Learn from financial mistakes

This was originally published on Monday, December 25 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Maybe you remember your parents saying that you should learn from their mistakes. It’s not any different when it comes to finances.

Perhaps you have witnessed others make financial mistakes that have led to financial hardships. It’s much easier to avoid financial mistakes if you know what others have gone through. By recognizing your financial behavior in others, you may be able to steer clear of these pitfalls and avoid the hardship that comes with them.

  • Too much house. Are you in the market to buy a home? Be sure to know how much you can spend on the mortgage and insurance before looking at homes. It’d be nice to move into a brand new home with several bathrooms and enough rooms for all. But on the logical side, you may not be financially ready. Instead, a nice fixer-upper may be the solution. Look at homes in your price range. You don’t want to be stuck with a mortgage that restricts you to a slim budget. Purchase a house that you can comfortably afford. Also, remind yourself that the kids will eventually start lives of their own and move out of your house. If you are in a huge home, you’ll have to maintain that empty nest.
  • Upgrading your house. One of our biggest expenses is housing, whether for rent or for a mortgage. When upgrading your house, decide on a budget and stay within that budget. Decide what exactly needs to be urgently upgraded and what can be put off for later. Try setting up a savings account just for the upgrades and avoid taking out a loan.
  • Emergency fund. Job loss, cars breaking down and medical emergencies are just a few things that are never planned. Having money put aside just for the emergencies provides a crucial crutch when things don’t go as planned. Most experts say you should have at least three months of living expenses saved if you are a two-income home. If you are a single-income family, consider five to six months of living expenses. Saving that much money can be difficult, but any money stored away will help.
  • Co-signing a loan. There may be a time when a family member or friend will ask you to help them get a loan by co-signing. Although your intentions are from the heart, know that the debt is now yours. The loan will appear on your credit report. If they don’t make a payment it will directly affect your credit score. If an asset secures the loan and the loan defaults, the asset will be seized and used toward the loan balance. If the sale of the asset isn’t enough to cover the amount of the outstanding balance, the lender can come to you for the remaining balance.
  • Lending money. We want to help those who are close to us when they are in a time of need. If you loan money to a friend or family member, there is a good chance that you may not get your money back. If it becomes habitual, you may have to learn how to say no. There are other ways of helping. Buying a week’s worth of groceries, offering them a job around the house or even helping them find an additional source of income may help more than just lending them money.
  • Not paying your debt. According to NerdWallet, the average American carries about a $15,355 balance on his or her credit card. If the credit card carries 15-percent interest, that can easily be more than $2,000 a year. Reducing the amount of debt will increase your financial security and the amount you have in your bank account. Paying off debt should be one of your top priorities of 2017.

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

Avoid some common financial mistakes

This was originally published on Monday, December 19 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

It goes without saying that money is of the utmost importance and, if not dealt with in the right way, could land you in a bad financial situation. What you are today and where you want to be tomorrow are the results of all the financial choices you have made in the past.

The good news is that you can prevent most of these mistakes if you are aware of them. Here are some more common mistakes made:

  • Your mortgage length. The most common mortgage term is 30 years. Many new home owners settle for the 30-year mortgage because the upfront costs are lower. But take some time and really look at your mortgage contract. If you purchased your house with a 30-year mortgage for $250,000 at 8 percent, the total amount you will be paying is $660,000. That is a difference of $410,000 that goes directly to your lender. If you can refinance your home to take advantage of low interest rates, do so, and take a 15-year mortgage instead. If you can’t afford to make higher payments with the 15-year mortgage, try paying half your mortgage every two weeks. At the end of the year you will have made 13 payments instead of 12. By doing this, you can pay your mortgage five to 10 years earlier and save $100,000 or more, depending on your interest rate.
  • Automatic payments. Let’s face it, life is hectic enough. You don’t need to run to the bank to deposit paychecks or run errands at lunch time to pay bills. By automating your finances, you can save time, fuel and the expenses of late fees if you forget to pay your bill on time. Create an automatic payroll deduction with your employer to your checking or savings account so that you ensure you are paid first. Financial institutions make it easy to pay bills or credit cards on line with their online bill-paying services.
  • Not monitoring your credit score/report. Your credit score and report are important because these two items essentially tell potential lenders how well you handle your money. If you are purchasing a home, your credit rating is considered in determining your loan interest rate, and the difference between a poor credit rating and a good rating can be enormous. With a good score, you are offered lower interest rates, which in the end can save you thousands of dollars and sometimes even hundreds of thousands of dollars. Future employers can also look at your score and use it to determine how dependable you are. To keep a good score, pay your credit cards and other debts on time. A good rule of thumb is to use 10 percent to 30 percent of the credit available to you. Check your credit report and score for free three times a year and dispute any odd accounts or mistakes on your report.
  • Not having a will or trust. We never want to think about passing, but not having a will or trust can cause some serious financial issues for your loved ones. Even though you feel that you do not have enough assets or money to pass on, what you do have should stay with your family. A will or trust can also plan for the care of your children upon your death. If a guardian is not named, the state will have to decide who will provide care for your children. Protect your family and your estate by having a will or a trust.
  • Life insurance. Life insurance can assist your family members in covering the cost of your funeral expenses and pay other bills long after you are gone. Not only should you be covered, so should every member of your family. Funerals are expensive no matter how old you are. Life insurance can also help pay for medical bills that may be left behind.

