A few financial rules

This was originally published on Monday, April 24, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

As April comes to a close, so does Financial Literacy Month. In these times of economic uncertainty, money management is a necessary life skill. Many of us are not taught how to handle money or prepare ourselves for the future.

Most of the time, we learn as we make mistakes. Sometimes we bounce back, but sometimes it is a life of continuous hardship. Being prepared makes a huge difference when dealing with money management.

Here are a few rules:

Plan. You can’t go through life not having financial goals. The only bad plan is a plan not followed. You must plan for your future. Plan for all your major expenses like home ownership, a car, schooling and periodic expenses.

Goals. What are your short-term (less than one year), mid-term (one to five years) and long-term (more than five years) goals. Make sure your goals are specific and reasonable.

Develop a budget. Determine your living expenses, periodic expenses and monthly debt. Create a budget that can be realistically followed. Follow your budget as closely as possible and evaluate it at least twice a year.

Keep your expenses under control. Try to spend only the money you make and not use your credit cards. Do not incur other debt until you are able to manage the debt you have now. Know where your money goes by keeping a log of all your purchases.

Save. Save up for major purchases such as cars, homes, vacations and major appliances. Experts say that saving 10 percent of your paycheck will add up to a nice savings account. Create an emergency fund with about three to five months of your expenses. Start saving for retirement — the sooner the better.

Need vs. want. Sometimes we have a hard time distinguishing between the two. Needs are must-haves to survive and wants are things we crave. We may need a new car, but we may want a car that is beyond our financial means. Determine your financial priorities to guide your spending choices. Take care of your needs first. Then, if you have some money left over, you can use it for your wants.

Credit. If you must use credit, do so wisely. Use credit for planned purchases only. Determine what amount you can afford to purchase on credit. A golden rule is not to allow your payments to exceed 15 percent of your net income. Do not use one form of credit to pay another and repay the credit back as soon as possible.

Treat yourself. What good is working if you can’t enjoy your money? Even if it’s a little treat like ice cream or a dinner out, enjoy the fruits of your labor, or it will become very hard to follow a budget or stick to your goals.

Don’t get consumed by material things. Trying to keep up with the Joneses will only lead you to financial ruin. Live an enjoyable life but within your means. A 70- inch flat screen television is nice, but so is living debt free.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Money obstacles most households face

This was originally published on Monday, April 17, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Whether you make a lot of money or a little, finances are an issue in most households. Many families don’t communicate about finances, leaving one person in charge. Discussions are a key to making families financially sound. Regular discussions on budgets and goal settings can make a huge difference.

Here are a few money obstacles households face.

  • Conflicting financial values. One of the main causes of divorce in America is money. Usually it’s not about how much they make but how the money is spent. Couples need to be on the same page and have the same money goals. Compromise and discussion is a must on a daily basis.

Create a budget and stick to it. Both individuals must agree and be aware of what the other person is spending. If you don’t communicate, you may overspend and not have enough money to spend on what is important. Keep a realistic attitude and hold each other accountable, in a friendly way.

If you have children, share with them what your financial status and goals are.

  • Health care costs. With the current uncertainty of what health care insurance will and won’t cover, one thing for sure is health care costs continue to rise. Health insurance is a necessity, especially for families with children. There’s a huge financial risk associated with going insurance-free that could jeopardize your family’s financial well being. Be sure to read exactly what your health insurance covers.
  • Lack of income. The cost of living continues to rise and unfortunately household incomes tend not to follow that trend. Some of the largest expenses households face are medical care, food, and housing — all of which have significantly outpaced income growth.

Most of the time a household’s debt increases because they use credit to cover necessities. Find ways to cut expenses and increase income. It’s not uncommon to have one or even both parents taking on a second job.

Not all jobs have to take you away from your family. If you have a skill that people are seeking, such as baking, repairing cars or gardening, take advantage of it and start a small business. A part-time job may not be ideal, but it may be exactly what you need.

  • Retirement plan. A survey done by the Federal Reserve states 31 percent of non-retired respondents reported no retirement savings or pension — that includes 19 percent of people ages 55 to 64. Social Security isn’t a guaranteed source of income, nor is it enough to cover your retirement expenses.

As you get older, you will require more medical care. Without your own nest egg to assist with those medical bills, you may have to consider working much longer than you would like.

