5 Reasons Why You’re Broke: A Look at How Americans Spend

Posted on September 13, 2013 by Chief Marketing Officer Jessica

While the latest news proclaims that the economy is rebounding, the truth is that how Americans spend money is dismal. Spending is up, which is good for the economy — but can spell bad news for consumers on the individual level.

“Consumers who find themselves mired in debt are serving the larger economy at great personal sacrifice,” says Stuart Vyse, professor of psychology at Connecticut College and author of Going Broke: Why Americans Can’t Hold on to Their Money. ”The economy runs on consumption, and as a result, personal savings is never mentioned because it is considered counterproductive and a drag on the economy.”

According to the Employee Benefit Research Institute’s (EBRI) annual Retirement Confidence Survey, Americans are living longer — and they do not have anywhere near enough saved for retirement. In fact, the report found that the majority of Americans (57 percent) have less than $25,000 in total household savings or investments.

Where and How People Spend Money — Instead of Saving

Certainly the recent tough times have reduced disposable income and the ability to save, are there other aspects influencing how Americans spend money? Why can’t Americans seem to keep their money in their bank accounts?

1. Lack of education about budgeting, investing and saving for retirement.

“One of the main reasons that people don’t save money in the short or long-term is that they’re simply unfamiliar with concepts such as setting a monthly or annual personal budget and saving for retirement,” notes Andrew Schrage, co-owner of MoneyCrashers Personal Finance. Budgeting is important – and something everyone should be educated on and practice on a monthly basis.

First Financial provides a number of FREE educational seminars throughout the year on topics which include budgeting, retirement, and credit management. Visit our event calendar on our website to keep up-to-date on all of our seminars and to sign up online! If you would like to set up a no-cost consultation with the Investment & Retirement Center located at First Financial Federal Credit Union to discuss your brokerage, investments, and/or savings goals, contact us at 732.312.1500 or stop in to make an appointment at any branch!*

2. No emergency savings.

Too many people have experienced being out of work for long and short periods of time, have had a car breakdown, or a health crisis that an emergency fund could help cover.

“Despite how high a salary may be, one is likely to be broke due to the lack of preparation for emergencies. Emergency savings is the key to financial success and without it, you’re just making it more difficult to be financially stable,” says Xavier Epps, owner of XNE Financial Advising, LLC. According to the Bureau of Economic Analysis, Americans only saved 2.5% of their income on average for the month of April, Epps points out. “Consumers should aim to save much more in order to cover unexpected expenses and possibly job loss.”

3. High inflation.

Some personal finance experts point to inflation as a big factor in suppressing people’s ability to consistently add to their bank account. “Our government deficit spending has skyrocketed, and the main cost of that spending is weaker buying power for the dollar,” comments Brian Luftman, founder and president  of American Farm Investors.

“Our government says inflation is at 3%, but Americans are paying significantly more for food, heating and cooling bills, gasoline and healthcare,” says Luftman. “All of those costs have virtually doubled since 2008, and very few Americans are making any more money than they were in 2008. I think real inflation is 10 to 15% a year, and I don’t see that changing.”

4. Overspending made easy.

Rachel Parrent, Vantage Credit Union’s Community Engagement Manager, says, “With social media like Facebook and Twitter and we can see what everyone in our own social circle is doing, what they are purchasing, and where they are eating, traveling and shopping. Many times it makes us believe that if they can afford it, so can we. People fall into bad habits like eating out regularly or thinking that spending a little here, a little there won’t amount to a lot by the end of the month. Credit cards and electronic purchasing make it much easier to spend than having cash in your pocket.”

These social pressures and the ease of spending combine to create an environment that “places enormous burdens on self-control” and how people spend money, says Vyse. “All of the barriers to consumption have been removed: you can shop 24-hours a day, with or without cash on hand. The urge to purchase something can be satisfied in minutes without ever leaving home.”

5. Taking on big, long-term loans.

“Perhaps the worst mistake people make is to assume large, long-term debt burdens that are difficult to escape without the certainty of enough sustained income to support them,” Vyse says. “In today’s world, the most common examples are student loans and mortgage loans.” Should circumstances change and the borrower is unable to make monthly payments towards these debts, there is no quick-fix solution. “If you have calculated incorrectly or if your income drops, these kinds of debts can have a dramatic effect on your life and well-being.”

Considering that the average American college student graduating in 2011 had accrued $27,000 in student loan debt, rising college costs definitely play a role in the ability to save. “By having to make significant monthly payments for student loans shortly after graduating, it can be virtually impossible to start an emergency fund or begin saving for retirement,” says Schrage. “It can even make staying on top of monthly bills a challenge, which often leads to credit card debt.”

