Tag: financing

How To Retire At 50: 10 Easy Steps To Consider

Can you retire at 50? On average, people usually retire at 65. But what if you want to retire 15 years earlier than that like  at 50? Is it doable? Below are 10 easy steps to take to retire at 50.  Retiring early can be challenging. Therefore, SmartAsset’s free tool can match you with  a financial advisor who can help to work out and implement a retirement income strategy for you to maximize your money.

10 Easy & Simple Steps to Retire at 50:

1. How much you will need in retirement.

The first thing to consider is to determine how much you will need to retire at 50. This will vary depending on the lifestyle you want to have during retirement. If you desire a lavish one, you will certainly need a lot.

But according to a study by SmartAsset, 500k was found to be enough money to retire comfortably. But again that will depends on several factor.

For example, you will need to take into account where you want to live, the cost of living, how long you expect to live, etc.

Read: Can I Retire at 60 With 500k? Is It Enough?

A good way to know if 500k is possible to retire on is to consider the 4% rule. This rule is used to figure out how much a retiree should withdraw from his or her retirement account.

The 4% rule states that the money in your retirement savings account should last you through 30 years of retirement if you take out 4% of your retirement portfolio annually and then adjust each year thereafter for inflation.

So, if you plan on retiring at 50 with 500k for 30 years, using the 4% rule you will need to live on $20,000 a year. 

Again, this is just an estimation out there. You may need less or more depending on the factors mentioned above. For example, if you’re in good health and expect to live 40+ years after retiring at 50, $500,000 may not be enough to retire on. That’s why it’s crucial to work with a financial advisor.

Get Matched With 3 Fiduciary Financial Advisors
Managing your finances can be overwhelming. We recommend speaking with a financial advisor. The SmartAsset’s free matching tool will pair you with up to 3 financial advisors in your area.

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2. Maximize your tax-advantaged retirement accounts.

Once you have an idea of how much you need in order to retire at 50, your next step is to save as much as possible at a faster rate. If you are employed and you have a 401k plan available to you, you should definitely participate in it. Nothing can grow your retirement savings account faster than a 401k account.

See: How to Become a 401k Millionaire.

That means, you will need to maximize your 401k contributions, for example. In 2020, and for people under 50, the 401k contribution limit is $19,500.  Also, take advantage of your company match if your employee offers a match.

In addition to the maximum contribution of $19,500, your employer also contributes. Sometimes, they match dollar for dollar or 50 cents for each dollar the worker pays in.

In addition to a 401k plan, open or maximize your Roth or traditional IRA. For an IRA, it is $6,000. So, by maximizing your retirement accounts every year, your money will grow faster.

3. Invest in mutual or index funds. Apart from your retirement accounts (401k, Roth or Traditional IRA, SEP IRA, etc), you should invest in individual stocks or preferably in mutual funds. 

4. Cut out unnecessary expenses.

Someone with the goal of retiring at 50 needs to keep an eye on their spending and keep them as low as possible. We all know the phrase, “the best way to save money is to spend less.”

Well, this is true when it comes to retiring 15 years early than the average.  So, if you don’t watch TV, cancel Netflix or cable TV. If your cell phone bill is high, change plans or switch to another carrier. Don’t go to lavish vacations.

5. Keep an eye on taxes.

Taxes can eat away your profit. The more you can save from taxes, the more money you will have. Retirement accounts are a good way to save on taxes. Besides your company 401k plan, open a Roth or Traditional IRA.

6. Make more money.

Spending less is a great way to save money. But increasing your income is even better. If you need to retire at 50, you’ll need to be more aggressive. And the more money you earn, the more you will be able to save. And the faster you can reach your early retirement goal.

7. Speak with a financial advisor

Consulting with a financial advisor can help you create a plan to. More specifically, a financial advisor specializing in retirement planning can help you achieve your goals of retiring at 50. They can help put in a place an investment strategy to put you in the right track to retire at 50. You can easily find one in your local area by using SmartAsset’s free tool. It matches users with financial advisors in just under 5 minutes.  

