Before investing, know risk tolerance

This was originally published on Monday, September 18, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I am looking to start investing my money other than just in my savings account at my bank. I am not sure where to start or where to invest. Do you have tips for a first-time investor?

Banks and credit unions are a safe risk, but returns aren’t as high as other types of investments. The general rule is the higher the risk, the higher the return. If a return higher than a bank, credit union or financial institution is what you seek, I recommend you first identify your tolerance for risk. That will determine how you invest your hard-earned savings.

Have a plan. Ask yourself a few questions. How much can I invest? Can I afford to lose money? What is my goal? How long do I want to take to reach my goal? What type of investment do I want?

Risk tolerance. The website thebalance.com describes risk tolerance as an investing term relating to the amount of market risk, especially the volatility (ups and downs), an investor can tolerate. Understanding your risk tolerance is an important component in investing. Have a realistic conception of your ability to take a risk. Are you able to handle the loss without panicking and selling at the wrong time?

Taxes. Most people start an investment with a small amount of money and grow it over a period of time. Consider investing in a tax-efficient plan like a pension plan. How much tax you pay upfront or at the end makes a huge difference. Know how your money is going to be taxed when you open up the account.

Diversify. Consider putting your money in different types of plans. Different markets rise and fall and having your money in different types of markets and plans will help balance the losses. Diversification reduces the risk of your portfolio from being completely wiped out by a single event and is the best defense against a financial crisis.

Do your research. The internet and media are full of tips on how to grow your investment faster. Talk to a certified investment counselor at a reputable institution. They will be able to guide you and help your investment grow. Remember the old adage: “If it sounds too good to be true, it probably is.”

Invest regularly. Investing a little here and there can be more beneficial than investing lump sums less frequently. It takes advantage of compound interest. Compound interest is based on the interest made based on the amount invested. The more invested, the more it earns.

Review. Look at your investments quarterly and at the end of the year. Don’t be so quick to move your money around or sell. Most trends need time. If you constantly review your portfolio, you become anxious and do something you may regret later. By evaluating it over time, you can get a sense of how well or poorly your investment behaves. As different funds change, it will affect the overall risk tolerance of your portfolio.

Stick to your plan. Unless your goals change, stick to your plan. If you have concerns, seek guidance from a professional. Know what you are comfortable with. Investing is best when it is easy and stress free.

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

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Child-related tax deductions, credits

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

No matter what your children’s ages are, raising them can definitely be expensive and stressful. As parents, we focus on the raising the children and often have to weigh the cost of money versus the cost of time.

With life’s everyday hustle, we tend to lose sight of financial shortcuts that may make life a little easier. But sometimes it’s worth taking the time to find ways to make your dollar stretch. Tax time should be no different.

If you meet certain criteria, you could be eligible to claim tax deductions and credits. Some of these deductions and credits could save you money that can ease some financial shortcomings of raising children.

Adjust your withholdings. Did you have a baby recently? If so, don’t forget to get with your employer and adjust your tax withholdings. Adding a new child to the family can give you more tax deductions when filing.

Your employer deducts taxes based on the number of allowances you claim on your W-4. When you have too much withheld from your paycheck, you basically are giving the government a loan on your money. You can be using that money to invest, save, or to reduce debt.

On the other hand, having too little withheld from your paycheck could mean you pay at tax time rather than get a refund.

The goal is to balance out to zero, so you don’t pay extra tax or receive a big tax return. You can calculate your withholding easily by going to the Internal Revenue Service’s tax withholding webpage, or go online and look for a free tax withholding calculator.

You can adjust your tax withholding at any time if you or a spouse get a second job, change jobs, were unemployed, got married or divorced, or had a baby or adopted a child.

Earned Income Tax Credit. Many qualified taxpayers may overlook this tax credit, but it can save them thousands of dollars. The eligibility is limited to low- to moderate-income earners. You must be 25 years and older, but younger than 65. Your dependents must have a valid Social Security number. According to the IRS, for tax year 2016 the maximum credit you can obtain this year is $6,269.

If you are self-employed, you may still be eligible for this credit. Unfortunately, if you receive more than $3,400 of income in 2017 from investments, stocks, rental properties or inheritance, you will be disqualified from the credit.

