10 Ways to Improve Your Financial Health

Trying to improve your finances? In “10 Ways to Improve YourFinancial Health,” TIME Moneyland offers 10 ways that you can get a start on rebuilding those finances.

1. Grow Your Emergency Fund

In these times of high unemployment rates, you should shoot for an emergency fund with 6 months worth of savings instead of the traditionally recommended 3 months. The key is to be able to manage emergencies from savings rather than having to liquidate your retirement account or relying on a high interest credit card. Jim Wang, a blogger from Bargaineering.com says, “Trying to resolve an emergency with a credit card can lead down a dangerous path of debt.”

2. Pay Off Credit Card Debt

Tom Gilovich, a psychology professor at Cornell University and coauthor of Why Smart People Make Big Money Mistakes says you should use your existing savings to pay off or pay down credit card debt. With current credit card APRs averaging around 15%, people with credit card debt pay more in interest than they can earn with that money invested elsewhere.

3. Put 10% of Your Income Toward Retirement

No matter how much or how little you make, it’s a good idea to stick to this rule. If you start saving and investing $5,000 a year when you’re 25 years old and earn a 6% rate of return, that money will have grown to $773,809 by the time you are 65!

4. Pay Off Your Mortgage Before Retiring

Richard Thaler, behavioral economist at University of Chicago says, “The term of your mortgage should not be longer than the number of years you plan to work.” After retirement, your income will probably drop but your cost of living won’t. If you can eliminate your monthly mortgage payment, you’ll have more flexibility to handle other costs that will probably increase in retirement, such as health care.

5. Track Your Spending

You’ve probably heard this tip before, but have you put it into practice? Gail Cunningham says, “It’s a basic building block of financial success.” New Century IDA participants take a budgeting course in which they learn the importance of tracking all of their expenditures. It helps them find areas in which they can cut back.

6. Envision Your Future

Don Chambers, author of MoneyBasics for Young Adults, says you should develop a mental picture of where you want to be in five years. This will be great motivation for sticking to your financial plan.

7. Improve Your Credit Score

Did you know that maintaining a score of 750 or higher can improve your finances? “A higher score will get you lower interest rates and lower interests can save you hundreds of thousands over your financial lifetime,” says Elisabeth Leamy, author of Save Big. The potential for savings is even greater when it comes to home mortgages. This is why New Century IDA participants work so hard to improve their credit score in preparation for homeownership.

8. Live Below Your Means

We’ve all heard this phrase: “Just because you can afford to buy something, doesn’t mean you should.” If you get a raise, maintain your former standard of living and funnel the rest into paying off debts or adding to your retirement savings.

9. Act Like You Can’t Just “Throw It Away”

Kerry Taylor, blogger at Squawkfox.com says, “If you act like you can’t just throw stuff away, it will make you more mindful about what you buy and consumer in the first place.” Switch to buying quality items that will endure.

10. Move Your Money Around

Carmen Wong Ulrich, cofounder of ALTA Wealth Management recommends redirecting money from one part of your financial life to another part that may be more profitable.

These are some great tips to help you get started on your path towards improved financial health. Maybe just pick one or two to focus on at first, then as you feel comfortable with your new financial habits, add more of these tips to your list. Do you have any of your own tips to add?

Pay Down Debt or Save?

This is a dilemma that many Americans face: Is it better to pay off debt or to save and invest? A recent article from 360 Degrees of Financial Literacy outlines some strategies that you might want to consider as you ponder this question.

The most common factor used to decide where to pay off debt or make investments is to determine if you could earn a higher after- tax rate of return on the investments than the after- tax interest rate on the debt if you were to invest your money instead of using it to pay down debt.

Here is an example provided by 360 Degrees of Financial Literacy. If you have a credit card with a balance of $10,000 and a nondeductible interest of 18%, you would generally need to earn an after-tax rate of return greater than 18% to consider making an investment rather than paying off the debt.

It is important to remember that it isn’t always an all- or- nothing choice. Another strategy that is useful is to pay off debts with high interest rates first. Then, invest when you have an opportunity to make investments that may earn a higher after- tax rate of return than the after- tax interest rate on your remaining debts.

For example, say your tax rate is 28% and you have a credit card with a balance of $10,00 and a nondeductible interest rate of 18% as well as a mortgage with a balance of $10,000 and a deductible interest rate of 6%. If you have $20,000 available to invest or pay off debt, you should pay off the credit card first and invest the remaining $10,000.

It is also important to remember that when you are investing, the higher the rate of return generally means the greater the risk. So if your investments incur losses, you may still have debt to pay.

Click here to read the full article and for a more comprehensive list of things you should consider when you are deciding whether to pay down debt or save and invest.

