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

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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

Millennials, learn good money habits

This was originally published on Monday, October 24 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

When you think of millennials, you might conjure up free spirits who like adventure, take risks and seek thrills. Pictures of 20- and 30-somethings cliff diving, hiking and traveling to exotic places are common.

But when it comes to finances, millennials are quite conservative. Millennials came of age when the Great Recession was in full swing. Many saw their parents lose jobs or lose big when the stock market and real estate markets took a plunge. Millennials watched as their parents struggled to keep their homes or moved to downsize.

Growing up during the Great Recession has made millennials uncomfortable when it comes to investing their money. This generation has an opportunity to form good money habits that will last into retirement. Here are some tips to follow:

  • The future. Many millennials grew up to think very short term when it comes to their money. Think about what you want to do in the future. Get another degree? Do you want to retire early and maybe even seek a second career? By planning today you can set some goals that will make your future dreams come true.
  • Retirement. Your retirement is still some time away. You have the opportunity to diversify your portfolio and be as aggressive or conservative as you want, depending on your goals. Decide when you want to retire. Use that date to determine your course.
  • Debt. Know the difference between good debt and bad debt. Good debt increases your value, like a mortgage or student loans. Bad debt is something that you cannot cash in, like credit cards or vacation loans. Pay off your loans with the higher interest rates first and then move on to the next highest and so forth. If you use the money that you would have used to pay off the debt, and add it to what you currently are paying on the second debt, you will be amazed at just how fast they will get paid off.
  • Technology. Millennials do not know a world without the internet. They grew up digital and are not intimidated by technology. So why not use it to manage money? There are some awesome apps that can make managing your money fun and easy. Some apps will even send a text to your phone to let you know that you are coming too close to going over your budget.
  • Don’t forget yourself. You don’t have to work hard and not enjoy your money. Always set aside some money for you to enjoy. It is OK to treat yourself, just as long as it is in moderation. But stay firm to your spending plan. It’s easy to get sidetracked and think you can make it up later. If there is something you want that is outside of your spending limits, take the time and save for it.
  • Credit score. Start by getting copies of your credit reports from the three free credit bureaus. Your credit score determines what lenders are willing to charge you for borrowing their money. It is also used to determine how reliable you are. Employers, landlords and utility companies will often take a look to see your spending patterns and how responsible you are with your money.

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 him to cover, email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Be proactive in protecting your identity, learn how to spot fraud

This was originally published on Monday, April 18 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I recently received a letter in the mail from my employer stating that my personal information may have been compromised.

They tried to ease my anxiety by informing me that they will be monitoring my information for the next five years looking for any signs of identity theft.

I want to be more proactive but do not know where to start.

Could you offer some advice?

A: Identity theft is one of the fastest growing crimes worldwide. Technology has moved us into a whole new world when it comes to finances, socializing and shopping.

We place so much personal information online that we are very susceptible to having our identity stolen.

The United States Department of Justice defines identity theft and identity fraud as “types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”

Identity theft can cause a lot of stress and lost hours trying to correct it, not to mention a strain on your job and credit.

There are several types of identity theft.

  • Financial identity theft. This theft is the most familiar and most heard of. Financial accounts are compromised and money is taken from accounts and unauthorized purchases are made on credit cards.
  • Tax-related identity theft. This type of theft occurs when a Social Security number is used to get a job or for tax purposes or when a Social Security number is used to file for a tax return in another state.
  • Medical identity theft. This occurs when health insurance numbers or policies are used to receive medical attention, prescription drugs or to file a claim with an insurance provider.
  • Child identity theft. A minor’s Social Security number is misused to open bank accounts or credit cards, or to apply for a loan, utilities, or government benefits.
  • Criminal identity theft. A crime is committed using another person’s name.

