Start your financial journey right

This was originally published on Monday, June 5, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question:  I am a recent college graduate and was lucky enough to be hired just before graduation.  I will be moving out of my parents’ home next month and will be moving into a rented apartment. Although I feel my financial health is good, I want to ensure it stays that way.  Do you have any tips for a new graduate?

Answer:  Congratulations on your college graduation!  When you are moving out of your parents’ home, entering the workforce and becoming responsible for more financial obligations, you may start to question your financial priorities. It is important to start off on the right foot.  The habits you create now can have a huge influence on how you manage your finances later in life.

Keep your frugal student lifestyle: Although your new income is exciting, it is very easy to get caught up on spending. Consider ways to keep your living costs low, such as living with roommates, driving your car a couple of years longer and limiting unnecessary spending.

Take full advantage of employee benefits: As you start your new career, retirement seems far away.  Even though retirement is not in your near future, it is important to start planning.  It will take many years to build a nest egg that will make retirement comfortable.  If your employer offers matching contributions to a tax-advantaged retirement account, take full advantage of it. By not contributing enough to earn the full match, you are basically turning down free money. Besides retirement, also take advantage of other benefits offered like health insurance, short- and/or long-term disability insurance or life insurance at attractive group rates.

Create and stick to a budget: This is a habit that will benefit you for years to come. Even small unplanned purchases can hinder your financial goals.  Be sure to set money aside for savings and other big purchases like a car or even a home.  Download a user-friendly app for your smartphone to help you track your expenses.

Emergency budget:  Plan for the unexpected such as an unforeseen car repair, a medical issue, or home repair.  This account is strictly for rainy days.

Work on your credit score: The best way to improve your credit score is to pay all your bills on time, every time. Another way is keeping your credit spending in check. Do not over extend your credit limit by taking out more loans.  Keep your existing credit cards open. It proves the length of your credit history which also affects your score.  Know what your credit score is by obtaining your three free credit scores annually.

Protect your personal information: Personal identity theft continues to grow especially as we rely more and more on technology for banking, shopping and other online financial transactions.  Once your identity is stolen, it takes a long time to repair and rebuild it.  Cross-shred all documents with your personal information.  Change your passwords often and keep PIN numbers safe.

Pay off higher-interest debt first: Like most recent graduates your student loans make most of your debt. You may also have some credit card debt. Putting as much as you can toward the higher-interest debt first will save you money and allow you to pay it off quicker, giving you more money to put toward your student loans.

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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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

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

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 common financial mistakes

This was originally published on Monday, December 12 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Many of us are guilty of one or more financial habits that can be improved. The start of a new year is the perfect time to contemplate of your financial goals and revise how you spend and live.

Not having a spending plan. I once read a quote that stated: “A goal without a plan is just a wish.” Many people feel that having a spending plan isn’t necessary. We all have life goals and most of the time these goals require that our finances be in order. Whether it is going on vacation, back to school or buying a house, a plan is necessary.

Without a spending plan, you cannot prioritize your financial decisions or be aware of where your money is going. A plan needs to be in writing and often referenced to ensure that you are in line with your plan. Not having a personal spending plan can delay your life goals and create a financial peril.

Sit down and take the time to create a spending plan. There are many resources online that can assist you in creating one. Once you have one in place, there are many great apps for your phone that can make staying on track easier.

Living paycheck-to-paycheck. According to an article on investopedia.com, in January 2016 the average U.S. household saving was 6.20 percent. Other comparable countries during the same time period such as Germany, France and Italy saved around 10 percent. Of course there are some differences between the countries, but it shows that living with a high standard of living does not necessarily mean living with large financial debt.

Regrettably, many people are in a perilous position, where one missed paycheck can cause some serious financial repercussions. Put away some money into a savings account each month. If you make $3,000 a month, try to put away at least 10 percent, or $300. If that is not possible, even 1 percent of your monthly income that goes into a savings account is better than nothing. Make a conscious effort in 2017 to put aside a set percentage of your paycheck into a savings account.

Not taking advantage of your employer’s match. Everyone wants free money, so why not take it? According to money.usnews.com “an estimated $24 billion dollars in unclaimed 401(k) match funds are left unused in the United States every year.” That is a lot of lost opportunities to double investment dollars.

If your employer offers a match on your 401(k), take advantage of it and contribute at least up to the match percentage. If you can afford to take the full match, do so. It is one of the least expensive and fastest ways to increase your retirement fund.

Good debt vs bad debt. Good debt has been defined as borrowing money to purchase items of value, such as house, or fund a college degree that will improve your future earnings. Bad debt has been defined as using borrowed money to pay for items that are consumed quickly such as clothing or a vacation.

Many will say that it is OK to have good debt, but the truth is debt is debt. You still owe money to someone else. The difference between the two is that bad debt can destroy your financial health much quicker.

Avoid debt as much as possible. The faster you are debt free, the better.

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.

Millennials should be ready for retirement

This was originally published on Monday, October 17 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Millennials have been in the workforce for nearly two decades. Although they worry mostly about debt, they are pretty knowledgeable when it comes to retirement.

A study by Ramsey Solutions notes that four in 10 Millennials know how old they want to be when they retire, and 38 percent know how much they will need to retire comfortably. Many Millennials want to retire at 60 to 65 years of age.

One of the biggest advantages that Millennials have is time. Since many of them know when and how much they need to retire, they can start planning. The same Ramsey Solution survey noted that 58 percent of Millennials start saving for retirement at the average age of 23. That gives the average Millennial about 40 years to save up for retirement.

Many Millennials don’t foresee that Social Security will be in existence by the time they are of retirement age. According to the Ramsey Solutions survey “Millennials rank Social Security a distant third (44 percent), choosing instead to rely on their own savings through a 401(k) (58 percent) and personal savings/cash (54 percent).”

A lot of debt

Unfortunately, Millennials carry a large amount of debt. Many carry large student loans and credit card debt, and this has become a barrier to saving enough for retirement.

According to a survey on Forbes.com, 14 percent of the Millennials polled have taken a hardship withdrawal from their retirement account with in the last 12 months. Although they have a good while before hitting retirement age, this practice could lead to a pattern that will be hard to break, and cancel out any good that compound interest and time can afford them.

A bad habit

Another unfortunate habit that may devastate a Millennial’s retirement fund is that 42 percent have used pawnshops, payday loans, rent-to-own companies and other substitute financial services. The Forbes.com survey noted 14.1 percent have used an online “peer-to-peer” lender in the past six months. These alternative sources of funding usually are easy to acquire but their interest rates are three to four times higher than a conventional loan.

Millennials have the opportunity to be a little more aggressive with their investments.

Unfortunately, 54 percent of Millennials use their savings accounts to hold their money. Most savings accounts offer dismal interest rates, generally earning less than 1 percent.

 Life happens

Some believe that they will have more money later as they get more experience in the workforce and get promoted. But that is when life usually happens — children, a home, and other things that require money will become a priority.

Millennials should take advantage of an employee offered 401(k) and, if possible, max out their contributions, or at least contribute as much as their employer will match.

By reducing their debt, increasing the amount they put towards saving, and taking advantage of the time that they have to save, Millennials will be one of the most prepared retirement generations.

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.