be balanced in all things, especially money

[POP QUIZ] 14 ways to tell if you’re financially healthy

Financial health means different things to different people, but there are some universal truths. So how do you tell if your finances fit the bill? Read the comments below and see how many you identify with. While each statement doesn’t mean much individually, your finances are probably in good shape if you agree with a majority.

 1. You live within your means
You don’t overdraw your account or bounce a check, even if you have overdraft protection. You’ve got enough of a cushion that you aren’t spending down to the last penny every month. You’re able to save a bit without depriving yourself.

2. Financial stress isn’t keeping you up at night
You have enough in the bank that you’re not plagued by money worries. You know you’ve got enough to cover the bills, and you’re not ducking creditors. You don’t put off important financial conversations and you’re not just avoiding thinking about the things you can’t handle.

3. You use credit cards out of convenience, not necessity.
Using a credit card out of convenience or rewards and paying it off every month without paying interest is totally fine. Using a credit card because it’s the only way you can afford to make purchases is problematic and a good sign that you need to revisit your budget or change your spending habits.

4. You’re not worried about losing your job
Not only is your position stable, your finances wouldn’t be completely derailed by losing your job or getting laid off. Yes, you probably need to adjust your budget and change some spending habits, but you could get by for at least a month (ideally 3) while you look for replacement income.

5. You make payments on time
You’re not wasting money on late fees and penalty APRs.  You plan around your due dates and pay on time, or even in advance.

6. You aren’t living paycheck to paycheck
Part of every paycheck goes towards your savings or emergency fund. You aren’t spending down to the last penny every pay period, and you can handle an unplanned for gap in income (see #4).

7. You save automatically
Some people say to save what you don’t spend, but you know better. You’re only spending what you don’t save.  You pay yourself first. All of your money isn’t in your checking account, and you either set up transfers or have some of your money automatically deposited into savings accounts.

8. You’re not spending money on stupid stuff or to make yourself feel better
You know that retail therapy isn’t actually solving any of your problems and you’re not fooled by all the schemes retailers use to get you to spend money, like trick lighting and hypnotic music. You aren’t throwing money away on things you don’t need, clothes you won’t wear or already own in two different colors, or services you don’t use (here’s looking at you, 3000+ channel cable subscription).

 9. You don’t panic in the face of a financial emergency
If your furnace broke or your kids hit a baseball through the kitchen window, fixing it wouldn’t put you in dire straits. That’s what your emergency fund is for.

10. You don’t feel guilty spending on special occasions
Anniversary gift? Birthday party? Night on the town? No problem, within reason. Your budget is flexible and you don’t have to rob Peter to pay Paul (or, skip the electric bill so you can order a pizza). If the thought of spending a little extra money one month to pay for a gift or dinner out makes you break a sweat, you might want to analyze your spending habits.

11. You’re not worried about other peoples’ opinion of your finances
Keeping up with the Joneses is not your game. You’re comfortable with where you are financially, and don’t feel the need to make big purchases in order to impress others.

12. Your debt-to-income ratio is below 30%
The lower your debt-to-income ratio the better, but most experts recommend keeping it at or below 30%. If yours is creeping up higher than you’d like, you either need to pay down your debts or find an additional source of income.

13. You buy assets that appreciate, instead of depreciate

Wealthy people don’t blow large amounts of money on things that quickly lose value, and neither should you. New cars and other fancy toys shouldn’t be a priority. Instead, invest your money wisely or put it towards wealth-building purchases.

14. A large purchase doesn’t deplete your savings
Your budget is fairly consistent month-to-month, but an unexpected or abnormally large purchase doesn’t throw your whole system out of whack. You’ve build a buffer that allows you to splurge occasionally, for fun or emergencies.

Results:
10 – 15
You’re the picture of financial health. You’ve figured out how to make your finances work for you, and you’re prepared to handle a financial emergency.

5 – 9 You’re on the right track to financial health. You’re living within your means, paying attention to your spending habits and using credit responsibly.

0 – 4 You’re missing that financially healthy glow. Your budget deserves a second look. You might benefit from establishing a flexible budget that accounts for saving for emergencies and spending on fun stuff.