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

Evaluate your spending habits

This was originally published on Monday, December 5 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: With the new year approaching quickly, I have been reflecting on my current financial habits. I know that there are certainly some habits that I can change. I want to start thinking about my New Year’s financial resolution for 2017 and how I can improve my financial position. What are some of the most common money mistakes you encounter that lead to bad financial habits and how do you go about avoiding them?

Kudos for taking the time to evaluate your spending habits. There are several habits or patterns that often lead people to major hardship. Fortunately, many of them are preventable. Some may require a different way of thinking and others may include overhauling how money is spent. Realize what mistakes have happened and resolve.

  • Frivolous spending. This is the most common error. It is the most undetected, but easiest to fix. Unless you are very honest with your budget and become aware of your spending patterns, this habit is literally letting money slip through your fingers. How many of us stop off at a coffee shop or gas station for a coffee in the morning? While $5 doesn’t seem like much at the time of purchase, if you multiply that by five times a week that equals to $25 a week. For the year, 52 weeks, that equals to $1,300 on coffee alone! Now think about how many other little purchases you make? All these nonessential expenses add up. That $1,300 can be better spent on lowering your credit card balance or making an extra mortgage payment on your house.
  • Living off credit cards. Unfortunately, this behavior is becoming more of the norm.  Many purchase gasoline, groceries and other essentials, and even advance cash, with high-interest-rate credit cards. Credit card interest rates can double, sometimes triple, the amount of the original purchase.
  • Purchasing a new car. Many of us cannot afford to pay for a car in cash. On Guam, a car is an essential item to get around. However, many don’t take into consideration that a car is a depreciating asset. A depreciating asset loses value due to its age, wear and tear, or market conditions. For a vehicle, once you start adding mileage to the car, the value of resale decreases. This magnifies the difference of how much you owe versus how much the car is worth. Many people trade in their car every two or three years and lose money. Evaluate what type of car you really need. If you have a large family, a vehicle that comfortably fits everyone may be needed. But is a gas-guzzling SUV with all the upgrades needed? Those extras add up and create the need for a larger loan. Don’t forget to factor the high price of insurance and fuel costs. Assess what type of car you need, not want, and use the money you saved for other purposes.

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

Set goals to improve personal finances

This was originally published on Monday, November 29 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

In just a month, we will be toasting in the New Year and wishing each other the best throughout the year. We think about resolutions that will help us improve our way of life.

One such resolution should be setting goals to better your personal finance health. The hardest part isn’t deciding what the goal is; it’s sticking to the goal. With a few tips you can create obtainable goals that will help you.

Successful people in all fields of life set goals. Goals help you with long-term vision and short-term motivation. It helps focus your time, effort and resources. Clear and defined goals will help you steer your life in the direction that you want. When setting goals, think SMART.