8. Decide how you will spend your time in retirement.

If you will spend a lot of time travelling during retirement, then make sure you do research. Some countries like the Dominican Republic, Mexico, Panama, the Philippines, and so many others are good places to travel to in retirement because the cost of living is relatively cheap.

While other countries in Europe can be very expensive to travel to, which can eat away your retirement money.  If you decide to downsize or sell your home, you can free up more money to spend.

9. Financing the first 10 years.

There is a penalty of 10% if you cash out your retirement accounts before you reach the age of 59 1/2. Therefore, if you retire at 50, you’ll need to use money in other accounts like traditional savings or brokerage accounts. 

10. Put your Bonus, Raise, & Tax Refunds towards your retirement savings. 

If retiring at 50 years old is really your goal, then you should put all extra money towards your retirement savings. That means, if you receive a raise at work, put some of it towards your savings account.

If you get a tax refund or a bonus, use some of that money towards your retirement savings account. They can add up quickly and make retiring at 50 more of a reality than a dream.

Retiring at 50: The Bottom Line: 

So can I retire at 50? Retiring at 50 is possible. However, it’s not easy. After all, you’re trying to grow more money in less time. So, it will be challenging and will involve years of sacrifices, years living below your means and making tough financial decisions. However, it will be worth it in the long run. 

Read More:

  • How Much Is Enough For Retirement
  • How to Grow Your 401k Account
  • People Who Retire Comfortably Avoid These Financial Advisor Mistakes
  • 5 Simple Warning Signs You’re Definitely Not Ready for Retirement

Speak with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning to retire at 50, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post How To Retire At 50: 10 Easy Steps To Consider appeared first on GrowthRapidly.

Source: growthrapidly.com

National Get Smart About Credit Day

Depending on the time period in which you were raised, many young children and adolescents had differing opinions (and ideals) about what credit was and how it should or shouldn’t be utilized. While some were privileged enough to understand the complexities and importance of credit, others had to learn at the expense of their own mistakes along the way. No matter where you were or where you are currently, luckily there are always actionable steps that can be taken to clean up, improve, and get smart about your credit – let’s explore. 

Become familiar with what can impact your credit 

There are five key components that are factored into your credit score. 

Payment history 

Your ability to make timely payments plays a huge role in your credit score. Lenders want to have the confidence that you as the borrower are capable of paying back any debts on time. If there is ever a situation that can impact your payment history, it’s best to notify your lender as soon as possible to avoid any negative remarks on your credit report.  

Credit utilization 

In order to determine your credit utilization rate, divide the amount of credit currently in use by the amount of credit you have available. For the best possible scores, keep this percentage under 30%. This shows creditors you have the ability to manage debt wisely. To optimize and improve your score, make it a goal to utilize less than 10% if possible.   

Length of credit history  

Lenders will take an account of all creditors and the length of time each account has been open. In order to improve this average, try your best not to close any accounts as this can have the potential to decrease your overall credit score.  

Credit mix  

Car, student loan debt, mortgage, and credit cards are all varying types of revolving and installment loans. Lenders view this as favorable when you’re able to manage different types of credit. A good rule of thumb for using a credit card is charging a small amount each month and paying it off in full to avoid any interest payments. Not only does this impact your score positively, but it also creates good habits that don’t require you to solely rely on credit cards for purchases.  

New credit 

Any time you apply for credit, you’re giving lenders the right to obtain copies of your credit report from a credit bureau. Soft inquiries do not have an impact on your score, such as pulling your own credit report or a potential employer pulling your report as a part of the screening process. Applying for a new credit card, requesting a credit limit increase, financing a car, or purchasing a home are all examples of hard inquiries. For processes such as auto purchases, student loans, or mortgages these are typically treated as a single inquiry if done within a short scope of time such as thirty days. Be mindful of the number of inquiries outside of these scenarios – this mainly relates to retail store credit cards. Inquiries have a greater impact if you have a short credit history or a limited amount of active credit accounts.   