Higher Education Credits. Did you recently send a child to collage? Parents can claim two credits for higher education:

The American Opportunity Tax Credit: An eligible student can’t have completed four years of schooling, must be enrolled in at least one academic semester, and must maintain at least half-time status in a program leading to a degree. For more on eligibility, visit the IRS website. Only one American Opportunity Credit is available per eligible student each tax year. The maximum annual credit per student is $2,500.

The Lifetime Learning Credit: You must have made tuition and fee payments to a post-secondary school (after high school) during the year. The Lifetime Learning Credit has no limit, as long as your child participates in an eligible degree program.

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

Tips for saving money in 2017

This was originally published on Monday, January 9, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I want to start saving more in 2017, but I always find myself barely making it to the next payday. Living payday to payday is difficult and saving money on a tight budget seems almost impossible. Do you have any tips that you can share to help me find money to start saving?

I commend you for wanting to start saving. You are not alone. Many people find it hard to save money, especially with the cost of living. I’m not going to sugarcoat it — saving may mean having to give up certain luxuries and reprogramming the way you think about spending money.

If you stick to it, you will find that once you get going and see your progress, you will continue to save and eventually it will become automatic and not so tedious. Some of the tips I have may not fit your lifestyle. Pick the tips that best suit you. If it doesn’t work, try something else. The important thing is to keep saving a little at a time.

  • Record your spending. Most people think they know exactly where their money goes. The truth is you will be surprised to learn how much you spend on nonessential items. Save the receipts of all your purchases and expenses. At the end of the month, make two categories: essential and nonessential. In the essential category, include your rent/mortgage, insurance, groceries, loan/debt payments, fuel and any other payments you must make. Under the nonessential category, include your impulse and entertainment expenses such as coffee, eating out, game or music downloads, cigarettes and other items you don’t necessarily need to survive.
  • Credit cards. Credit cards are a great way to build credit, but using credit cards to pay daily expenses can really be draining your savings potential. Most credit cards have high interest rates. Unless you pay your card off at the end of the month, you will be paying hundreds of dollars on a cup of coffee by the year’s end. Use your credit card sparingly and you can save hundreds, even thousands, of dollars.
  • Tax time. Be sure that you are getting all the exemptions for which you are eligible. It may cost a little, but see a financial adviser or tax preparer. You may be eligible for some tax breaks that you didn’t know existed. Use the tax savings to pay down some debt or put it in a savings account.
  • Compare prices. Many people overlook this tip because it does take a bit of time to do your research. Before going grocery shopping, compare store circulars and sales. A little research can save you a few hundred dollars a month. Compare prices for expensive items as well. Home and auto insurance is another expense for which you can compare prices and save.
  • Earn extra money. You don’t have to get another job, but you can use your free time to earn money. Ask your family, friends, or neighbors if they have any jobs around the house that they need done. Baby-sitting, car washing, house painting, yard work, house cleaning and other jobs can bring some additional cash. Put some of the extra money earned in a savings account and use some of it to pay off debt.
  • Think before you spend. It is nice to treat yourself every now and then, but evaluate before purchasing. If you want to purchase a $60 dress and you make $10 an hour, is that dress really worth six hours of work? Sometimes reminding yourself of just how much you work to earn your income can put how you spend your money into perspective.
  • Use cash only. It’s hard to know what you are spending when you use your debit or credit card. If you use cash, you can literally see the cash depleting from your wallet. This can help you break the cycle of overspending.

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

Preparing a financial disaster kit

This was originally published on Monday, August 22 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Life’s emergency situations can happen at any moment. Advanced preparation and planning can ease the stress that comes with a disaster. A financial disaster kit can make the process of recovering less stressful. A well-crafted kit contains information necessary to assist in the recovery process and is based solely on your household’s situation.