  • S: Specific. Vague goals are unsupportive because they don’t give you an adequate course. Goals are to help you find your way. Make it easy on yourself by setting clear and distinct goals that will get you exactly where you want to be.
  • M: Measurable. Without measuring your progress, you cannot celebrate your success. Measurable goals should have exact dates, amounts and time. How do you want to achieve your goal? When do you want to achieve it?
  • A: Attainable. Don’t set goals that aren’t possible. Impossible goals will only frustrate you, causing you to lose interest and eventually give up on your goals. On the other hand, goals that are too easy to achieve don’t give you a sense of accomplishment. A realistic and challenging goal is the perfect balance needed for success.
  • R: Relevant. Keep your goals in line with what you want from your life. Goals that are scattered and irrelevant are a waste of time, effort and resources. Cultivate the focus and drive your need to obtain your goals.
  • T: Time. When you think of a year, you might think that 365 days is a long time. But if you break the year down into quarters, the year becomes much more manageable. Set your goals with specific dates. If your goals are a year or longer, make milestones that mark your progress.

Some other tips

Keep your goals positive. Use motivating words such as “will” and “do.” Stay away from words that conjure uncertainty like “might” or “if.”

Make a list and write your goals down. Keep them in an area that you visit daily. Let others around you know of the goals you set. Your friends and family will hold you accountable and provide a great support system.

Know your individual steps. These steps provide a map to where you want to go.  Write your steps down and cross them off as you accomplish them.

Goal-setting is fluid and moves in the direction you need them to go. Being rigid with your goals sets you up for disappointment and eventually failure.

Stick with it. Goal-setting is much more than just saying what you want to happen — it’s encouraging yourself that you are worthy of the success and understanding that work is needed to get there.

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

Time to assess your financial goals

This was originally published on Monday, November 21 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

With just a little over a month left in the year, you may be realizing that you haven’t quite met your financial goals. With time rushing by and the busy holidays upon us, take some time to think about ways to improve your personal financial situation.

  • Family report card. Take some time to talk to your family about where you stand financially. Be open and honest. Everyone plays a part in earning and spending the money. Kids are quite receptive and often like to be included in something so important. The family must work as a unit so that they can achieve the goals set for them. Get everyone involved in saving. Make it into a game; the family member that saves the most wins.
  • Prepay. If you have the opportunity to prepay your bills — property taxes, medical bills or college tuition — do so. It can mean deductions or discounts. Some may even reduce your taxable income.
  • Emergency fund. How much do you have in your emergency fund? Do you have an emergency fund? Many experts say that a healthy emergency fund consists of at least three months’ worth of expenditures. If you don’t have one, start one. Make it a New Year’s resolution. The fund will be helpful when your car breaks down, or if you lose your job.
  • Add a little to your mortgage. Call your financial institution and ask if there’s a penalty in paying off your mortgage early. If you have a little left over after every pay period and you are already paying down your debt and putting money aside for savings, you may want to consider adding to your mortgage payment. If you have 20 years and a $150,000 balance remaining on your mortgage, and a fixed rate of 6 percent, you will pay about $107,915 in interest over the next 20 years. When you add an extra $100 payment each month, you shorten the repayment timetable by almost three years and will save more than $18,000 in interest payments.
  • Harvest capital losses to balance gains. When you review your year-end portfolio, consider taking some of your capital losses to cancel out your capital gains. Not only will it save you money on capital gains taxes, but it will give you the opportunity to remove some of the lower performing stocks, reset your asset allocation and reinvest in areas you think may have more potential for gain.
  • Pay more than the minimum. A minimum payment on a credit card adjusts every month. The minimum payment is a percentage based off your current balance. If you do make charge purchases to the card and your APR doesn’t change, then your balance and your minimum should shrink with every payment.  Consider using a fixed payment to pay down your balance more quickly. Do not use the card for six months to a year. Add an extra $20 to $50 above the minimum payment – you will be surprised how much your balance is reduced. Automatic transfers will eliminate a bill payment chore, and the temptation to fall back to minimum payments.

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 atwww.moneymattersguam.wordpress.com

Prepare your finances for 2017

This was originally published on Monday, November 14 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

The holidays will whiz by in a flurry of parties, cooking and gift buying and before you know it we are welcoming 2017. As the year is winding down, take some time to prepare for next year.