Review your credit reports and dispute errors if necessary 

Carve out some time to obtain a free credit report from one of the three credit bureaus (Experian, TransUnion or Equifax) to review. Familiarize yourself with everything that is listed. In the instance something doesn’t appear correct, follow the proper protocols to dispute errors. Completing this exercise at least once a year after initially cleaning up any errors can help correct any mistakes, but also ensures accuracy. The credit reporting agency and the lender must be contacted in order to jumpstart the process of resolution. Even in the instance, there are no issues found, you’ll have peace of mind knowing the due diligence has been done.  

Communicate and be honest with all creditors 

If you are experiencing any type of financial hardships due to unforeseen circumstances, make it a priority to communicate upfront with all creditors. Explaining your personal situation while proposing reasonable solutions may work in your favor. Refrain from avoiding creditors due to emotional reasons or negative thoughts; your pride cannot overshadow your personal needs. When discussing finances, most of us don’t want to disclose any personal information – however, if this can result in bettering your personal finance journey and credit score simultaneously; there’s no way to lose. Make your requests known and be proactive so the best solutions can be provided.  

Create a plan and remain completely committed 

Commit to at least three goals that relate to improving your credit. This could simply start with paying all of your bills on time and regularly checking in with creditors to ensure good standing. If credit card spending is a challenge for you, commit to limiting your credit card usage while paying more than the minimum balance. Rally the assistance of your family and friends to serve as your accountability partners to make sure you achieve your goals. No matter the personal goals you decide to set, commit to staying the course. Often times our personal lack of patience leads us to believe that the hard work that’s being put forth is in vain. If nothing else, commit to improving your credit for you and your families’ wellbeing.  

Protect your hard work (and your credit) 

Once your new credit score emerges and is here to stay, the first order of business is to celebrate – congratulations! Your hard work and dedication have indeed paid off. In order to make sure your credit score stays in tip-top shape, don’t be too quick to take your foot off of the gas just yet! Be sure to stay informed about any tactics or strategies to keep your credit score in the best shape possible. We’re all on our phones throughout the day, so make it a regular occurrence to do a quick internet search on ways to improve your credit score. Continually staying educated about various credit improvement opportunities  

The post National Get Smart About Credit Day appeared first on MintLife Blog.

Source: mint.intuit.com

Need Cash? 3 Ways To Tap Your Home Equity—and Which One’s Right for You

home equityaluxum / Getty Images

You need to come up with some cash, fast. Maybe you have a leaky roof that desperately needs fixing or you need help paying for your kid’s first semester of college. But where do you turn?

If you’re a homeowner, you have options that involve tapping into your home equity—the difference between what your home is worth and how much you owe on your mortgage.

There are three main ways to tap into home equity, but sorting through those options can be confusing. To help, we’ve boiled down what you need to know about some of the most common home financing options—cash-out refinance, home equity loan, and home equity line of credit—and how to determine which one is right for you.

1. Cash-out refinance

How it works: A cash-out refinance replaces your existing mortgage with a new loan that’s larger than what you currently owe—and puts the difference in your pocket. With a cash-out refinance, you’re able to receive some of your home’s equity as a lump sum of cash during the process.

“This only works if you have equity in your home, either through appreciation or paying down your mortgage,” says David Chapman, a real estate agent and professor in Oklahoma.

Pros: If you need cold, hard cash in your hands, a cash-out refinance can help you get it. You can use this money for whatever you want—upgrades to your house, even a vacation. Another positive? If interest rates are lower than when you first got your loan, you’ll get to lock in lower interest rates than you’re paying now.

“Now is the time to look at a cash-out refinance due to the low interest rate environment,” says Michael Foguth, founder of Foguth Financial Group.

