True Cost of Homeownership

With “For Sale” signs appearing on lawns in the Boston area this spring, you may decide to take the plunge. In your favor are ultra-low interest rates,  but don’t forget to take a close look at how much it actually costs to live in a house.

Homebuyers are usually aware that they will have to pay property tax and insurance, but those costs are just the beginning of a long list.

A Kiplinger.com article, The True cost of Owning a Home,  lists expenses incurred over a 4-year period of homeownership including items you might overlook, such as asphalt driveway sealing, garden tools, leaf blowers, and pest control.

Your actual  list may be longer. Additional expenses such as a security alarm, central air conditioning, chimney maintenance, snow removal, and a sprinkler system are found in the New York Times article, Estimating Expenses Before Buying Your First Home.

Remember to budget for repair and maintenance needs when preparing your home buying plan.

Be a Smart Investor

Joshua S. Grinspoon,  Attorney, U.S. Securities and Exchange Commission, Boston Regional Office, spoke on Investment Fraud and How to Avoid It at our May 16, 2012 Financial Literacy at the Library event.

Mr. Grinspoon began by introducing a primer on the basic financial instruments:

• Stocks – owning stock is like having a piece of a company;  you share in the revenue and are eligible to vote on corporate matters.  Generally considered a risky investment because the company could fail to make money or could commit fraudulent acts.  An extreme example is of the 1929 stock market crash.  It took until 1954 for the market to return to its pre-depression value. Risk cannot be completely eliminated but can be minimized by researching the company and diversifying stock ownership among several companies, industries and geographical locations.
• Bonds – are long-term debt instruments issued by companies (corporate bonds) and governments (municipal bonds) with a fixed interest rate.  They are riskier than people realize.  If the institution goes bankrupt, the bond will not be repaid and both bond income and principal will be lost.  Further, their value is tied to prevailing interest rates.  If rates go up, the value of the bond decreases and will be difficult to sell. If the investor has no plans to sell the bond, then the interest rate volatility is not a great concern.
• Mutual Funds – are a basket of stocks alone or with bonds, normally diversified both by industry and geographically.  Theoretically, this makes them less risky, but one still needs to be careful.  In some downturns, all asset classes can lose value, as they did in 2007.  Mutual Funds often require fees, perhaps 1% to 1 1/2% per year plus load fees.
• CDs – are bank deposits.  If invested with an FDIC member institution in amounts lower than the covered maximum (currently $250,000 per depositor, per insured bank, for each account ownership category), they are a low risk investment. Although the principal is insured against loss, the interest rate can be lower than the inflation rate, resulting in a net decrease in economic value.

When employing a Broker who will act as your conduit to the market, be sure to research the Broker’s credentials.

• Begin by looking them up on the FINRA Broker Check.  You may also want to check their status with the Massachusetts Securities Division  or the Massachusetts Attorney General.
• Ask about their commission structure.  Is there a financial incentive for recommending a particular investment?
• Ask for references.
• Ask if they have frequently switched companies.
• Be wary of unsolicited offers and attractive glossy mailers.
• Be wary of “Senior Advisors”

Other important tips:

• Don’t invest too much in any one stock.
• Don’t lose sight of your investments – Periodically review your portfolio.
• Brokers have a responsibility to put you in “suitable” investments

Remember the Basic Rule of Finance: If you don’t understand the investment, avoid it.

The College-Retirement Dilemma

It’s a year-round issue, but with the season of college acceptance upon us, the subject really has our attention.  I am talking about how to finance your child’s education while still saving enough for your own upcoming retirement.

Here are highlights of several articles on this dual savings challenge.

First of all from SavingforCollege.com, you may need to cut back on both goals, says  Tough Choices: Retirement versus College.

“You should…expect some trade-offs as you try to balance these goals. You may have to work longer than you would like or your children may have to borrow more money than they would like.”

Your priority for retirement savings should be to fund your 401K and 403B sufficiently enough to get the employer match.  Remember that your assets in these accounts are not counted in assessing your child’s prospects for federal financial aid.

To lower the cost of college, consider a 2-plus-2 plan where your child goes to community college (lower tuition) for the first two years, then transfers to a more prestigious 4-year institution for the diploma.

Bankrate.com advises in the article Retirement Coming But So Are College Costs  to take another tact by requiring your children to pay for part of their college costs.  For example, they can take out federal direct loans.

And yahoo.com believes it is possible to achieve both goals if you start early, save aggressively, and spend wisely.  See  Five Ways to Balance Retirement savings with cost of Kids’ College.

“Put retirement first…don’t give in to the temptation to pitch in heavily for college without making sure your retirement savings are on track.”  Start early on college savings, and also contribute 11-15% of your salary into 401K and 403Bs.  Cut college costs by having your child do four years in just six or seven semesters.

DIY Tips at Pinterest

You may be familiar with Pinterest, the fast-growing website where anyone can post photos.

What does it have to do with financial tips?  Quite a lot, according to an article at Kiplinger.com. It is full of ideas for low-cost ways to do home repair, redecorate, restyle old clothes, reorganize storage space, hair styling, and many other practical areas. Because it is a non-commercial site, these ideas aren’t tied to buying new things or hiring expensive services.  Instead, it’s a huge collection of ideas from everywhere.

Here’s a sampling:

• Posters and other artwork that you can easily make yourself

• Reviving old clothes, e.g. decorating old t-shirts

• Refinishing furniture with creative touches

• Remodeling or repairing kitchen cabinets and furniture

To read the whole article, click here or get into a financial frame of mind and visit Pinterest.com.