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5 ways to make reaching your financial goals easier

Maybe you hope to someday own a house, or pay for your kids’ college education or maybe even just pay off your own student loans before your kids go to college. . .

We all have goals for our financial future, but reaching them can be really hard — especially when it comes to leaving that extra $500 or $1000 sitting in your savings account.  Turning down a new pair of shoes when you’ve had a bad day, or waiting to borrow a video game from a friend instead of buying every new release for the sake of some far off financial dream can be a daily struggle.

So how do you do it? Here’s what we suggest:

1. Get prepared.
Before you do anything else, you need to start an emergency fund.

No matter how diligently you plan, you’re bound to encounter some unexpected expenses. Whether it’s a one-time charge like a broken furnace or a major ongoing expense like unemployment or a serious illness, having some backup funds will keep you from racking up more debt or using funds planned for something more fun.

2. Set a budget.
If you’re flying by the seat of your pants every month when it comes to your finances, you’re not doing yourself any favors.

Admittedly, budgets are not fun. They can be time consuming and tedious.
But stick with us here: they don’t have to be.

We’re big fans of the 50/20/30 method. It’s a pretty simple way to categorize and prioritize your spending, plus it’s flexible. So you can easily adjust it for months when there’s unusual spending (like back-to-school time, or that summer all your friends are getting married).

3. Spend less.
This is obvious. The only way you can save money is if you spend less than you earn. Whatever your financial goals, you’ll never meet them if you’re spending every last penny.  This is where that budget we just talked about comes in. You have to track to your spending and earning to know where you’re making mistakes and learn what changes you can make in the future.

4, Get insurance.
Don’t go into debt because you aren’t prepared to cover unexpected expenses. Whether it’s auto and gap insurance in case you get into an accident, disability insurance in case you lose the ability to work or life insurance to protect your family if something terrible happens to you, insurance keeps you from taking a loss when the unexpected happens.

5. Use technology.
Technology is your friend. As an IHMVCU member, you get access to some pretty awesome features to help keep your finances in check. From financial calculators to help plan for the future to FinanceWorks, a free budgeting software available in Online Branch, we make it easy to reach your goals.

FinanceWorks automatically tracks and categorizes your spending and helps identify trends each month, allows you to set goals and will even notify you when you’re approaching the spending limits you set up.  If you’re not already enrolled in Online Branch, get started today.

Reaching your goals is a lot easier when you’re prepared. Don’t get discouraged if it doesn’t start working right away—mastering personal finance management takes time, but we promise it’s worth the effort.

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How to create a back-to-school budget that works for you

Back-to-school time is the perfect opportunity to start talking about everyone’s favorite subject: budgets.

Depending on how organized your finances are, this time of year might come with a lot of unplanned expenses—and we all know how those notebooks, binders, markers and glue can add up. If you’re someone who is always caught off guard by these once-a-year type expenses (see also: birthdays, baby showers, graduations etc.), you might be in need of a flexible budget overhaul.

When it comes to building a budget that can handle almost anything life throws at it, there’s one formula most experts recommend: the 50/20/30 method.

Here’s how it works:
50% of your budget should go towards essentials. This includes housing, groceries, utilities, insurance and so on. There aren’t many gray areas in this part of the budget. If you have to ask yourself if something is essential, it probably isn’t.

20% is reserved for priorities like paying down debts, college savings, retirement accounts and your emergency fund.

30% is for optional expenses like vacations, hobbies and going out to eat, as well as one-off expenses like (you guessed it!) school supplies, birthday presents etc.

So what makes this plan so flexible? If you’re feeling like the budget is a little tight, you already know which portion gets cut back to pay for that “surprise” expense. Eliminate some of the optional expenses, by say eating at home a few more nights this month and skipping those morning lattes, and suddenly there’s room for the kids’ new gym shoes without the stress of paying the power bill late.

If moving things around in the “optional” category still has you feeling strapped, you know to plan differently for next year. Maybe set up a school supplies savings account in the priorities category, and start contributing a little bit each month.

Keep in mind that these guidelines are helpful, but they’re not hard and fast rules. Make adjustments based on your family’s needs. Whatever changes you make, just make sure it all adds up to 100%.

