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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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

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

Some financial tips for millennials

This was originally published on Monday, October 10 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

There are many differences between the generations, and the same holds true to financial concerns. According to an article on CreditCards.com, baby boomers were most concerned about retirement while millennials are more concerned about student loans.

Millennials are facing some distinctive financial challenges. The cost of living has increased. What cost $10 in 1944 now costs $136 in 2016. Many college graduates are starting at entry-level, minimum-wage jobs. College tuition and student debt is higher than ever before.

Millennials have been accustomed to banking differently — most never step inside a bank except to set up the account. They are part of the instant generation and not accustomed to having to wait too long for most things.

Unfortunately, wealth and financial health has not evolved as quickly. So what can a millennial do to get on track? Here are a few tips.

Getting out of debt. Credit is easy to come by these days especially for young adults that are just starting off. Credit is given by banks on college campuses and offered through the mail and online. Many millennials are struggling to pay off debt due to the ease of obtaining credit. According to a study published by Forbes.com, “54 percent of millennials are worried about their ability to repay their student loans.”

To avoid falling into a financial credit trap, set a limit for yourself. Take a deep look at what you really can afford. Concentrate on paying off your debts as soon as possible. Time is on your side and the time to buckle down is when you have less responsibilities. Put the extra money you receive like bonuses, tax refunds and holiday gifts toward your debt. Consolidating your loans may be a solution because you reduce multiple payments to multiple accounts to just one payment to one account.

Spending plan. Budget conjures up negative feelings, like the word “diet.” Don’t think of yourself as not allowed to have fun with your money, but instead as choosing to spend your money in moderation. Millennials are very tech savvy and are fortunate enough to know how to use apps and software that make tracking their spending less daunting. They also rely on real-time banking. Some apps use the information from your bank to make tracing their spending effortless.

Millennials should think about the 50-20-30 rule. Put 50 percent of your take-home pay for your necessities. These necessities are roof over their head, food, utilities and other day-to-day expenses. About 20 percent can go to your financial responsibilities. These are paying off debts, savings and an emergency fund. The last 30 percent can be used for your wants, such as dinners out, new clothes and other fun recreational activities.

Emergency fund. Just as the name suggests, this account is for emergencies only — medical bills, car repairs, house repairs and other unforeseen circumstances that will set your budget back. According to Forbes, 50 percent of Millennials polled do not have $2,000 in an emergency fund to cover an unexpected situation. Many experts suggest that a solid emergency fund should cover four to six months of your expenses. Building an emergency fund may mean a few months of living below your means, but when an emergency arises you’ll be prepared.

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.

Think twice before paying off mortgage

This was originally published on Monday, May 30 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My husband and I purchased our first home 10 years ago. During this time my husband and I have been fortunate enough to advance in our careers and are making more than what we were when we bought our house. When we purchased our home, mortgage rates were much higher that what they are now. My husband and I want to take advantage of our current situation and are considering paying off our mortgage early. Can you help us decide if paying off our mortgage is beneficial?

A: A mortgage is a huge investment that takes a lot of dedication, especially if you purchased your home on a thirty-year plan. Whether you have a shorter fifteen year or a longer thirty-year plan, much can happen between now and paying off your mortgage. Like any large decision, you should weigh the pros and cons and consider where you are in life. Although it may be tempting to live mortgage free, you should consider your other financial goals and your tax situation.

Here are some reasons that you may want to hold off on paying your mortgage early.

  • Other debt: If you have other loans or credit cards that charge a higher interest rate than your mortgage, you should consider paying those off first. Interest on debt other than a mortgage is not tax deductible.
  • Maximize retirement: If you aren’t already maximizing your retirement contributions, use the money you would use to pay off your mortgage to increase your contributions. Do this especially if your employer matches a portion of your contributions. If you are close to retiring or if you started your plan later in life, you should take advantage of getting the most out of your plan. Also, your contributions are tax deferred.
  • Emergency fund: Do you have enough money saved up for a rainy day? If not, create an emergency fund. Most experts suggest to save up at least three months of your current income. You do not want to pay off your mortgage only to put your house up for collateral when an unforeseen event happens.
  • Life insurance: Do you currently have life insurance? If so, is it enough coverage to keep your family from undergoing financial hardships when you pass, especially if you are the primary bread winner.
  • Interest deduction. Paying a mortgage has its benefits when it comes to your income taxes. You receive a tax break based on the amount of interest you pay on your mortgage. If you are in the 25-percent tax bracket and you paid $24,000 in mortgage interest this year, you will be giving up a $6,000 tax break if you pay off your mortgage.
  • Limited liquidity. We all know that selling a home is a long process. If you decide to move or have a medical emergency you may want to have liquid assets, or money, that is easily available to you. You could take the excess money you would use to pay your mortgage and put it in a liquid investment. You can still make money on your investments and still be able to liquidate them much easier than you would a house.
  • Saving habits: If you choose to pay off a mortgage early, what would you do with the money you would have used to pay your monthly mortgage? If you don’t invest or save it, and just spend it, you are not benefiting yourself financially.

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.

Retirement saving comes down to habit

This was originally published on Monday, 2 February, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My co-workers and I have been having discussions about retirement. We feel that there is more that we should be doing to be prepared. One of the biggest concerns is that we are not financially ready, even though we are contributing to our retirement plans. What is the secret to effective retirement saving?

First, please let me thank you all for reading Money Matters and for your questions and inquiries over the years. This month is Money Matters’ fifth anniversary. I enjoy responding to your questions and assisting with your financial goals. I have learned so much from you all.

I am excited to hear that people are having discussions about retirement. Retirement is a topic that continues to be one of the top concerns many of my readers share. I wish I can say that there is a secret out there, and once you discover it you are set for life.

Instead, a successful retirement comes down to having a plan and putting it in motion

Those who live their retired life comfortably have planned a very specific strategy, including what age they want to retire and planning for rising costs of living.

The one thing successful retirement savers share is that it’s just not a plan but a habit.

  • Budget: This seems clear, but many people do not create a budget. Budgets always bring up negative feelings. They are associated with being boring and restrictive. Budgets are important. A budget can track your expenses, assist in identifying areas where you can improve, and help determine how much money you can contribute to your retirement without being unable to pay for your monthly responsibilities. Paying attention to how you spend will assist in motivating you to save.
  • Share: Talk with your spouse and other loved ones about your goals for retirement. Your budget will ultimately affect them as well. By being on the same page with them, you are more likely to achieve your goal. Talking about money can be uncomfortable, but it is a talk that all households should have.
  • Calculate your needs: What do you want to do when you retire? Do you want to travel or maybe retire to an exotic location? No matter what your retirement dream is, you need to figure out how much it will cost. Invest with a purpose. What are your day-to-day expenses going to be? Are you starting up a business? How much will it cost to move? Your income will be any retirement income from your employer, social security, and your retirement investments. Your investments should match your goals. There are free online retirement calculators that can assist to determine how much you will need to save now to reach your retirement goals. Talk to your employer. Some employers offer workshops that help in budgeting and saving for retirement.
  • Emergency planning: When a financial emergency hits, it is very tempting to use your retirement fund. But that should really be your last resort. It is very difficult to build up your retirement fund. The reason it grows is the compound interest on how much you have in your account. By removing a lump sum, you will decrease the amount of interest you earn. Most analysts suggest three to six months of income put aside in case you run into financial hardship.
  • Prioritize: After paying your monthly bills, where does your money go? Do you have other plans for your money before you contribute to your retirement account? If retirement is your priority, you will most likely achieve your goal. To help, put up pictures of your retirement dreams to remind you of what you are saving for.

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.