Free Money Conference

Conferences on finances and investing are a dime a dozen in the Boston area, but they often charge entrance fees or are led by sales people.  Here’s a conference that will boost your financial expertise with no cost and less bias.

The 2012 Money Conference, sponsored by the State Treasury and the Massachusetts Financial Literacy Trust Fund, will be held on Saturday, May 19th at Bristol Community College in Fall River, MA from 8:30 a.m. to 3:00 p.m.

“The Money Conference is a FREE one-day event presented by The Office of Massachusetts State Treasury and the Massachusetts Financial Literacy Trust Fund, and in conjunction with local cities and community partners to help households build their financial knowledge and improve their financial behavior through quality financial education.”

This year’s conference is on “Financial Empowerment for Individuals & Families”.

To register or to find more information, go to www.themoneyconference.com.

Newton Phone Scam Warning

Phone scams have long been with us.  Now there’s a warning about a possible one right here in Newton.

Every year at this time, the Newton Police Memorial Association runs a local telephone campaign to raise funds for student scholarships and other social service causes.

And every year, scam artists mount their own telephone campaigns, warns the Newton Police Department.

Residences who want to donate to the real Newton Police Association should make sure the caller asks for checks made out to “Newton Police Memorial Association.”

For more info, see this article from the Newton Tab.

Graphic Teaching Tools

Visual guides and comic books are creative formats that can entice young people into learning about financial literacy.

A College Student’s Guide to Credit Cards at CreditDonkey.com is an infographic that helps students think through whether or not they can handle credit, credit card terms, and alternatives such as debit cards or prepaid cards.

Saving the Day is a Marvel Digital Comic featuring Spider-Man and the Avengers which teaches kids about financial terms, spreadsheets and more. The 21-page comic book  is free and can be read online. A Teacher’s Guide and versions in eight different languages are available.

Secured Borrowing Basics

Financial Literacy at the Library welcomed back Julie Soforenko, Community Outreach Coordinator, American Consumer Credit Counseling for a presentation on Financing Fundamentals: Car loans, Home loans and Equity Lines of Credit.

Cars and homes represent the most expensive purchases most people make.  It is important that one’s money matters be in tip-top shape before seeking financing for them.

Julie covered the pros and cons of buying vs. leasing cars.  Monthly payments are generally lower on leases than car loans, but insurance payments can be higher.  Leases often come with restrictions on mileage and on the degree of wear and tear that is acceptable. At the end of the lease term, the vehicle must be returned to the dealer unless a separate purchase option is negotiated.

When borrowing to purchase a car, it is wise to ask the financing company how your personal information such as your social security number will be protected.  Make sure you know all associated costs before signing any documents and avoid loans with a balloon payment or prepayment penalty.

When considering whether to purchase versus rent your next home, Julie advised looking at the following factors:

• Is this a short-term or long term housing need?
• Are you looking at a home as an investment or inheritance for your children?
• Are your savings substantial enough to cover a 20% down payment plus closing costs?
• Is your income enough to cover property maintenance/repairs, taxes, insurance and association fees?

Julie recommended Renter’s Insurance for those renting a home and suggested that favorable rates may be obtained by combining the policy with your car insurance.

In addition to commercial institutions, home loans are available through several government agencies such as the VA, FHA, HARP (refinancing only) USDA and First Time Home Buyers  programs.

When shopping for a mortgage, it is best to complete your research within 30 days.  Multiple inquires on your credit history for this purpose will not affect your credit report if concluded in a short time frame.  If however, several inquiries are spread out over many months, it will have a negative impact on your credit report.  Remember for a free credit report, visit annualcreditreport.com.

First Time Home Buyers should educate themselves by enrolling in a home buying fundamentals class.

Homeowners aged 62 and older experiencing cash flow problems may want to consider a Reverse Mortgage.  Rather than making monthly payments to a financial institution, under reverse mortgages the bank pays you.  Due to its unique terms and risks, it is required that borrowers consult with a HUD Certified Housing Counselor to become eligible. Read more about reverse mortgages here.

Do not miss the final installment of the FDIC Money Smart Series, Financial Recovery: How to recover financially and rebuild your credit after a financial setback, to be presented by Julie Soforenko on Wednesday, June 20.

Health Care Savings

Even with a generous health insurance policy, medical care can still be a major expense.

A recent article at Kiplinger.com  suggests six ways to curb costs. Number one suggestion:  use generic, not brand-name prescription drugs.

Many common drugs are available in generic versions.  If you order through the mail, you can save even more. Ask your doctor about lower-cost alternatives.

Another good idea – if you are willing to do the paperwork – is to set up a health savings account with your employer.  Decide how much of your pre-tax income you want to put into the account each month, then use the tax-sheltered dollars to pay for medical expenses  such as co-pays and prescription drugs.

To read the whole article,  go to Six Tips to Spend Less on Health Care.

Photo of pill bottle by Auntie P and republished here under a Creative Commons License. Some right reserved.

Watch and Learn

Handling your finances well is often framed as an individual matter.  But, if you understand what the economy is doing, you can fare better financially.

A good place to connect economics to your own money matters is through Paul Solmon’s program on the PBS  News Hour and his companion website, Making Sen$e: Your Guide to the Economy.

Start with the videos for teachers: What does Goldman Sachs Do? and Are Big Banks Good for the Economy?

View a recent broadcast, The Unemployment Paradox:  Why Job Seekers, Employers Aren’t Connecting to learn more about the job market.

Or take a recent popular quiz, Do You Live in A Bubble? to determine if your socio-economic status and lifestyle separate you from the mainstream of Americans. Based on the book Coming Apart by Charles Murray, it claims that the income and education based enclaves we live in are unhealthy for all of us.