authorized user of the card. Over time if the credit account remains in good standing, you would begin building credit.

Apply for a store credit card to build your credit
Another way to start building your credit record is to secure a store credit card. Store credit cards may be easier to qualify for than major credit cards because they usually have lower credit limits and higher interest rates.

A store credit card may help you build good credit if you make the payments on time every month. Also be sure to pay the card balance off each month to avoid paying interest.

Keep student loans in good standing
If there is an upside to student loan debt, it’s that having a student loan can help build credit and may be easy to qualify for. Just keep in mind, as with any loan, to make payments on time.

Good credit takes time
Building a good credit report takes time, but we all must start somewhere. Your credit score can affect many aspects of your financial health, so it’s worth it to build and maintain a good credit report. Start small and don’t bite off more than you can chew. Most importantly, as you begin building credit, protect it by avoiding credit card debt and making your payments on time.

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Budgeting 101: Where should I start?

January 2, 2019

Budgeting 101: Where should I start?

It’s the new year so there are bound to be some new resolutions you want to stick to.

If one of them is improving your budgeting skills – or maybe just creating a budget in the first place – read on for some guidelines that may help reduce some of your expenses (including what you might call the essentials).

Start with debt and interest rates If you have any loans in your name, rest assured there will be interest associated with those loans, unless you’ve got a really nice aunt who loaned you some money interest-free. From the borrower’s perspective, interest is simply the expense of receiving money from a creditor which you’re required to pay back over time. No one wants to pay higher interest than necessary.

In contrast to other expenses, like rent, food, or entertainment, interest itself produces absolutely no value for the borrower. The borrowed money may produce value, but the interest itself does not. For that reason, you’re going to want to pay as little interest on your loans as possible.

One strategy is to transfer credit card balances to lower APR credit cards – just beware of transfer fees. Read the fine print to make sure the new card actually carries a lower interest rate, as sometimes the rate after the introductory period may go up. If you can refinance any of your loans, like student, auto, or home, consider it. For example, there’s no reason to pay 5% if you can pay 4%. (Again, make sure you understand the terms and any fees involved.)

Slim down the essentials
This is the time when all items in your budget are going to come under consideration. Everything is on the table. For transportation, any reduction in cost you can make is going to depend on your location. If you live in a high-density urban area and you normally drive yourself or use public transit to get to work or other destinations, ask yourself if you can walk or cycle instead. These options often provide health benefits as well.

The key? Look at the essential sections of your budget and mentally run through how you obtain those essentials, like driving to the nearest grocery store or who your landlord is. Then brainstorm alternatives for paying for these items or services – anything is fair game! (For example, would your landlord reduce your rent if you help out with yard maintenance?) Finally, do a little research and analysis to see if those alternatives are cheaper (and feasible).

Eliminate non-essentials
The next step is to look at each non-essential and determine its utility to you. If you barely think about the actual purchase, you might have simply developed the routine of purchasing that item or service (think: “monthly movie subscription service you never use anymore”). In that case, the hardest part might be combing through your credit card statement and nixing the services you never use. Another example of routine, autopilot spending might be the soda you buy with your lunch. Do you really need it? Maybe not. Switching to tea or coffee that you can brew at home may be cheaper. And water is (usually) free.

Repeat this process with every non-essential. Are you really using your 10GB/mo mobile internet plan? If not, look for a lower, more cost-effective GB plan. The key here is to try to distinguish between convenience and necessity.

Don’t discount the discount
There are discounts everywhere, from loyalty programs to manufacturers’ coupons to seasonal specials. If there is an essential that burns your budget, it may be worth checking to see if you’re eligible for a government program.[i] Some credit cards offer rewards programs, but be very careful to pay off the full amount each month to avoid accruing interest, otherwise your rewards could be negated.

Keep the big picture in mind
Sometimes it can be hard to justify the time and effort that might be involved to save $2 per day. It’s just two dollars, right? But look at the accumulated savings. Saving $2 per day for a year translates to over $700, or about $60 per month. If you choose to brew that tea instead of buying the soda, maybe you can afford the 10GB plan instead of the 1GB plan.