  • Income. In case your income is disrupted by the disaster, having proof of your income will be needed if you apply for assistance. Include pay stubs or Leave Earning Statements that reflect your current pay as well as anyone else in your household that is employed. If you receive Social Security, veterans benefits, housing or food assistance, or any other government benefits, include information on how much you receive. Include paperwork showing income received from alimony and child support received as well.
  • Financial assets. Many people today do their banking online or on their smartphones. Although this can make life easier under normal life conditions, once disaster strikes we will lose many of our modern conveniences. Keep a current copy of your bank or credit union statements as well as your credit card statements. Having these documents on hand can prove that you have an account at that financial institution. Do the same for your retirement and investment accounts. Include a copy of your vehicle registration and ownership papers.
  • Financial obligations. Make copies of your monthly bills. Your utility bills such as power and water can be extra proof of where you reside. Include statements from all your financial obligations such as your credit cards and loans. The documents should have the name of the financial institution, the account number, and contact information. Make copies of your credit cards front and back. Include copies of your car, student and other loans in your kit. If you pay alimony or child support include a copy of your payment agreement.
  • Insurance policies. After a disaster this is probably one of the most important documents you should have ready and on hand. Before a disaster, be sure to review your documents and that you have adequate coverage. If you are unsure of your coverage, visit your insurance company. Keep copies of your current homeowners or renters, auto, and life insurance policies. You may want to include recent photos of your home, high valued items within your home, and your vehicles(s). These pictures can be on a CD, thumb drive, or some other portable device that will not take up much room in your kit.
  • Tax information. Some financial loans request that you have tax information for the past three years. Keep copies of your federal and/or state taxes for at least the past three years in your financial disaster kit. Include the most recent property tax information as well.
  • Estate. A finance disaster kit should cover even the worst case scenario. Keep a copy of your will or trust in your kit. Your spouse should as well. Having a trust will keep your assets from going through probate, and having a trust or a will may reduce family conflict, and reduce some the stress of dealing with a disaster and the loss of a loved one. If you become injured or incapacitated, your power of attorneys will give someone you trust the ability to work on your behalf.

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.

Debt from the deceased can be complex

This was originally published on Monday, May 9 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My father is terminally ill and I am in the process of getting his affairs in order. He has an updated will and I have confirmed that my mother is named as his beneficiary for his life insurance and retirement plan. My main concern is his debt. He took out a large loan several years to help with his medical treatments. He is not behind on his payments but I am curious to what happens to the debt once he passes. Could you help me understand how debt is paid off once the lean holder is deceased?

A: I am so sorry to hear about your father’s illness. As a child it is hard having to switch roles and become the caretaker for our parents. Unfortunately, when someone dies, their debt does not disappear. The rules to creditors recouping their money is complex and often vary from state to state. Of course, it also depends on the type of loan and if there are others who share the responsibility.

Family members typically are not obligated to pay off the debt of a deceased family member directly from their assets. The Fair Debt Collection Practices Act (FDCPA) protects family members from unfair, deceptive, or abusive practices used to collect a debt.

Who is responsible? Take a look at who signed for the debt. If it is a joint debt, then two or more people are responsible for the full debt. The names of those responsible will appear on the promissory note, loan or credit agreement.

Usually there is a clause in the contract that if something should happen to one of the responsible parties and they are unable to pay their portion then the surviving debtor(s) are responsible to pay off the full amount.

If only one person owns the debt, then that person is responsible for that debt. If the estate, the total net worth of an individual that includes land, possessions, cash, and other assets, of the deceased doesn’t have enough money to cover the debt, the debt may go unpaid. If the estate has money, then the assets from the estate will be used to pay off the debt.

Type of debt

Depending on what type of debt the deceased leaves behind will also determine if the debt will be repaid.

  • Credit card. If the credit card is joint with someone else or has a cosigner(s) then the cosigner(s) are responsible for paying off the debt. Otherwise depending on the amount left the credit card company may pursue collecting what is due.
  • Mortgage. If you are inheriting a house with a mortgage you will inherit the debt as well. If you cannot make the payments, you may have to sell the home. If you are having trouble paying the mortgage, it could affect your credit score if your name is on the note secured by the mortgage.
  • Medical. Medical expenses are usually on top of the priority list to of debts to pay.
  • Taxes. If your loved one passed and left unpaid property or income taxes, the estate will be responsible to pay them. They too can put a lien on assets till the debt is paid off. The deceased will be responsible to pay any income tax on income earned during the year of their death.

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.

Selling a home usually will cost you some money

This was originally published on Monday, March 23, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

When you sell your home the money from the sale will help pay certain costs and fees. This should be factored in, especially if you plan on using the money to purchase another home.

• Commission: Real-estate professionals work on commission. It is the seller’s responsibility to pay the commission on the sale of the home. A typical commission is usually 4 to 6 percent.

• Mortgage: Unless your home is paid off and is free and clear of any liens, you are responsible for paying off all debts on your home. You cannot sell your home unless the property has a clear title. The money from the sale will pay off your original loan first. If you have a second mortgage, any money left will be used to pay it off. If the sale of your home is not enough to cover the complete amount of the second mortgage, you have several options.