Brian Frederick, JD, CFP of  Stillwater Financial Partners adds that student debt doesn’t just affect younger generations, but parents as well. “I’m seeing more and more people sacrifice  their own retirement savings needs and run up large credit card balances to  fund their children’s college. This can result in credit card debt of  $20,000 and up at high rates — without a lot of excess cash flow  to pay down the debt, they just keep paying the interest and not a whole  lot toward principal.”

Here are Some Tips to Jump-Start Your Bank Account:

The first step to gaining financial independence is putting away $1,000 for emergencies. Other financial experts recommend an even bigger emergency fund of three to six months of expenses, to act as a buffer.
Financial experts recommend going all out to eliminate everything but the basics to build up that emergency fund. That means cutting the cable off, cooking at home, trading the high-lease cars for low-cost transportation, hosting yard sales or finding another job to supplement your income. It’s drastic, but a necessary way to get through some tough times.
“Look for ways to cut or eliminate your monthly expenses and bills,” says Schrage. “Limit personal purchases only to those that you actually need, and clip coupons to save on groceries. All of these ideas should make for the ability to save at least a modest amount each month.”
In addition to limiting spending, Vyse advises cultivating a habit of saving. “The key is to make saving easy.” He recommends having a certain percentage of deposits automatically diverted to a savings account. “This way, money is saved no matter what else happens, and it does not require a deliberate action on your part.”

Click here to view the article source, from GoBankingRates.com.

*Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. First Financial Federal Credit Union (FFFCU) and First Financial Investment & Retirement Center are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using First Financial Investment & Retirement Center, and may also be employees of FFFCU. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of FFFCU or First Financial Investment & Retirement Center.

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4 Tips to Help 20-Somethings Manage Their Debt

Posted on September 10, 2013 by Chief Marketing Officer Jessica

Debt can be a heavy burden on anyone, no matter what their age, but increasingly, young adults are starting out deeper in the hole. A recent report from credit-score provider FICO shows that student loan debt has climbed dramatically for those ages 18 to 29, with average debt rising by almost $5,000 over the course of five years.

The good news, though, is that young adults are taking steps to get their overall debt under control, reducing their balances on credit cards and their debt levels for mortgages, auto loans, and other types of debt. With 16% of 18 to 29-year-olds having no credit cards, young adults are getting the message that managing debt early on is essential to overall financial health.

With the goal of managing debt levels firmly in mind, let’s take a look at four things you should do to manage your debt prudently and successfully.

1. Get a Handle On What You Owe.

In managing debt, the first challenge is figuring out all of what you owe. By pulling a free copy of your credit report you’ll get a list of loans and credit card accounts that major credit bureaus think you have outstanding, along with contact information to track down any unexpected creditors that might appear on the list.

Once you know what you owe, you also have to know the terms of each loan. By making a list of amounts due, monthly or minimum payment obligations, rates, and other fees, you can prioritize your debt and get the most onerous loans paid down first. Usually, that’ll involve getting your credit card debt zeroed out, along with any high rate debt like private student loans before turning to lower rate debt like mortgages and government subsidized student loans. With your list in hand, you’ll know where to concentrate any extra cash that you can put toward paying down debt ahead of schedule.

2. Look for Ways to Establish a Strong Credit History.

Having too much debt is always a mistake, but going too far in the other direction can also hurt you financially. If you don’t use debt at all, then you run the risk of never building up a credit history, and that can make it much more difficult for you to get loans when you finally do want to borrow money. The better course is to use credit sparingly and wisely, perhaps with a credit card that you pay off every month and use only often enough to establish a payment record and solid credit score.

First Financial hosts free budgeting, credit management, and debt reduction seminars throughout the year, so be sure to check our online event calendar or subscribe to receive upcoming seminar alerts on your mobile phone by signing up here.*

3. Build Up Some Emergency Savings.

Diverting money away from paying down long term loans in order to create a rainy day emergency fund might sound counterintuitive in trying to manage your overall debt. But especially if your outstanding debt is of the relatively good variety — such as a low rate mortgage or government subsidized student loan debt — having an emergency fund is very useful in avoiding the need to put a surprise expense on a credit card. Once you have your credit cards paid down, keeping them paid off every month is the best way to handle debt, and an emergency fund will make it a lot easier to handle even substantial unanticipated costs without backsliding on your progress on the credit card front.