Cons: You’ll have to pay closing costs when you refinance, though some lenders will let you roll them into your mortgage. The costs can range from 2% to 5% of your loan amount. And, depending on the circumstances, if interest rates have gone up, you could end up with a higher interest rate than your existing mortgage.

Also, you’ll be starting over with a new loan and, unless you refinance into a different type of mortgage altogether, you’ll ultimately be extending the time it takes to pay off your home loan. Even if you get a better interest rate with your new loan, your monthly payment might be higher.

When to get a cash-out refi: A cash-out refinance makes the most sense if you’re able to get a lower interest rate on your new loan. (Experts typically say that at least a 1% drop makes refinancing worth it.)

This option also works well for home renovations, since (ideally) you’ll be increasing your home’s value even more with the updates. In essence, you’re using your home’s existing equity to help pay for even more equity growth.

While you could use your cash-out refinance to pay for anything, financial experts typically advise that you spend the money wisely, on something that you see as a good investment, rather than on something frivolous.

2. Home equity loan

How it works: Unlike a cash-out refi, which replaces your original loan, a home equity loan is a second additional mortgage that lets you tap into your home’s equity. You’ll get a lump sum to spend as you see fit, then you’ll repay the loan in monthly installments, just as you do with your first mortgage. The home equity loan is secured by your house, which means that if you stop making payments, your lender could foreclose on the home.

Pros: With a home equity loan, you get a huge chunk of cash all at once. A home equity loan lets you keep your existing mortgage, so you don’t have to start over from year one. Your interest rate is typically fixed, not adjustable, so you know exactly what your monthly payment will be over the life of the loan. And, another plus is your interest may be tax-deductible.

Cons: Compared with a cash-out refinance, a home equity loan will likely have a higher interest rate. Home equity loans also come with fees and closing costs (though your lender may opt to waive them). Another downside? You’re now on the hook for two mortgages.

When to get a home equity loan: A home equity loan makes more sense than a cash-out refi if you’re happy with your current home loan, but you still want to tap into your home equity, says Andrina Valdes, chief operating officer of Cornerstone Home Lending. It can also be handy for home renovations that add value, though of course you’re free to use it however you want.

“A home equity loan could be used in cases where you may already have a low mortgage interest rate and wouldn’t necessarily benefit from a refinance,” says Valdes.

3. Home equity line of credit

How it works: A home equity line of credit, aka HELOC, is similar to a home equity loan—it’s a second mortgage that lets you pull out your home equity as cash. With a HELOC, however, instead of a lump sum amount, it works more like a credit card. You can borrow as much as you need whenever you need it (up to a limit), and you make payments only on what you actually use, not the total credit available.

Since it’s a second mortgage, your HELOC will be treated totally separately from your existing mortgage, just like a home equity loan.

“With a HELOC, the homeowner will need to make two payments each month—their mortgage payment and the HELOC payment,” says Glenn Brunker, mortgage executive at Ally Home.

Pros: You borrow only what you need, so you may be less tempted to spend this money than a lump-sum home equity loan. You pay interest only once you start borrowing, but you can keep the line of credit open for many years, which means your HELOC can act as a safeguard for emergencies.

HELOCs typically have lower interest rates than home equity loans, and they typically have little or no closing costs. (Again, your lender might offer to waive these fees.) HELOCs are often easier to get because they’re subject to fewer lending rules and regulations than home equity loans.

Cons: HELOCs usually have adjustable interest rates, which means you can’t necessarily predict how much your monthly payment will be. Most HELOCs typically require the borrower to pay interest only during what’s known as the draw period, with principal payments kicking in later during the repayment period. If you don’t plan properly or you lose your job, you might be caught off guard by these higher payments down the road. As is the case with other second mortgages, your bank can foreclose on your house if you stop making payments.

“Once a HELOC transitions into the repayment period, the borrower is required to make both principal and interest payments,” says David Dye, CEO of GoldView Realty in Torrance, CA. “Many borrowers forget about this transition and are often startled by the sudden increase in minimum payments.”