  • Life insurance. Having life insurance will help ease the stress of losing a loved one. There are some affordable and very flexible life and supplemental insurance plans available.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Tips to handle financial challenges

This was originally published on Monday, April 10, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Most of us have some financial uncertainties. Some may be beyond our control, such as unemployment or health reasons. Others may be from overspending or taking on too much debt. Financial challenges arise and it happens to everyone.

  • Overspending. There are many reasons for overspending. It can be because of the holidays, the lack of willpower, or even emotions. I am sure a few of us are guilty of having a bad day at work and bringing home a shiny new object which temporarily lifts our spirits. Overspending usually leads to using credit, which can lead to a dangerous spiral.

Get to know what your spending triggers are. It could be your mood, your friends, certain environments, even the time of day. Keep track of your spending. You will be surprised how something as routine as a daily cup of coffee can add up. Carry cash.

  • Don’t rely on cards. You can see your cash being spent, but using your credit or debit card is a very out-of-sight, out-of-mind behavior. Proactively decide where your money should go and put it aside. Whatever you have left over then can be used to spend on yourself.
  • Save in advance. Do you have a car that needs to be replaced? Are you planning on purchasing a home in the near future? Many of your large expenses are known usually well in advance. Many of us rely on taking on huge amounts of debt instead of saving for it because it is the easier way out.

Even if you take on debt to help pay for the purchase, you still should pay down as much debt as you can. If you save $10,000 for a $100,000 home, the amount you save on interest alone will be doubled after paying off the debt.

  • Too much debt. According to NerdWallet.com, the average U.S. household has about $16,748 in credit card debt. The average household pays a total of $1,292 in credit card interest per year.

If credit card debt is a major problem, the first step is to stop using the card. Many Americans now depend on their credit cards to pay off other debts. It is a cycle that is hard to break. To stop depending on your card, you must decide where you can cut spending. Decide what expenses you can live without.

Create extra income that can be used solely for paying down debt. Pay off the credit card with the smallest amount and carry that payment amount over to the next card and so forth. Once your credit card is paid off avoid the temptation to use it.

  • Credit score. The 2010 National Foundation for Credit Counseling Financial Literacy Survey states “about two-thirds of adults (65 percent) have not ordered a copy of their credit report within the past year and nearly one in three (31 percent) do not know their credit score.” Your credit score is important because it is the first point of reference that lenders use to judge your trustworthiness with money.

Take advantage of your three annual free credit scores. There are also credit monitoring companies that charge minimal fees.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Claim job-related expenses at tax time

This was originally published on Monday, March 6, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

The holiday season has gone and now we are preparing for a new season – tax season. April is next month and by now we might be scrambling to get our paperwork together. We are all looking for ways to reduce our tax bill.

Deducting business expenses is not just for the self-employed. If you are classified as a salaried employee, you may be surprised to learn that you can claim work related expenses. Remember all expenses must be incurred during the tax year, business related, cannot be reimbursed by your employer, and is helpful and appropriate for your business.

If you qualify, here are some job-related tax tips:

  • Auto expenses: Traveling for business is one of the most frequent work-related deductions. Some deductible auto costs, include visiting clients, going to meetings away from your regular work location, or traveling between two work places — whether it is the same employer (as long as it is not a home office). Gas is deductible if you use your vehicle for work-related trips, but not for regular transportation to work. For the tax year of 2016, the standard mileage rate is 54 cents per mile.
  • Travel expenses: If your employer does not pay or reimburse you for your travel expenses, you can deduct some of your expenses. Costs for transportation, baggage fees, telephone expenses and meals can be deducted. Even the cost of your passport for a business trip may be a deduction.
  • Computer and cell phone: If your employer requires that you have a cell phone and/or a computer as part of your job, you may be able to claim a depreciation deduction. You must keep a record of the personal and business use of the devices and determine the percentage of time that is used for business related work.
  • Entertainment: If you provide entertainment to potential clients you may be able to deduct 50 percent of the amount. You must have records to prove the business purpose and the amount of the expense. Entertainment generally includes any activity considered to provide entertainment, amusement or recreation to potential business clients.
  • Start-up costs: Did you start up a business in 2016? You may be able to deduct up to $5,000 for organizational and start-up costs. Some start-up costs include paying for a survey or analysis of you market, advertisements, or travel for securing prospective distributers, suppliers, or customers. If you cannot deduct all your costs in the first year,you can amortize the costs over 15 years.
  • Moving expenses: If you had to move off island in 2016 because of a change in your job or business location or to start a new job or business of your job, you may be able to deduct the cost of moving. You can consider moving expenses incurred within one year from the date you first reported to work at the new location. Some of the expenses include household goods and travel costs. There are some deductions for those that move due to a permeant change of station for members of the Armed Forces.
  • Tips: If you receive tips as part of your income, you must claim them. This includes tips you receive directly, charged tips by your employer and tips you receive from tip-splitting or tip-pooling. You must keep a daily tip record and report your tips to your employer.
  • Miscellaneous expenses: Deductions that are unreimbursed employee expenses such as union dues, tax preparation fees, job-related books or magazines can be claimed. Some of the expenses that you claim may be limited to “the 2percent floor” — it requires that you may only deduct the part of the expense that exceeds 2 percent of your adjusted gross income.