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Headed in the Right Direction: Managing Debt for Millennials

Headed in the Right Direction: Managing Debt for Millennials

Three simple words can strike fear into the heart of any millennial:

Student.

Loan.

Debt.

The anxiety is not surprising: In 2015, US college graduates had an average of $30,100 in student debt, and the average Canadian college graduate had $26,819 in student loan debt.

Nearly $30 grand? For that you could travel the world. Put a down payment on a house. Buy a car. Even start a new business! But instead of having the freedom to pursue their dreams, there’s a hefty financial ball and chain around millennials’ feet.

That many young people owing that much money before they even enter the workforce? It’s unbelievable!

Now just imagine adding car payments, house payments, insurance premiums, and more on top of that student debt. No wonder millennials are feeling so terrible: studies showed that Canadian students who had to take out large loans were in a state of poorer mental health than their peers, and 57% of American millennials report that paying for essentials alone is a “somewhat-to-very-significant” source of stress.

Now is the time to get ahead of your debt. Not later. You have the potential to manage that debt and get out from under it!

So how do you do that? Sometimes improving your current situation involves more than making smarter choices with the money you earn now. Getting out of that debt ditch means finding a way to make more.

There are 2 things you can monetize right now:

  • Your education
  • Your experience

Both have their own challenges. You may not have spent much time in a particular field yet, so not a lot of experience. And what if you’re working a job that has nothing to do with your major? There goes education.

Two speed bumps. One right after the other. But you can still gain momentum in the direction you want your life to go!

How? A solid financial strategy. A goal you can see. A destination for financial independence.

Debts can become overwhelming – remember that stat up there? But with a strategy in mind for the quick and consistent repaying of your loans, so much of that stress and burden could be lifted.

Contact me today. A quick phone call is all we need to help get you rolling in the direction YOU want to go.

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The Shelf Life of Financial Records

July 16, 2018

The Shelf Life of Financial Records

When you finally make the commitment to organize that pile of financial documents, where are you supposed to start?

Maybe you’ve tried sorting your documents into this infamous trio: the Coffee Stains Assortment, the Crumpled-Up Masses, and the Definitely Missing a Page or Two Crew.

How has this system been working for you? Is that same stack of disorganized paper just getting shuffled from one corner of your desk to the top of your filing cabinet and back again? Why not give the following method a try instead? Based on the Financial Industry Regulatory Authority (FINRA)’s “Save or Shred” ideas, here’s a list of the shelf life of some key financial records to help you begin whittling that stack down to just what you need to keep. (And remember, when disposing of any financial records, shred them – don’t just toss them into the trash.)

1. Keep These Until They Die: Mortgages, Student Loans, Car Loans, Etc.
These records are the ones to hang on to until you’ve completely paid them off. However, keeping these records indefinitely (to be on the safe side) is a good idea. If any questions or disputes relating to the loan or payment of the loan come up, you’re covered. Label the records clearly, then feel free to put them at the back of your file cabinet. They can be out of sight, but make sure they’re still in your possession if that info needs to come to mind.

2. Seven Years in the Cabinet: Tax-Related Records.
These records include your tax returns and receipts/proof of anything you might claim as a deduction. You’ll need to keep your tax documents – including proof of deductions – for 7 years. Period. Why? In the US, if the IRS thinks you may have underreported your gross income by 25%, they have 6 whole years to challenge your return. Not to mention, they have 3 years to audit you if they think there might be any good faith errors on past returns. (Note: Check with your state tax office to learn how long you should keep your state tax records.) And in Canada, the rule is to keep tax records for 6 years “from the end of the tax year to which they apply.” This can be a little confusing, especially if you file late returns for any reason, so round the 6 years up to 7, and you’ll give yourself a little bit of wiggle room if the Canada Revenue Agency (CRA) comes knocking. Also important to keep in mind for both countries: Some of the items included in your tax returns may also pull from other categories in this list, so be sure to examine your records carefully and hang on to anything you think you might need.