4. Get On a Budget.

Regardless of whether you have debt or how much you have, establishing a smart budget is the best way to keep your finances under control. By balancing your income against your expenses, you’ll know whether you have the flexibility to handle changes in spending patterns or whether you need to keep a firm grip on your spending. Moreover, budgeting will often reveal wasteful spending that will show you the best places to cut back on expenses, freeing up more money to put toward paying down debt and minimizing interest charges along the way.

Click here to view the article source, from The Daily Finance.

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5 Steps to Boost Your Savings Account

Posted on September 3, 2013 by Chief Marketing Officer Jessica

Do you cringe every time you check the balance of your savings account? If the answer is yes, you’re not alone. According to Bankrate’s Financial Security Index, 27% of Americans have no emergency savings fund, and just 24% of Americans have a savings cushion to cover at least six months of expenses.

Here are five easy steps toward a savings awakening:

1. Assess where your money is going.

Whether you’re looking to build up an emergency savings fund or contribute more to your retirement plan, saving more money starts with self-awareness.

That assessment can be a rude wake-up call to start setting a monthly budget, a move that is difficult at first with the need to get spending under control.

The era of mobile apps and online banking alerts can help you overcome those initial fears. 24/7 online and mobile access and a range of different mobile applications make tracking your spending easy.

2. Eliminate unnecessary spending.

Once you have a budget in place, it’s time to look for opportunities to reduce your overhead costs.

Cutting that spending can rely on small steps, too. The Bankrate lunch savings calculator shows that even something as simple as taking your afternoon meal to work each day rather than eating out, can add up to big savings over time. Consider recurring charges such as your cable or phone bill to determine if there are alternative plans that can trim your expected monthly expenses.

Another way to shrink spending is to alter the way you pay for purchases on your shopping trips. Research conducted by Promothesh Chatterjee, assistant professor of marketing at the University of Kansas School of Business, and Randall Rose, professor of marketing at the University of South Carolina’s Moore School of Business, found that consumers spend less when they use cash rather than credit cards.

3. Set your saving goals.

You can’t get somewhere if you don’t know where you’re going. Your savings goal does not have to be huge.

Come up with a realistic amount that you can easily adjust into your budgeting pattern, and then increase that amount over time – as much as you can.

4. Jump start your savings with extra cash.

As soon as your paycheck arrives, it’s time to save. You can also pay yourself first when unexpected cash flows into your savings account. Also look for opportunities to jump-start a savings plan with tax refunds or year-end bonuses.

5. Give yourself regular check-ups.

Having a healthy savings account is just like maintaining your physical health. Many Americans are failing to keep this scorecard. According to a 2012 survey conducted by the American Institute of CPAs, just 17% of young adults monitor their bank accounts on a daily basis, and 4 out of 10 adults never check their retirement account balances.

Here at First Financial, we encourage our members to come in at least once a year for a financial check-up and sit down with a representative at any one of our branches to make sure you are currently placed in the correct Rewards First tier for you, and also that you are receiving the best value, products, and services based on your financial situation. Give us a call or stop in to see us today!

First Financial also offers free budgeting seminars throughout the year. Keep an eye out for future seminars and register online by visiting our event calendar. You can subscribe to receive upcoming seminar alerts on your mobile phone by signing up here.

7 “Not So Smart” Credit Tips

Posted on June 8, 2013 by Chief Marketing Officer Jessica

There’s a lot of advice floating around out there about how to manage your credit cards and other debts to maximize your credit score. The trouble is, not all this wisdom is created equal, and some tips intended to help your credit can actually have the opposite effect. Here are seven “not so smart” tips that you should steer away from.

1. Asking for a lower credit limit.

If you can’t control your spending, asking for a lower credit limit may indeed keep you out of trouble by simply capping how much you can borrow. But there’s also a risk to this approach. As MyFICO.com explains, 30% of your credit score is based on how much you owe. The formula looks at how much you owe as a percentage of how much available credit you have, otherwise known as your credit utilization ratio. So if you’re unable to pay off your debt, lowering your credit limit will increase your ratio — and damage your score. The impulse to impose external limits on your spending is understandable, and in some cases wise, but you’re better off focusing your energy on restraint.

2. Paying off an installment account early.

Paying off debt early might seem like a good way to improve your credit, but paying off an installment loan (like a car loan), too early can actually ding your score because it raises your utilization ratio. For instance, if you have a $10,000 car loan with a $5,000 balance that you pay off in one fell swoop, your debt load will drop by $5,000, but your available credit will drop by $10,000 once the account is closed.

This isn’t to say you shouldn’t pay off a debt early if you find yourself with a windfall on your hands. An earlier payoff can save you a bundle, but if you’re trying to raise your credit score – paying off a credit card sooner rather than an installment loan is the way to go.