When to get a HELOC: A HELOC makes the most sense if you want the flexibility and peace of mind of knowing you can easily access money in the future, says Mindy Jensen, a real estate agent in Colorado.

“A HELOC is great to have just in case,” says Jensen. “You have access to it, but are not committed to taking it or paying for money you don’t have an immediate need for.”

And compared with an actual credit card, a HELOC has a much lower interest rate, so it’s likely a cheaper financing option for you.

The post Need Cash? 3 Ways To Tap Your Home Equity—and Which One’s Right for You appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

How Much Should I Spend on a Car?

How Much Should I Spend on a Car?

The sad thing about cars is that like boats and diamond rings, they’re depreciating assets. As soon as you drive yours off the lot, it immediately begins losing value. Some people are lucky enough to live somewhere with a reliable public transportation system. And others can bike to work. If you don’t fall into either of those categories, however, a car isn’t something you can put off buying.

Check out our investment calculator. 

If you’re preparing to purchase a new or used vehicle, you might be wondering, how much should I spend on a car? We’ll answer that question and reveal ways to make sure you’re not overpaying when you buy your vehicle.

The True Cost of Buying a Car

Next to buying a house, buying a car is likely one of the biggest purchases you’ll make in your lifetime. And if you want a quality vehicle that isn’t going to break down, you’re probably going to have to pay a pretty penny for a new ride. The average cost of a brand new car was about $33,543 in 2015, compared to $18,800 for a used one.

When you buy a car, of course, you’re paying for more than just the vehicle itself. Besides the fee you’ll pay for completing a car sales contract (known as a documentation fee), you might have to pay sales tax. Then there are license and registration fees, which vary by state. In Georgia, for example, you’ll pay a $20 registration fee every year versus the $101 that drivers pay annually in Illinois.

The amount you pay up front for a car can rise by 10% or more when you add taxes and fees into the equation. And if you need a car loan, you might have to put 10% down to get a used car and 20% down to get a new vehicle. If you decide to roll the sales tax and fees into the loan, you’ll cough up even more money over time because interest will accrue.

Once the car is in your possession, you’ll have to pay for insurance, car payments, parking fees, gasoline and whatever other costs come up. In a 2015 study, AAA found that a standard sedan cost Americans $8,698 annually, on average. As convenient as having your own car might be, it’ll be a huge investment.

Related Article: The True Cost of Cheaper Gas

How Much Should I Pay?

How Much Should I Spend on a Car?

The exact amount that you should spend on a car might change depending on who you ask. Some experts recommend that car-buyers follow the 36% rule associated with the debt-to-income ratio (DTI). Your DTI represents the percentage of your monthly gross income that’s used to pay off debts. According to the 36% rule, it isn’t wise to spend more than 36% of your income on loan payments, including car payments.

Another rule of thumb says that drivers should spend no more than 15% of their monthly take-home pay on car expenses. So under that guideline, if your net pay is $3,500 a month, it’s best to avoid spending more than $525 on car costs.

That 15% cap, however, only applies to consumers who aren’t paying off any loans besides a mortgage. Since most Americans have some other form of debt – whether it’s credit card debt or student loans that they need to pay off – that rule isn’t so useful. As a result, other financial advisors suggest that car buyers refrain from purchasing vehicles that cost more than half of their annual salaries. That means that if you’re making $50,000 a year, it isn’t a good idea to buy a car that costs more than $25,000.

How to Buy a Car Without Busting Your Budget

If you’re trying to figure out how to make your first car purchase happen, know that you can do it even if your finances are currently in disarray. If you look at a website like Kelley Blue Book before visiting a dealership, you’ll have a better idea of what different makes and models cost. From there, you can set a goal and work towards reaching it by saving more and keeping your excess spending to a minimum.