3. The Sixers: Property Records.
This one goes out to you homeowners. While you’re living in your home, keep any and all documents from the purchase of the home to remodeling or additions you make. After you sell the home, keep those documents for at least 6 more years.

4. The Annually Tossed: Brokerage Statements, Paycheck Stubs, Bank Records.
“Annually tossed” is used a bit lightly here, so please proceed with caution. What can be disposed of after an annual review are brokerage statements, paycheck stubs (if not enrolled in direct deposit), and bank records. Hoarding these types of documents may lead to a “keep it all” or “trash it all” attitude. Neither is beneficial. What should be kept is anything of long-term importance (see #2).

5. The Easy One: Rental Documents.
If you rent a property, keep all financial documents and rental agreements until you’ve moved out and gotten your security deposit back from the landlord. Use your deposit to buy a shredder and have at it – it’s easy and fun!

6. The Check-‘Em Againsts: Credit Card Receipts/Statements and Bills.
Check your credit card statement against your physical receipts and bank records from that month. Ideally, this should be done online daily, or at least weekly, to catch anything suspicious as quickly as possible. If everything checks out and there are no red flags, shred away! (Note: Planning to claim anything on your statement as a tax deduction? See #2.) As for bills, you’re in the clear to shred them as soon as your payment clears – with one caveat: Bills for any big-ticket items that you might need to make an insurance claim on later (think expensive sound system, diamond bracelet, all-leather sofa with built-in recliners) should be held on to indefinitely (or at least as long as you own the item).

So even if your kids released their inner Michelangelo on the shoebox of financial papers under your bed, some of them need to be kept – for more than just sentimental value. And it’s vital to keep the above information in mind when you’re considering what to keep and for how long.

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6 Financial Commitments EVERY Parent Should Educate Their Kids About

6 Financial Commitments EVERY Parent Should Educate Their Kids About

Your first lesson isn’t actually one of the six.

It can be found in the title of this article. The best time to start teaching your children about financial decisions is when they’re children! Adults don’t typically take advice well from other adults (especially when they’re your parents and you’re trying to prove to them how smart and independent you are).

Heed this advice: Involve your kids in your family’s financial decisions and challenge them with game-like scenarios from as early as their grade school years.

Starting your kids’ education young can help give them a respect for money, remove financial mysteries, and establish deep-rooted beliefs about saving money, being cautious regarding risk, and avoiding debt.

Here are 6 critical financially-related lessons EVERY parent should foster in the minds of their kids:

1. Co-signing a loan

The Mistake: ‘I’m in a good financial position now. I want to be helpful. They said they’ll get me off the loan in 6 months or so.’

The Realities: If the person you’re co-signing for defaults on their payments, you’re required to make their payments, which can turn a good financial situation bad, fast. Also, lenders are not incentivized to remove co-signers – they’re motivated to lower risk (hence having a co-signer in the first place). This can make it hard to get your name off a loan, regardless of promises or good intentions. Keep in mind that if a family member or friend has a rough credit history – or no credit history – that requires them to have a co-signer, what might that tell you about the wisdom of being their co-signer? And finally, a co-signing situation that goes bad may ruin your credit reputation, and more tragically, may ruin your relationship.

The Lesson: ‘Never, ever, EVER, co-sign a loan.’

2. Taking on a mortgage payment that pushes the budget

The Mistake: ‘It’s our dream house. If we really budget tight and cut back here and there, we can afford it. The bank said we’re pre-approved…We’ll be sooo happy!’