Other expenses:

  • Home office costs if it is your principal place of business.
  • Job search expenses.
  • Legal fees to keep your job.
  • Work clothes and uniforms costs that are not normal everyday wear that are a condition of your employment (work shoes, special gear, etc.)

There are many other deductions for business. If you are not sure that your business expenses are deductible go to the IRS website, http://www.irs.gov, or seek the help of a professional tax preparer.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

 

Give your kids basic financial tools

This was originally published on Monday, February 20, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Finances are difficult for some adults. Many have learned the hard way that messing up their finances can create a dire situation. Giving kids the financial tools they need prior to heading out on their own is an important role of a parent.

You can help them discover the difference between earning, spending and saving. Children will also learn the value of money. Introducing them to finances at an early age gives them a head start to a healthy financial future.

No matter what age, here are a few important lessons to teach your children about personal finances:

  • Money does not grow on trees. There’s not an endless supply. There are limits to how much money you have. Many kids see adults swipe a card and see money comes out of and ATM. Instill in them that whether it is a credit card or debit card, it is tied to real money, even though they do not see it. By setting up a savings account, they see for themselves first-hand how the concept works.
  • Money is earned. Whether it is a plastic card or money in hand, many kids don’t understand the effort it takes to make money. Of course they see mom and dad heading off to work. But do they know how hard you work? By giving kids the opportunity to earn their own money, they can get a better appreciation for you and learn the value of money. This teaches a work ethic and makes them more invested in the choices they make.
  • If you want it, save for it. Video games and other electronics that most kids fancy these days can cost a lot. Giving into every request for a toy doesn’t teach kids how real life works. Teach them the idea of saving their money for things they want. If it is worth having, it is worth saving money. This is a very valuable lesson about how we get the things we want in life.
  • Making choices. Spending for something now means not being able to afford something later. Help them think about their goals and aid them in making the right choices. Most adults face severe consequences when they make the wrong financial choices. You can help them learn this lesson early in life, at a time when making the wrong spending decisions does not affect them as much.
  • Credit and investing. Irresponsible credit usage is a cycle that is hard to break. Many use credit to pay off other credit and around and around it goes. As kids get older, you can teach them about renting a house versus owning a house. Teach them about investing in the stock market. Talk about compound interest and how it applies to credit and investing.
  • Rainy day savings. Start them from a young age with the idea that putting money away for an emergency is a necessity. If they learn this habit as a child, they will most likely continue it as an adult. Having an emergency fund will reduce the likelihood of taking on more debt.
  • A good lesson every child should learn is giving. Giving a little money to a worthy cause can go a long way. It builds self-esteem and self-worth. Understanding that they are part of something bigger and looking outward will help them become productive citizens.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Financial tips for kids ages 6-12

This was originally published on Monday, February 13, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

How many of us look back at childhood and wish we were introduced to money and finances at an early age?

Unfortunately, many schools no longer teach the importance of saving, spending and investing money. Learning about credit and balancing a checkbook is a life skill as important to being a successful adult as reading, writing and arithmetic. Children want to learn about money and, depending on their age, there are lessons for every age group.

Ages 6 – 12

At these ages, children can start doing chores around the house to earn money. It is also a good age to start teaching them that money has a limit. Help them make choices that display the concept that once they spend the money they have, that is it, they must earn more to spend more.