Once you find a car you like (and that you can afford), you can save money by challenging or cutting out certain fees. For example, you can lower or bypass dealer fees for shipping and anti-theft systems. If you’re planning on getting an extended warranty, you can shop around and see if there’s another company offering a better deal on it than your car manufacturer.

Meeting with more than one dealer and comparing offers can also improve your chances of being able to find a vehicle within your price range. So can timing your purchase so that you’re buying a car when a salesperson is more open to negotiating, like near the end of a sales quarter.

Try out our budget calculator.

If you need financing, it’s important to make sure you’re not getting saddled with a car loan that’ll take a decade to pay off. Long-term car loans are becoming more common. In 2015, the average new car loan had a term of 67 months versus the 62 months needed to cover the average used car loan.

The longer your loan term, however, the more interest you’ll pay. And the harder it’ll be to trade in your car in the future, especially if the amount of the loan surpasses the car’s value. That’s why some experts suggest that buyers get loans that they can pay off in four years or less.

The Takeaway

How Much Should I Spend on a Car?

How much should you spend on a car? Only you can decide that after reviewing your budget and figuring out if you can pay for the various expenses that go along with owning a car.

Keep in mind that getting a new or used car will likely involve taking on more debt. If you can’t make at least minimum payments on the debt you already have, it might be a good idea to get a part-time job or concentrate on saving so you won’t have to take out a huge loan.

Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: Â©iStock.com/Eva Katalin Kondoros, ©iStock.com/michaeljung, ©iStock.com/Antonio_Diaz

The post How Much Should I Spend on a Car? appeared first on SmartAsset Blog.

Source: smartasset.com

Avoid late fees

If you don’t pay your rent on time, the landlord may charge you a late fee – which can be assessed at 5% of your rent payment or more.

“It’s nice to have the flexibility to charge your rent as an option if you hit a particularly tough month,” says Davis. “If tenants find themselves stretched too thin financially one month, it’s cheaper to charge their rent than let it go late – and it keeps them from falling behind and souring their relationship with their landlord.”

Cons of paying rent with a credit card

While paying with a credit card has its advantages, there are a few drawbacks to consider as well:

Fees

In the event you are responsible for the credit card processing fee, you’re looking at an increase in your monthly obligation. If the value of your credit card rewards doesn’t surpass the fees, you will lose – not gain – money.

To know if it makes financial sense, look at your card’s rewards program and compare its earnings rates to the transaction fees you’ll be charged. If the fee is 2.5% of the transaction, and you’re earning 1.5% in cash back, you’re losing 1% every month. So, for example, you’ll be out $15 for a $1,500 rent payment.

“It may not sound like much, but over time, it adds up,” says Ande Frazier, former editor-in-chief of MyWorth, a financial education media company. “And if money is tight, [it will impact] what you should be spending on, [like] something essential.”

Credit card debt

As convenient as it is to rely on a substantial credit line when you need it, it’s also easy to over-borrow. Elevated interest rates and low payments will put you into a deep hole.

“It’s a vicious cycle,” says Frazier.“That debt will grow and grow, and the compounding interest will be huge. If you can’t afford your rent, you’re living in the wrong place.”

Credit damage

Credit scores consider the amount of debt you owe and weigh it against the amount you can borrow. If you hit your limit and the balance stays anywhere near it, your scores will sink. Skip payment cycles, and those scores plummet further.

This puts you in a terrible position if you have to move. Almost all landlords check credit reports to see if you’re a low-risk tenant. So, if they see excessive debt and a pattern of missed payments, they may pass you over for tenancy.

See related: How to rent an apartment with bad credit

Final thoughts

In extreme situations, charging your rent and then paying incrementally can keep you in positive position with your landlord. To avoid credit card debt spiraling out of control, pay as much as you possibly can to the balance each month. Then when life returns to normal and you want to continue to charge your rent, make sure you always have the money in your checking account to cover the payment when the bill is due.

Source: creditcards.com