The Realities: A house is one of the biggest purchases couples will ever make. Though emotion and excitement are impossible to remove from the decision, they should not be the driving forces. Just because you can afford the mortgage at the moment, doesn’t mean you’ll be able to in 5 or 10 years. Situations can change. What would happen if either partner lost their job for any length of time? Would you have to tap into savings? Also, many buyers dramatically underestimate the ongoing expenses tied to maintenance and additional services needed when owning a home. It’s a general rule of thumb that home owners will have to spend about 1% of the total cost of the home every year in upkeep. That means a $250,000 home would require an annual maintenance investment of $2,500 in the property. Will you resent the budgetary restrictions of the monthly mortgage payments once the novelty of your new house wears off?

The Lesson: ‘Never take on a mortgage payment that’s more than 25% of your income. Some say 30%, but 25% or less may be a safer financial position.’

3. Financing for a new car loan

The Mistake: ‘Used cars are unreliable. A new car will work great for a long time. I need a car to get to work and the bank was willing to work with me to lower the payments. After test driving it, I just have to have it.’

The Realities: First of all, no one ‘has to have’ a new car they need to finance. You’ve probably heard the expression, ‘a new car starts losing its value the moment you drive it off the lot.’ Well, it’s true. According to CARFAX, a car loses 10% of its value the moment you drive away from the dealership and another 10% by the end of the first year. That’s 20% of value lost in 12 months. After 5 years, that new car will have lost 60% of its value. Poof! The value that remains constant is your monthly payment, which can feel like a ball and chain once that new car smell fades.

The Lesson: ‘Buy a used car you can easily afford and get excited about. Then one day when you have saved enough money, you might be able to buy your dream car with cash.’

4. Financial retail purchases

The Mistake: ‘Our refrigerator is old and gross – we need a new one with a touch screen – the guy at the store said it will save us hundreds every year. It’s zero down – ZERO DOWN!’

The Realities: Many of these ‘buy on credit, zero down’ offers from appliance stores and other retail outlets count on naive shoppers fueled by the need for instant gratification. ‘Zero down, no payments until after the first year’ sounds good, but accrued or waived interest may often bite back in the end. Credit agreements can include stipulations that if a single payment is missed, the card holder can be required to pay interest dating back to the original purchase date! Shoppers who fall for these deals don’t always read the fine print before signing. Retail store credit cards may be enticing to shoppers who are offered an immediate 10% off their first purchase when they sign up. They might think, ‘I’ll use it to establish credit.’ But that store card can have a high interest rate. Best to think of these cards as putting a tiny little ticking time bomb in your wallet or purse.

The Lesson: ‘Don’t buy on credit what you think you can afford. If you want a ‘smart fridge,’ consider saving up and paying for it in cash. Make your mortgage and car payments on time, every time, if you want to help build your credit.’

5. Going into business with a friend

The Mistake: ‘Why work for a paycheck with people I don’t know? Why not start a business with a friend so I can have fun every day with people I like building something meaningful?’

The Realities: “This trap actually can sound really good at first glance. The truth is, starting a business with a friend can work. Many great companies have been started by two or more chums with a shared vision and an effective combination of skills. If either of the partners isn’t prepared to handle the challenges of entrepreneurship, the outcome might be disastrous, both from a personal and professional standpoint. It can help if inexperienced entrepreneurs are prepared to:

  • Lose whatever money is contributed as start-up capital
  • Agree at the outset how conflicts will be resolved
  • Avoid talking about business while in the company of family and friends
  • Clearly define roles and responsibilities
  • Develop a well-thought out operating agreement

The Lesson: ‘Understand that the money, pressures, successes, and failures of business have ruined many great friendships. Consider going into business individually and working together as partners, rather than co-owners.’

6. Signing up for a credit card

The Mistake: ‘I need to build credit and this particular card offers great points and a low annual fee! It will only be used in case of emergency.’

The Reality: There are other ways to establish credit, like paying your rent and car loan payments on time. The average American household carries a credit card balance averaging over $16,000, and the average Canadian owes $22,081 in consumer debt. Credit cards can lead to debt that may take years (or decades) to pay off, especially for young people who are inexperienced with budgeting and managing money. The point programs of credit cards are enticing – kind of like when your grocer congratulates you for saving five bucks for using your VIP shopper card. So how exactly did you save money by spending money?