Many people do not know that their identity has been stolen until it is too late and the damage is quite extensive. There are several red flags that one can spot that could indicate that you are a victim of identity theft. Some include the following:

  • Credit score. Your report shows inaccurate personal information or unfamiliar accounts and/or your credit score is lower than you think it should be. Take a closer look at what is bringing your score down. If you see unusual activity, start repairing it right away. Contact the company or companies that are reporting to the credit agencies.
  • Mail. Not receiving your mail, especially your utility bills and bank statements, or receiving mail from banks or services from which you did not apply are both signs that you may have had your identity stolen.
  • Unauthorized purchase/debt. You are receiving phone calls from debt collectors regarding debts that are not yours or unauthorized purchases on your debit/credit cards. Medical providers are sending you bills for services you did not receive.
  • Loan application. You apply for a loan or credit card and receive a very high interest rate offer or you are denied.
  • Tax return. The IRS has called to inform you that you filed more than one tax return in a year or you failed to file in a particular year.

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 http://www.moneymattersguam.wordpress.com.

Things to consider when buying a house

This was originally published on Monday, January 4, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: My family and I finally saved up enough money to start looking into buying our first home. I have heard that the process can be long and somewhat confusing. What are our next steps?

Congratulations on saving that amount of money. That usually is the most challenging part of buying a home. I am not going to sugar coat it. The process can still be difficult, stressful, and exhausting but that should not be a deterrent to owning your dream home. Before looking and going through the process you should take a few things into consideration.

Credit Score. This is a topic I have mentioned many times in my articles because it is so important. Having a high credit score will save you a sizable amount of money especially when it comes to your home loan. Financial institutions see your credit score as a report of how responsible you are with money. Borrowers that are in the 580 to 600 range can expect to pay larger fees or a higher down payment. On the other hand, if your score is 700 and above you can expect lower interest rates and smaller monthly payments.

Know your credit score before applying for your loan. If you see any discrepancies, get them corrected as soon as possible. If your score is lower than 660, take some time to work on increasing your score. You may also want to hold off applying for new credit for at least a year before applying for a mortgage.

Savings. From your question you mentioned that you and your family had saved enough for a down payment. Did you take into consideration other fees and closing costs? A down payment on a home can be anywhere from 3% to 20% of a home’s selling price. Some programs such as Veterans Affair (VA) loan requires no down payment. Your bank may also have fees that your loan does not cover such as processing your loan or researching the title of the property. Other items that you may have to pay is the closing costs and title insurance, to name a few.

When applying for a loan, your financial records will be reviewed including credit card statements, bank statements and other loans that you currently have open. Financial institutions like to see that applicants have money saved up and that you do not live paycheck to paycheck.  Having a few months of a mortgage payments in your savings account will make you a better loan candidate.

Location. In retail they always say location is everything. The same holds true for purchasing your home. Know the area you want to live. Deciding where you want to purchase a home can give you an idea of how much your home will cost. Do you want to live close to shopping malls and night life or quiet and further away from the crowds? Take a look at the neighborhood. Do you want a closed gated community? Do people in the area seem friendly?   If your kids are in school will they have to move to a different school? Maybe moving will get you closer to a school you like. Commuting on Guam isn’t as bad as some areas, but you may want to take into consideration how long it takes you to get to work. Do you have to battle downtown traffic? Is the neighborhood in a high-crime area? Do you feel safe? Is it close to the beach, golf course, or have a beautiful view? Determining these factors can determine how much your home will cost.

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 review finances for the coming year

This was originally published on Monday, December 7, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

It is hard to believe that 2016 is less than a month away. Before the holiday rush gets in full swing, now is a time to sit back and start reviewing your personal finances. A lot may have changed over the last year: a new job, a pay raise, or a family emergency. Taking a few hours to sit and review your finances could help you save money in the upcoming year.

New Year’s Resolution

What was your financial New Year’s resolution for this year? Did you achieve your financial goals? If you did, congratulations! If you didn’t, no worries. Many of us have good intentions of sticking to our resolutions. The important thing is not to give up. You may have to reevaluate your goals. What was it that made it difficult for you to keep your goal? Sometimes we can set up goals that are realistically difficult to achieve. This year adjust your goals so you know it is something that you can achieve.