Try IHMVCU’s budgeting and saving calculators to find out what would happen if you changed your money habits. IHMVCU members also get free access to FinanceWorks, a budgeting tool within Online Branch. FinanceWorks tracks your income and expenses, allows you to set realistic spending goals, and even alerts you when you meet or exceed your spending limits.

Now that you have a place to start, calculate your current spending and see how it compares to the recommended percentages. No matter what adjustments you need to make, keep in mind that every month will be different. The most important thing is to be diligent.

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Crash Course in Credit, Lesson 4: Fixing Damaged Credit

There’s no quick fix for damaged credit. In Lesson 2 of our Crash Course in Credit you learned that nothing falls off your credit report quickly—good or bad, most things stay for at least seven years. But there are things you can do in the meantime to fix your broken score.

Step 1: Check your credit report.
Contrary to popular belief, it’s not bad to check your own credit report. It’s something you should do at least once a year. You’ll never know what’s hurting your score if you don’t look. You can get a free copy of your report from all three credit bureaus once a year at annualcreditreport.com.

Got your report? Good. Now look for any mistakes, like falsely reported late payments or accounts that aren’t even yours. If anything is amiss, you can dispute errors with the creditor and have it removed.

Step 2: Set payment reminders.
A good payment history is a huge part of your credit score. If late or missed payments are your problem, automatic payments might be your solution. As long as you actually have the money in your account, it’s a fool proof way to guarantee your bills are paid on time. You can set up automatic payments through Bill Pay or, depending on what services are available, directly through your lender.

If you’re not comfortable having your bills paid automatically, or you aren’t certain the funds will be available when the due date rolls around, try setting up payment alerts on your phone’s calendar. You can set them up however you like, but a good idea might be setting an alert the pay period before a bill is due. That way you’ll know to budget around the upcoming payment.

Step 3: Call your creditors.
If you’re really struggling to make your payments, burying your head in the sand will only make things worse. All creditors and lenders have at least one thing in common: they want you to pay them back. Many will work with you to set up a modified payment schedule that works for both of you, even if it’s just for a couple months. Yes, you could end up paying more in interest in the long run but you’ll at least have a chance to get back on your feet. So how do you know if your lender will be willing to work with you? You have to call and ask.

Looking for more credit advice? Check out the rest of our Crash Course in Credit:
Lesson 1: The Basics
Lesson 2: Common Credit Myths Busted
Lesson 3: Good and Bad Debt

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Crash Course in Credit, Lesson 3: Good and Bad Debt

Originally published Feb. 25, 2015

Most of us can’t afford to live entirely debt free, but not all debt is the same. While some types of debt can actually be beneficial, others can be dangerous. Before you borrow money, it’s good to know the difference between “good” debt and “bad” debt.

In general, “good” debt will: create value over time, is often tax deductible and is used for a purchase that appreciates in value, or produces more wealth. Any debt that you accrue for things that have no potential to increase in value can be considered “bad” debt.

Mortgages
You probably can’t afford to purchase a home in cash, but that doesn’t mean you can’t own a home. If you plan carefully and only borrow what you can afford to pay back, getting a mortgage to purchase a home can be a great example of “good” debt. Your purchase will likely appreciate, especially if you make any renovations or improvements to the property. Plus, any interest paid may be tax deductible (but you should talk to your tax advisor for details).

Student Loans
People with college degrees or education in a skilled trade tend to make more money in a lifetime than those who stop after high school. A college degree or skilled-trade program is likely to pay for itself within the first few years after you enter the work force. But just like all other debt, it’s important that you don’t borrow more than you really need or student loans can quickly become “bad” debt. Experts recommend borrowing no more than what you expect to make in the first year of employment after graduation.

Business Loans
This is one case where the saying “it takes money to make money” can be true. You need a little capital to start a new business or expand an already successful one. Keep in mind that business loans are only “good” debt if you borrow reasonably and have a clear plan to generate more business or income in the future.