3. Opening a bunch of cards at once.

Since your utilization ratio is so important, a lot of people think that getting as much available credit as possible — immediately — will do the trick. But it doesn’t work like this, unfortunately. “You can’t magically improve your utilization ratio by applying for a slew of cards in rapid succession because numerous inquiries and multiple brand new cards both can lower your score,” says Barry Paperno, credit expert at Credit.com. If you want more credit to improve your score, space out the process and be realistic about your situation; don’t take the hit to your score by applying for a card you know you probably won’t qualify for. (Financial institutions that aggregate credit card offers generally spell out what kind of credit score you need to obtain a particular card).

4. Settling a debt for less than you owe.

Negotiating with a lender and then settling the debt for less than you owe can be a smart move. But it can also hurt your credit if you do it the wrong way. You must get the lender or collections company to agree in writing to report the debt as “paid in full;” otherwise, it will be noted “settled for less than the balance.”

5. Using prepaid debit cards to rebuild your credit.

John Ulzheimer, president of consumer education at SmartCredit.com, says a lot of borrowers have the misconception that prepaid debit cards and credit cards are equally good credit building tools. They’re not. Prepaid cards “don’t do anything to help build or rebuild your credit and are not a viable long-term plastic solution,” he says. Although some prepaid card issuers say they help build credit, none currently report to the three major credit bureaus.

6. Never using your credit cards.

Some people approach credit like a poker game, with the mentality that you can’t lose money if you don’t play your cards. Although it’s always advisable to pay off your bill in full every month, not using credit cards at all can actually backfire when it comes to your credit score. If an issuer looks at your account and sees that there hasn’t been any activity for a while (how long varies, but more than a year is a good rule of thumb), they might close it. Losing that credit line hurts your utilization ratio, which can hurt your credit score. Try to charge a small amount regularly — maybe a recurring bill like a gym membership or airline tickets for your annual summer vacation — and paying it off every month.

7. Checking your credit daily.

Checking your credit score every day won’t hurt your score (when you request your score, it’s called a “soft pull,” which is different from the “hard pull” lenders conduct that does affect your score). But trying to parse why you gained or lost two points here or there will just give you heartburn and won’t give you any greater insight into how your score is calculated. Lenders generally report to credit bureaus every 30 days, so checking your score every day takes the focus off what really matters: how your longer-term financial habits affect your credit file.

Article Source: http://business.time.com/2013/05/06/7-smart-credit-tips-that-arent/#ixzz2SzgoxXjx

6 Smart Moves to Boost Your Credit Score

Posted on May 23, 2013 by Chief Marketing Officer Jessica

If you think your credit score doesn’t matter too much to you because you’re not planning on getting a mortgage or applying for a credit card anytime soon, think again. Credit scores affect more aspects of our lives than you may realize and that’s why it’s important to keep your score as high as possible.

Paying your bills on time and staying well below your credit limits are the best ways to build and maintain good credit. Together they account for more than half of your overall credit score.

A healthy payment history is the biggest contributor to your credit score, accounting for 35 percent of the total. Miss even a single deadline, and you could see your credit score drop as much as 100 points or more. To avoid those dreaded “overdue” notices and the credit blemishes they bring, set up automatic payments for any regular bills so that your lenders get the check on time, every single time.

Another 30 percent of your credit score is based on the amount of debt you carry, as measured against the amount of available credit you have — otherwise known as your credit utilization ratio. It’s a good idea to keep your outstanding balances to less than 25 percent of the money available to you to spend. If you are not able to pay down your balances ASAP, you can go at the problem from a different angle by calling your lenders and asking them to raise your credit limit.

1. Fix clerical errors.

Check your credit reports and correct errors. Of course, you want to make sure that everything is being accurately reported, from your current address to your closed accounts. (For more guidance on how to dispute an error on your credit report, look to this guide from the Federal Trade Commission). But you also want to check the details about what is being reported about your current accounts. For example, it can make a big difference to your score if your credit limit for a card is understated. Imagine that you owe $5,000 and your limit is $15,000. That means you owe 33 percent of your limit. If your credit limit is incorrectly listed as $8,000, though, it will look like you’ve borrowed 63 percent of your limit.

2. Get credit where it’s due.

When you fix errors or take actions that should boost your score, make sure that all three of the main credit-reporting agencies (Equifax, Experian, and TransUnion) know about it. By law, you can get a free copy of your credit report from each of them once a year — do so, in order to spot errors and find other score-boosting opportunities.