Credit score

We have all seen the commercials that depict that we need to constantly know our credit score. Yes, it is important to know, but you do not have to monitor it constantly or even pay for it. You can request a free credit report from each of the three nationwide credit reporting companies, Equifax, TransUnion, and Experian within twelve months. You can space them throughout the year or receive them all at once. There are also other situations that can warrant a free credit report. You can learn more at http://www.consumerfinance.gov/.

Spending and budget

Understanding how you spend and save is a valuable step to helping put your financials in order. Review your spending habits and patterns. Have you been able to stay on budget? Reevaluate your spending ratios. Your spending ratio is the amount of money you use 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:

  • 35% – Housing Costs is normally the largest portion of your budget. This will include rent or mortgage payments, maintenance and repair costs, insurance, and your utilities (power, water, cable, telephone, etc.). If you spend more than 35% of your income for housing, you may need to find ways to decrease your spending such as lowering your power bill or removing premium channels from your cable bundle.
  • 20% – Transportation includes car loan payments, insurance, fuel, and repairs and maintenance. If you spend more than 20% of your budget think about finding a lower insurance rate, carpooling, or downsizing your vehicle.
  • 20% – Living expenses are comprised of how much you pay for food, clothing, medical insurance and costs, and other personal expenses such as entertainment, personal upkeep, and so forth. Many of the components in this category may not cost a lot but when added up they can be quite costly. This category is also the best place to find ways to be thriftier.
  • 15% – Debt other than your home mortgage and car loans fall under this category. This includes student loans, credit card payments, personal loans, store charge cards, and other unsecured loans. Make more than the minimum payments on your loans.
  • 10% – Savings is the last category. This category is a bit more flexible. If you find that you are saving more than 15% of your budget , consider using the money allocated for savings to pay off your debt. Once your debt is paid off you can start building 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 http://www.moneymattersguam.wordpress.com.

Tips for a first-time credit card owner

This was originally published on Monday, October 27, 2014, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I was just approved for my first credit card. I’m excited that I’m now creditworthy, but numerous people have expressed to me that owning a credit card has put them in some financial troubles. Do you have any tips for a first-time credit card owner?

Answer: Congratulations on your first credit card! Yes, owning a credit card is opening a whole new world of financial responsibilities. It’s true that credit cards can lead some to financial hardship if spending goes out of control. But if used properly, it also can be a beneficial financial tool. Using a credit card wisely can improve your credit rating, which can qualify you for low interest rates when purchasing a car or a home, or it may help get a job. Here are some tips to keep you on the right financial path.

•  Know your monthly limit. Take some time to review your budget to see how much you can afford to spend monthly. Remember that the credit card company will charge you interest on the balance of your card.

• Never skip a payment. It’s best to pay the balance of your card off every month. Credit card companies make money not on what you owe but the interest it accrues. If you cannot pay the full amount, at least make the minimum payment. But do not get in the habit of paying just the minimum balance. Paying the minimum balance can take years to pay the balance off and in the end, you would have paid more in interest than the amount you originally owed. Read your contract carefully. There usually is a different interest rate for cash advances on your card. Missing a payment could result in a late payment fee and a negative hit on your credit score.

• Use it responsibly. A credit card should be used with caution. If you have cash on hand, it’s best to use the money first. Use the card for needs and not extravagant wants. Credit cards can be used in emergency situations. Try not to go over the monthly limit you set for yourself.

• Use your rewards. If your card has a reward system, take full advantage of it. Some may offer cash back that you can use toward your payments. Others may offer gifts and some may earn airline mileage. Most of the time, these rewards have a time limit of when you can claim them. Read your contract. You earned those rewards, so you should cash in on them.

• Remember 30 percent. Keep this number in the back of your mind. It’s the optimum percentage of your credit utilization ratio. This ratio is your total credit available to how much credit you are using. This ratio weighs heavily on your credit score. If the ratio is low, it positively affects your score. If it’s higher than 30 percent, it will bring your credit score down. For example, if your credit limit is $1,000, you should not carry a balance over 30 percent or $300. If later on in years you decide to get another credit card, the combined total of your cards and the balance you have should stay at 30 percent or lower. In other words, if you have a two cards that have a combined total of a $5,000 credit limit, your combined balance should not exceed $1,500.

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.