Credit Cards
Credit cards are often used to purchase wants rather than needs, and the ease of use can have debt piling up faster than you realize. How do you know if you’re building up bad debt? One sign is using credit cards for things that won’t appreciate in value, like clothes, food or vacations, without paying off the balance every month. You’re charged interest every month you carry a balance, which means the stuff you bought continues to lose value while the price you paid for it increases.

Car loans
You need a car to get to work and run all of life’s other errands, but you don’t have to go broke getting one. Most new cars depreciate quickly, sometimes as much as 20% in the first year. We’re not saying you should never buy a brand new car but, if you’re not careful, you could end up upside down on your loan—meaning you owe more than your car is actually worth. Whatever you decide to buy, look for a loan with little-to-no interest and pay it off as quickly as you can.

If you’re struggling with too much debt, our friends at GreenPath can help.

You might also be interested in Lesson One and Lesson Two from our Crash Course in Credit.

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Crash Course in Credit, Lesson 2: Common Credit Myths Busted

Does it ever seem like everyone you know has advice or “facts” to share with you about credit? While a lot of it might be helpful, chances are pretty good that at least some of it is false. For part two of our Crash Course in Credit, we rounded up some of the most common credit misconceptions we hear to set the record straight.

You have to have credit to get credit.
While it doesn’t make much sense in the real world to say you can’t get credit if you don’t already have it, it can be significantly harder to get if you have a short (or non-existent) credit history.  Most lenders require borrowers with little or no credit to have a cosigner for any loans, like auto loans or private student loans.  If you don’t want to or can’t find a cosigner, a good way to start building your own credit is a secured credit card, which allows you to make a cash deposit as collateral—a protection for the card company if you fail to make payments.

Checking your credit report damages your credit score.
Checking your credit report does not hurt your score. It’s actually recommended that you check your credit report at least once a year to ensure it doesn’t contain any errors. When you look at your own credit report, it’s called a “soft inquiry.” Soft inquiries can occur without your permission, and are only visible to you. If you’ve ever received a credit card preapproval in the mail, that creditor performed a soft inquiry on your credit.  Hard inquiries, on the other hand, can only happen with your permission. Only hard inquiries affect your credit score because they’re the result of a request to extend credit, like a loan or credit card.

Carrying a balance on a credit card helps your credit score.
As long as you’re making payments on time, carrying a balance doesn’t hurt your credit score, but it doesn’t help it either. The only thing you get from carrying a balance is more interest charged. If you use a credit card, your best bet is to pay the balance on time and in full every month. The on-time payment is a positive mark on your report, and paying in full prevents you from paying any interest. It’s as simple as that.

Delinquent credit accounts fall of your report once they’re paid in full.
While it would be nice if anything potentially damaging to your score would disappear once you fixed it, that’s not the case. Credit relationships generally remain on your report for seven years. So just because you’re paid up with a lender you’d fallen behind with, it doesn’t mean other lenders won’t be able to see that you were once delinquent. The good news is that positive relationships hang around for up to ten years.

Bankruptcy is a good solution if you have too much debt.
While it might seem like a good way to get creditors to stop calling if you’re in over your head, it’s not always the best long term solution. If you file for bankruptcy, you may be relieved of paying all of your debts or just some of them. Debts owed on mortgages, student loans, taxes, alimony or child support are rarely dismissed.

Once you file, credit reporting agencies are required to list bankruptcy on your credit report for seven or 10 years, depending on whether you file chapter 7 or chapter 13. Having bankruptcy on your credit report doesn’t just make it harder to get credit in the future—it might also affect your insurance rates or your ability to get a job or apartment.

Rather than rushing to bankruptcy, you should start by working with a credit counselor, like our friends at GreenPath, who might be able to suggest better options to pay off your debt.

Struggling with your own credit conundrums? Leave us a comment, reach out to us on Facebook or talk to a Financial Services Officer. We’ll make sure you (and your credit score!) are moving in the right direction.

Want to learn more? Check out part one of our series A Crash Course in Credit: The Basics

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Crash Course in Credit: The Basics

You’ve heard people talk about good credit, bad credit, building credit, repairing credit, etc. But unless you have a real understanding of credit itself, you probably don’t know what any of that really means. Asking someone to explain credit can be tough—especially if you already have a student loan or credit card you feel you should know more about.