The Lesson: ‘Learn to discipline yourself to save for things you want to buy and then pay for them with cash. Focus on paying off debt – like student loans and car loans – not going further into the hole. And when you have to get a credit card, make sure to pay it off every month, and look for cards with rewards points. They are, in essence, paying you! But be sure to keep Lesson 5 in mind!’

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Making Money Goals That Get You There

Making Money Goals That Get You There

Setting financial goals is like hanging a map on your wall to inspire and motivate you to accomplish your travel bucket list.

Your map might have your future adventures outlined with tacks and twine. It may be patched with pictures snipped from travel magazines. You would know every twist and turn by heart. But to get where you want to go, you still have to make a few real-life moves toward your destination.

Here are 5 tips for making money goals that may help you get closer to your financial goals:

1. Figure out what’s motivating your financial decisions. Deciding on your “why” is a great way to start moving in the right direction. Goals like saving for an early retirement, paying off your house or car, or even taking a second honeymoon in Hawaii may leap to mind. Take some time to evaluate your priorities and how they relate to each other. This may help you focus on your financial destination.

2. Control Your Money. This doesn’t mean you need to get an MBA in finance. Controlling your money may be as simple as dividing your money into designated accounts, and organizing the documents and details related to your money. Account statements, insurance policies, tax returns, wills – important papers like these need to be as well-managed as your incoming paycheck. A large part of working towards your financial destination is knowing where to find a document when you need it.

3. Track Your Money. After your money comes in, where does it go out? Track your spending habits for a month and the answer may surprise you. There are a plethora of apps to link to your bank account to see where things are actually going. Some questions to ask yourself: Are you a stress buyer, usually good with your money until it’s the only thing within your control? Or do you spend, spend, spend as soon as your paycheck hits, then transform into the most frugal individual on the planet… until the next direct deposit? Monitor your spending for a few weeks, and you may find a pattern that will be good to keep in mind (or avoid) as you trek toward your financial destination.

4. Keep an Eye on Your Credit. Building a strong credit report may assist in reaching some of your future financial goals. You can help build your good credit rating by making loan payments on time and reducing debt. If you neglect either of those, you could be denied for mortgages or loans, endure higher interest rates, and potentially difficulty getting approved for things like cell phone contracts or rental agreements which all hold you back from your financial destination. There are multiple programs that can let you know where you stand and help to keep track of your credit score.

5. Know Your Number. This is the ultimate financial destination – the amount of money you are trying to save. Retiring at age 65 is a great goal. But without an actual number to work towards, you might hit 65 and find you need to stay in the workforce to cover bills, mortgage payments, or provide help supporting your family. Paying off your car or your student loans has to happen, but if you’d like to do it on time – or maybe even pay them off sooner – you need to know a specific amount to set aside each month. And that second honeymoon to Hawaii? Even this one needs a number attached to it!

What plans do you already have for your journey to your financial destination? Do you know how much you can set aside for retirement and still have something left over for that Hawaii trip? And do you have any ideas about how to raise that credit score? Looking at where you are and figuring out what you need to do to get where you want to go can be easier with help. Plus, what’s a road trip without a buddy? Call me anytime!

… All right, all right you can pick the travel tunes first.

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Pros and Cons of Simple Interest

January 29, 2018

Pros and Cons of Simple Interest

Brace yourself: You’ve been brought here under false pretenses.

This post is not so much about a list of pros and cons as it is about one big pro and one big con concerning simple interest accounts. There are many fine-tooth details you could get into when looking for the best ways to use your money. But when you’re just beginning your journey to financial independence, the big YES and NO below are important to keep in mind. In a nutshell, interest will either cost you money or earn you money. Here’s how…

The Pro of Simple Interest: Paying Back Money

Credit cards, mortgages, car loans, student debt – odds are that you’re familiar with at least one of these loans at this point. When you take out a loan, look for one that lets you pay back your principal amount with simple interest. This means that the overall amount you’ll owe will be interest calculated against the principal, or initial amount, that was loaned to you. And the principle decreases as you pay back the loan. So the sooner you pay off your loan, you’re actually lowering the amount of money in interest that you’re required to pay back as part of your loan agreement.