The first option is a short sale. A short sale happens when both lending agencies agree to accept less than what is owed. Another option is converting the balance of your second mortgage into a line of credit or an unsecured loan.

Because you paid your loan off early you may have to pay a prepayment penalty. Your lending agency may also charge you a loan payoff fee for all the administrative work associated with the sale

• Recording fees: After your debts have been cleared and you have sold the property you will record this with a government agency. This agency may charge a fee to record and document these changes.

• Escrow fees: Escrow is when a third party is used to complete a monetary exchange between two parties. The buyer and seller sign a purchase agreement and the escrow starts. The escrow ensures all terms are met. The fees usually are paid based on a percentage of the sale price.

• Title search fees/insurance: To ensure that the title is free and clear of any past liens or debts, a title company will research the property’s history through public records. A clear title gives you the legal right to sell the home. The title company offers insurance that their work is free of errors. If a lender is used to help buy a home, the buyer pays for a lender’s title insurance policy. A buyer or property owner may also purchase an owner’s title insurance policy. If an error occurs, the title company is responsible for compensation. Title fees and insurance costs are a onetime payment. A small payment now can save you big in the long run.

• Taxes: Because the selling of your home is an exchange of money for goods there may be taxes that you pay when transferring ownership of the home. If your property tax is not up to date you will have to pay the delinquent taxes and maybe late fees before you can sell the home.

• Notary fees: During the sale of your home you will be inundated with paperwork. Most are official documents and may need to be notarized. If you want official copies of all the paperwork have the documents notarized.

• Other expenses: As a seller you want to make your buyer happy. Sometimes it may mean going the extra mile. Buyers may ask for termite treatment and certification to empty a septic tank or new appliances. These requests must be met before the exchange of money happens so it will be out of pocket. Most of our homes may require painting or minor repairs even before you start the selling process. A little money spent sprucing up the home can translate into more money in your pocket later.

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.

While preparing for next year, think about taxes

This was originally published on Monday, December 29, 2014, in the Pacific Daily News.  Click here to subscribe to the PDN.

Most of us are in a mad rush to wrap up loose ends before 2015. Hopefully you have had some time to review your finances. If you need to make some changes, it’s not too late. Some of the changes you make could affect your finances for next year.

Taxes — It may only be December, but it’s never too late to start thinking about taxes, after all, your W-2 should be out by mid-January.

• To defer or not to defer? Deferring your money is a legal way that lets you pay taxes tomorrow on what you earned today. Basically, it lets you hold on to the money you make a little bit longer. By doing so, you can invest, pay off debt, improve your home, build your emergency fund and so on. It works for you right away. You can place your money in certain types of retirement accounts or investments or into real estate. You should consult a tax accountant to help you defer your taxes.

• How much are you putting into your retirement fund? For most, retirement plans taxes are taken out when you make withdrawals. By placing more into your retirement plan, you could defer the tax on that money until a time when your tax rate is lower. A bonus is that you will have more once it’s time to use your fund.

• Do you have assets in your portfolio that lost money this year? If so, they can be used to offset any capital gains. Contact your financial adviser if you have more losses than gains.

• Do you itemize your taxes? If you do, start getting them in order; don’t wait till April to collect your documents. You will have enough time to calculate your taxes using the standard and itemized deductions. Compare which will save you the most.

• Do you give to charity? ‘Tis the season to give and giving to charities could save you some money come tax time. Your donation does not have to be monetary. If you donated toys, clothing, furniture and other household goods to a charity, you can receive a tax receipt. At tax time, you can use the donation to reduce your tax bill.

• Do you get a large tax return? If so, you may be over withholding for your taxes. The government borrows your money interest-free and then returns it to you at the end of the tax year. If you are underpaying, then you may have a larger tax liability when you file. Go to your employer and adjust your withholdings to balance out an over or underpaid tax bill.

Taking time to review your finances gives you insight on how to improve your finances. It may reveal that you may need some modifications to get in line with your goals. It may show that you are right on track. Either way, it should give you some comfort to know you are in control of your finances.

Thank you for reading Money Matters. I get a great sense of happiness knowing that I can help clarify some financial issues and give you some tips to getting closer to your goals. I wish everyone a very happy and prosperous New 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 www.moneymattersguam.wordpress.com.