  • Allowance vs earning: This subject is always a difficult one for parents. Do I give my kids an allowance? But why just give it to them? Hardly anyone just sits around and earns money, so why should children be any different?  The media has flooded television with programs with kids who are well off and have nothing better to do than party. But we all know that real life is far from that fantasy. Pay your kids for chores around the house such as washing dishes, vacuuming, washing the car or taking out the trash. This will instill in them that money is not just given to them but they must earn it.
  • Want vs. need: Many adults have trouble with this lesson. Help your children understand the difference. Something wanted is something you desire and is not necessarily needed to survive. Need is something you have to have to survive. Teach them that their money is best spent when you purchase your needs first.
  • Power of decision making: Children at these ages can start asking for some expensive items. If they want a video game and a new pair of basketball shoes but they only have enough for one or the other, they must decide which one to buy. Kids can make decisions and weigh the consequences of those decisions.
  • Involve them in family finances: When going to a store, explain why you choose a less-expensive brand or why one is a better deal. Ask which they think is a better deal. Talk about deals like bulk items.  Also teach them how stores can trick you into thinking you are saving, especially with deals such as “buy two and get a third for half price.”  If you are going to the store for one, why spend more to get a deal on a third?  While shopping, ask financial questions such as “Do we want this or do we need this?” “Can we get this from somewhere else at a better price?” Should we hold off till next week to purchase this?”
  • Bank account. This is a good age range to open a savings account for them. Watching the balance grow is a great way to teach them how the bank pays interest to their customers to hold their money. Now that they are earning money, they can make regular deposits. Encourage them to put money from special occasions, such as birthdays or the holidays, into their account.
  • Giving. Giving and taking care of others is just as important as saving. They can pick a charity, an organization, or even a person whom they wish to help. Maybe they can use it at a bake sale or a fundraiser. Either way, helping others is a great way to give back and it will make them feel good about themselves.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Setting your financial priorities

This was originally published on Monday, January 30, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

If you are like most Americans, you have debt to pay off, an emergency fund to build up, and a retirement for which to save. Many people find their budget is quite tight because their monthly debt payments are closer to 20 percent to 25 percent of their net income, versus the recommended 5 percent to 15 percent.

So what should you do?

There has been a long debate between financial experts on whether to pay down debt first or start a savings account. On one hand, paying down high interest rates is simple math. Most interest rates on loans and credit cards far exceed the interest you earn on a savings account. If your interest rate is higher on your debt than the interest you earn on your savings, you are basically losing money. On the other hand, if you don’t save and don’t have an emergency fund, you may be forced to take a loan later, which causes you to take on more debt.

The answer isn’t simple and is based on your individual situation. These are some general guidelines to consider when setting your priorities.

  • Emergency savings. At the minimum, you should put at least $1,000 in savings for a rainy day. Keep it in a savings account and use it only for genuine emergencies. A genuine emergency is a something you may not expect to happen and usually takes you by surprise — a home/car repair, health emergency, loss of a job, etc. Continuously add any amount you can to this account.
  • Max and match your employer’s retirement plan. Start putting money into your retirement account. It is imperative to max out contributions for those closer to retirement. Don’t take money out of your account until you are ready to retire. You can use a retirement calculator online to see if what you have saved is in line with what you should have saved. If not, start saving more. If you receive a raise, start saving that percentage toward your retirement.
  • Start paying off debt. Start with the debt with the smallest balance. Continue to pay on the larger debts. Once the balance on the smaller debt is paid off, put the amount you were paying on the previous debt and add that to the next debt with the smallest amount. Continue this pattern until you are debt free.  If you have a home and that is the largest debt you owe, move all the payments you would have been paying on those smaller loans and apply them to your mortgage. Be sure additional payments go to reduce the principle. The interest is based on the amount of the principle; lower the principle, lower the interest paid.
  • Save for college. If you have a student getting ready for college, you may feel obliged to start saving. Although it is commendable, as much as we want to help it may not be possible. Your student has many opportunities to apply for grants or scholarships, you have daily bills, savings and one retirement in which to save.

Check with your employer to see if they offer scholarships for children of employees. If you have a sizable savings, have paid off most of your debt and are on track to retire, then helping your child get an education is possible. Otherwise, stick to your financial goals.

Just like any other financial advice that I offer, what you do is based on your specific situation. What works for one household may not work for another. What matters the most is you achieve your financial goals.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com