3. Ask nicely for a favor.

One thing few people think of is simply asking for what you want. In order to help you pay down your debt more quickly, you might ask your lender to lower your interest rate. If the lender refuses, see if you can find a lower-rate card and transfer your balance.

If you’ve got one or two glaring late payments on your credit record, you might ask your lender if they could be erased, in what’s called a “goodwill deletion.” And if you’re dealing with a collections agency over some debt, see whether they’ll delete it from your record if you pay it off. That can be well worth it.

4. Don’t delete your history.

If you’re planning on closing some of your accounts, think twice. It’s often a sensible thing to do to simplify your financial life, but closing an account can actually ding your credit score. One reason is that it actually reduces your available credit. Oddly enough, a host of seemingly sensible moves can hurt you — such as using just one card for most of your charges. Even if you prefer using a newer card, keep older accounts open and use them occasionally to keep them active. Over time, that will give you a longer history and help improve that part of the credit score calculation.

5. Don’t rush to build your record.

Opening multiple accounts in a short period of time may boost your available credit, but it sends the wrong message to potential creditors, as it makes you look desperate to get credit from any available source.

6. Prevent bad marks from being added to your report.

Here’s a valuable tip for anyone selling a home for less than they owe on it: What you’re looking at is called a short sale, and if you end up owing many thousands of dollars to your mortgage lender, you might want to get it in writing before the sale closes that the debt won’t go on your record. Ending up with a big balance owed can be a black mark on your record, reportedly as costly as a foreclosure.If a high credit score is important to you — and for most of us it should be — always consider how your financial actions will affect your score. For more information on credit scores, be sure to look at this guide from myFICO.com, which is the consumer division of the company that is responsible for the popular FICO credit score.

Article Source: http://www.dailyfinance.com/2013/04/08/how-to-boost-your-credit-score/#slide=5793242

What Kind of Home Buyer Are You?

Posted on May 3, 2013 by Chief Marketing Officer Jessica

You picked your neighborhood, know your price range and are ready to start shopping for a new home. But before you start your hunt, it’s important to identify what kind of buyer you are to avoid wasting time.

For many home buyers, school district, neighborhood and affordability dominate the decision-making process, but knowing your “buyer personality” will help define and focus your search.

For instance, if you want a move-in-ready home but never convey that to your realtor, you can waste time looking at fixer uppers. Or if you care about the environment, you may want to see only green homes, which could require a more specialized agent.

Personality #1: The Move-in-Ready Buyer

These are the home buyers who want to purchase a house that only requires them to move in their furniture and start decorating.

These buyers are not afraid to look at many properties to find the perfect home that won’t force them to roll up their sleeves for improvements or repairs.

Personality #2: The Minimalist Buyer

Minimalist buyers aren’t afraid to make changes to a home as long as they are minor. This type of buyer is drawn to homes that are structurally sound, but may need some new paint, updated curb appeal or other minor cosmetic changes.

Personality #3: The Fixer Upper Buyer

This group of buyers can see the potential of almost any home and aren’t afraid to buy a home needing renovations.

Sometimes these buyers are first-time buyers looking for a home to put their stamp on something and other times it’s a savvy buyer looking to make money off a property with a repairs and renovations. Either way, a fixer-upper buyer won’t think twice about remodeling the basement, bathroom or even the entire house.

Personality #4: The Life Timer Buyer

The recession has changed the way people view the home buying process, and many first-time home buyers aren’t looking for the starter home – they are seeking out a home they can stay in for 10, 20 or even 30 years.

These buyers tend to have young children, planning a family or have multiple generations living under one roof. They plan to buy a home and stay in it for the long haul.

Life-time buyers may not be at a certain life cycle when they purchase the home but have the ability to plan for the future and purchase accordingly.

Personality #5: The Eco-Warrior Buyer

For this type of buyer, going green isn’t a fad–it’s a lifestyle. The eco-warrior buyer is always looking for ways to conserve natural resources and wants to buy a home that is energy efficient and uses minimal water and electricity.

An eco-warrior also wants a home that is close to work, entertainment and groceries to reduce his/her carbon footprint. Since eco-warriors have very specific requirements whether its geo thermal heating or solar panels, they should go with a real estate agent that specializes in that area.

Figured out what type of buyer you are and ready to take the next step? Apply for a First Financial Mortgage today!*

You can also subscribe to our Mortgage rate text message service by texting “firstrate” to 866-956-9302, and receive instant notification when our mortgage rates change.**

*A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Subject to credit approval. See Credit Union for details.

**Standard text messaging and data rates may apply.

Article Source: http://www.foxbusiness.com