Here are a few suggestions on getting 2017’s personal finances started in the right direction:

  • Visit your financial planner/adviser. Just like you see a doctor for a yearly check-up, you should do the same for your personal finances. A yearly check-up ensures that you are meeting your financial goals. It may reveal that you may need a readjustment. Talking with your adviser could also help you take advantage of time-sensitive tactics that could save you money in the coming year.
  • Retirement assets. You have until next spring to make a 2016 contribution to an individual retirement account. However, contributions to your 401(k) are only deductible when made in the same calendar year. According to the Internal Revenue Service, the 401(k) contribution limit for 2016 is $18,000. Are you putting all you can into your 401(k)? If your company matches your contributions, are you taking full advantage of the match? If you aren’t, you’re missing out on doubling your money. If you aren’t maximizing your contributions, take a look at ways that you can add to your 401(k) next year. Consider switching your traditional IRA to a Roth IRA, which has the potential to grow tax-free.
  • Car insurance. Take a good look at your auto insurance. Are you paying for coverage that you may not necessarily need? Ask your insurance provider if you qualify for any discounts. Some providers give discounts for years of safe driving, to students with good grades or for referring a friend or family member. If you added or removed a driver, ensure that your account reflects the change.
  • Home insurance. Did you make home improvements to your house this year? Your homeowner’s insurance must reflect the change. Did you recently buy a home security system or surveillance cameras? Talk with your insurer to see if there is a discount for having extra protection for your home. Did you make any large purchases such as jewelry, a television, a camera, etc.? If so, you may want to add extra protection and get them covered by your insurance.
  • Health insurance. Did you have any new health issues arise over the year? Review your plan to see if your insurance will cover the procedure and medications. Will your insurance cover procedures that have to be done off-island? What is the maximum that insurance will cover for your procedure and medications? If your health has improved or you are in good health, consider a lower premium plan. Did you welcome a family member or have a child who now has his or her own health insurance? Inform your insurance company if your dependents changed.
  • Donate to charity. Donating always brightens the holidays and can help reduce your tax bill. Dec. 31 is the deadline for charitable contributions that can be deducted. Not all contributions have to be money. Clothes you no longer wear, toys the kids are too old to play with, furniture you are replacing and other household goods can be donated and count toward your deduction. Obtain a tax receipt from the organization.

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

Take time to review your personal budget

This was originally published on Monday, November 7 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

It is November and very soon we will be ringing in 2017. As festivities get started, it’s time to step back and take a look at your personal finances.

Take time to reflect back to the start of the year. Have you meet your personal financial goals or did you fall short? Maybe your life took an unexpected turn and you may need to re-evaluate your goals. Reviewing your personal finances before the year ends also gives you some time to make adjustments that will affect you when tax season rolls around.

Get organized. Life is hectic and sometimes filling paperwork is not a high priority. But getting organized will create a solid picture of your financial behavior and habits. It will also help ease the strain at tax time if you start with files that are well-organized and comprehensive. If you itemize deductions on your tax return, organized statements will help you quickly track down important purchases. Ensure that your files are well-organized and stored in a place that will be easily found come tax time.

Spending and budgetUnderstanding how you spend and save is a valuable step to reviewing your spending habits and patterns. Did you stay on budget this year? Re-examine your spending ratios, the amount of money you spend on a specific category within your budget. Monitoring the amount spent on each category can help you decide if you are spending too much on one category and not enough on another. Every household budget is different depending on the dynamics of your household. These ratios are a general guide that you can use to help you improve your spending and stay on budget:

  • Housing costs are normally the largest portion of your budget and should account for 35 percent of it. This will include rent or mortgage payments, maintenance and repair costs, insurance, and your utilities. Decreasing your power consumption can make a huge difference in this category, along with streamlining your cable services.
  • Transportation costs are the second largest category. Approximately 20 percent of your budget should go to car loan payments, insurance, fuel, repairs and maintenance. If you spend more than 20 percent of your budget, think about finding a lower insurance rate, carpooling or downsizing your vehicle.
  • Living expenses are similar to transportation costs — 20 percent of your budget. Living expenses include food, clothing, medical insurance and medical costs. It also includes entertainment, personal upkeep, hobbies and more. This category may be a bit more deceiving, as many of the components in this category may not cost much, individually. It can add up quickly and be quite costly. This category is the best place to find ways to be thriftier.
  • Debt should consume the second smallest portion of your budget at 15 percent. This category doesn’t include your home mortgage and car loans. It includes student loans, credit card payments, personal loans, store charge cards and other unsecured loans.
  • Savings is the smallest category coming in at 10 percent of your budget. This category is a bit more flexible. If you are saving more than 15 percent of your budget, consider using the money allocated for savings to pay off your debt. Once your debt is paid off you can start rebuilding up your savings.

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