The Con of Simple Interest: Growing Money

When you want to grow your money, an account based on simple interest is not the way to go. Setting your money aside in an account with compound interest shows infinitely better results for growing your money.

For example, if you wanted to grow $10,000 for 10 years in an account at 3% simple interest, the first few years would look like this:

  • Year 1: $10,000 + 300 = $10,300
  • Year 2: $10,300 + 300 = $10,600
  • Year 3: $10,600 + 300 = $10,900

In a simple interest account, the 3% interest you’ll earn is a fixed sum taken from the principal amount added to the account. And this is the amount that is added annually. After a full 10 years, the amount in the account would be $13,000. Not very impressive.

But what if you put your money in an account that was less “simple”?

If you take the same $10,000 and grow it in an account for 10 years at a 3% rate of interest that compounds, you can see the difference beginning to show in the first few years:

  • Year 1: $10,000 + 300 = $10,300
  • Year 2: $10,300 + 309 = $10,609
  • Year 3: $10,609 + 318 = $10,927

At the end of 10 years, this type of account will have earned more than the simple interest account, without your having to do any extra work! And that’s not even considering adding regular contributions to the account over the years! Just imagine the possibilities if you can get a higher interest rate and combine that with a solid financial plan for your future.

One final thought: Simple isn’t always the way to go, and that can be a good thing.

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How to Get Off of the Post-Grad Financial Roller Coaster

How to Get Off of the Post-Grad Financial Roller Coaster

Congratulations on earning a college degree!

Your hard work could result in better job prospects (including better benefits for you and your family), greater job security, a bigger income – and years of repaying student loan debt that could adversely affect your retirement savings!

Wait, what?

According to the Young Invincibles ‘Financial Health of Young America’ study, the average retirement accounts of those with a college degree and no student loan debt grew at double the rate of those with a college degree and student loan debt.

That makes sense: if you don’t have loans to pay back, you’ll potentially have more cash early on to set aside for retirement. This puts you in a better position than someone who can’t set aside the same amount because of their student loan debt.

What doesn’t make sense is that your financial future should suffer a setback right on the heels of dedicating yourself to bettering your chances. What an emotional roller coaster – working hard for years to improve your future but having to delay the benefits of your hard work because of debt!

There is a way out. A solid strategy to pay it back along with a well-thought-out plan to help finance your future. I can help you with both.

Contact me today, and together we can work on a strategy that can bring back the excitement of earning that degree!

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Getting a Degree of Financial Security

October 30, 2017

Getting a Degree of Financial Security

The financial advantage gap between having a college degree and just having a high school diploma is widening!

A 20-year study in Canada revealed that a man with a bachelor’s degree made an average of $732,000 more during that time than a man who only had a high school diploma. And in 2015 alone, the average US college graduate earned 56% more than the average high school graduate. This is the widest gap between the two that the Economic Policy Institute has recorded since 1973!

While a college grad may encounter a type of retirement savings roadblock different from a reduced income – student loan debt – the earning numbers above show that the advantages of having a college degree and a solid financial strategy outweigh the retirement saving power of not having a college degree.

But here’s an issue plaguing both groups:more than two-thirds of US millennial workers surveyed do not have a specific retirement plan in place at all, and a full third of Canadian millennials surveyed said they were “not at all knowledgeable” about retirement savings plans.

Regardless of your level of education or your level of income, you can save for your retirement – and take steps toward your financial independence. Or maybe even finance a college education for yourself or a loved one down the road.

A good first step to getting your earning power to work for you is meeting with a financial professional who can help put you on the path to a solid financial strategy. Contact me today, and together we can explore your options.

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