The Piedmont Triad: Sustainable Communities Regional Planning Project

As stated in our last blog, the Piedmont Triad is in the midst of a regional planning project with a goal to build economic competitiveness by connecting housing with good jobs, quality schools, and transportation.

There are three key elements of sustainability that the project will focus on: environment, community, and economy. As defined by the project, sustainability is the act of balancing the environment, community, and economic needs of the region for present and future generations.

Below, some of the goals of the project are listed:

Environment Goals

• Define the limits of communities with a true sense of urban and rural settngs
• Take advantage of abandoned mills and brownfields
• Provide the green infrastructure that binds cities and towns
• Manage greenhouse gas emissions and reduce energy consumption

Community Goals

• Promote compact, walkable development
• Foster social equity in housing, employment, and transportation choices
• Meet the needs of anticipated demographic changes
• Support energy efficiency
• Reduce the need for automobiles and short trips

Economic Goals

• Expand the employment opportunities to meet 21^st century needs
• Lower the cost of housing and transportation for low income residents by locating employment center proximate to transit lines
• Continue to pursue economic development clusters that yield more jobs with higher wages

For more information, click here.

This is an exciting project for our region, and it can use your input. To share your thoughts and ideas, be sure to visit The Piedmont Voice!

What Is A Sustainable Community?

You have probably heard the phrase “sustainable communities.” It has become somewhat of a buzz word, but you may be wondering what it really means.

According to the Piedmont Triad Sustainable Communities Regional Planning Project, a sustainable community is an “urban, suburban, or rural community with housing and transportation choices near jobs, shops, and schools, through a means that results in livable communities, builds our local economy, and spends the money we have more effectively.”

A sustainable region is a collection of cities, towns, and counties that are joined together by a common geography, economics or other tangible characteristics. Sustainability requires balancing the environment, community, and economic needs of the built and natural environment for present and future generations.

The Piedmont Triad Sustainable Communities Planning Project defines a sustainable region by these characteristics:

• It has jobs that are tolerant of weak economies.
• It has strong, walkable communities emphasizing housing choices
• It capitalizes on individual strengths
• It protects our air and water
• It provides mobility choices
• It uses less energy
• It agrees to act locally but think regionally

 The Piedmont Triad was recently awarded $1.6 million from HUD to create a regional plan that is intended to build economic competitiveness by connecting housing with good jobs, quality schools, and transportation.

Check back tomorrow to learn more about the goals of this project and how the Piedmont Triad is working towards becoming a sustainable region!

Avoid These Mistakes When Planning for Retirement!

New Century IDA promotes savings and asset building. While homeownership is the main avenue we use to promote savings and asset building, there are many other reasons that saving is important. One of the most crucial reasons for saving is retirement.

A survey conducted by the Employee Benefits Research Institute found that only 14% of adults are confident that they will live comfortably after retiring, and 60% of adults ages 25 and over have less than $25,000 in savings. Not saving enough is the biggest mistake people make in planning for retirement. This is understandable if you are unemployed or underemployed. However, Dan Kadlec recommends that if you are working, you should save at least 10% of every paycheck.

If you are just in your 20’s or 30’s, you might think it’s a little too soon to start to thinking about retirement. In reality, it’s never too soon. In the article “The 7 Biggest Retirement Planning Mistakes” Dan Kadlec details mistakes to avoid.

1. Assuming you have control over when you quit. Two in five people retire earlier than planned, for various reasons such as job loss or illness. It’s critical to start saving early, while your health and career are on steady footing.

2. Ignoring the tax impact of distributions. In retirement, it’s helpful to have several different types of income, from fully taxable to tax deferred (401K) to tax-free (Roth IRA). That will give you more flexibility when drawing down assets.

                          

3. Not saving enough for medical costs. The average couple retiring at age 65 will spend $285,000 in health-care costs in retirement. Even for retirees on Medicare, out-of-pocket health care expenses have increased by 50% in the past decade.

4. Failing to lock up lifetime income. It is a challenge for today’s retirees to convert savings to a reliable income stream so that they will be able to cover fixed expenses for life. An immediate fixed annuity is a good way to address this need.

5. Retiring too soon. If you are healthy, try to wait until you are 70 to retire. You may not know this, but working a few extra years can boost your retirement income. Social Security benefits increase about 8% for each year you wait to retire past normal retirement age (66 for most Americans).

6. Underestimating longevity. About 60% of Americans live longer than they expect. At age 65, women live to an average age of 84; men live to an average age of 81.

7. Drawing down retirement savings too rapidly. You don’t want to outlive your  money. Keep your annual drawdown rate to 4% of your assets. At this rate, if you being making withdrawals at age 65, you should income until age 95.

As you think about saving and planning for retirement, keep this list in mind so you can avoid the mistakes that many people make. And remember, it’s never too early to start saving!