If you’ve been too afraid to ask about credit, here’s what you should know:

Credit is your ability to get a product or service based on the understanding that payment will be made later. Your credit history tells creditors and lenders how reliable you are to pay it back. The better your credit history, the better your chances are of getting credit.

There are four basic types of credit available:

  1. Revolving credit is credit that is automatically renewed as debts are paid off, like a credit card. They have a maximum credit limit, and you can make charges up to that limit.
  1. Installment credit is issued for a set amount, and you make monthly payments (or installments) of a fixed amount over a period of time until the balance is paid in full. Unlike revolving credit, installment credit doesn’t automatically renew after payments are made. Auto loans, mortgages and student loans are examples of installment credit.
  1. Service credit is any service you receive and pay for with monthly installments—like a cell phone plan, electricity or cable. Not all service accounts are reported on your credit history.
  1. Charge cards operate similarly to credit cards, but you’re usually required to pay the balance in full each month.

Your credit report is the detailed record of your credit history. These reports are compiled by credit bureaus (more on those later) and used by lenders to determine your creditworthiness. It includes personal information, like your address and social security number, in addition to the number and types of accounts you’ve held in good and bad standing. Any negative information will usually stay on your report for about seven years, while bankruptcy filings usually remain on your report for ten.

There are three major credit reporting bureaus in the United States: Equifax, Experian and TransUnion. All three companies collect information about consumers’ bill paying habits, personal details and accounts to build a unique report. The information in each report will probably be similar, but there are usually some small differences.

Your credit score is created with the data from your credit report. This number is one element lenders use to determine your creditworthiness. Fair Isaac Corp. (FICO) produces the most commonly used credit scoring algorithm in the U.S. Scores typically range from 300 to 850.

So what makes up good credit?
Every lender has different standards for what is considered “good” credit, but scores below 629 are generally considered bad, 690 or above is good and anything over 720 is excellent.

Knowing the basics about credit makes it easier to understand why it’s so important that you use credit wisely—late payments, maxed out cards and bankruptcy all tell potential lenders that you can’t necessarily be trusted to pay them back, making it harder to get credit in the future.

While this is a good place to start, there’s still a lot to know about the credit industry. Stay tuned for our upcoming blog on common credit misconceptions.

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[INFOGRAPHIC] Should you refinance your student loans?

Refinancing your student loans is a big decision–it could potentially save you thousands of dollars in interest over time, or make your payments more manageable by extending your repayment period.

But all student loans aren’t created equal. Refinancing federal student loans with a private lender could mean the loss of the borrower protections guaranteed by federal loans.

If you’re struggling to decide if refinancing is right for you, check out the infographic below, then learn more from NerdWallet.

Infographic: should you refinance your student loans?
Via: NerdWallet

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Graduation doesn't mean you'll live with debt forever

How to Quickly Pay Back Your Student Loans

If you’re like most recent college grads, you’re probably dreading the day your student loans go into repayment. We’ve all heard (or lived) the horror stories of grads with $1500/month minimum payments, living in their parents basement until they’re 45 because there’s no money left over.

While those scenarios do exist and are all too real for some people, you don’t have to live under that cloud of student debt forever. With some planning and diligence, you could pay off your debt faster than you think.

Understand your loans.
The terms of your loan could affect your payment schedule. If you have loans with a fixed rate, you’ll likely have a fixed payment. But, your payment could change drastically if you borrowed with an adjustable rate. Knowing if and how your payments will change in advance allows you to create a flexible budget and prepare yourself for rising minimum payments.

Make payments while you’re in school.
This advice is a little late for recent grads, but making interest-only payments while you’re in school can have a huge impact on your post-grad balance. Private and federally unsubsidized loans begin accruing interest when the loan is dispersed. As your loans enter repayment, that interest will most likely be capitalized—meaning it’s added to the principal balance of the loan, and your interest rate will then apply to the new balance. The more interest you pay off while you’re in school means you’ll pay less overall in the future.

Pay more than the minimum.
It may seem obvious, but making extra payments is the fastest way to pay off any loan. Make sure you won’t be penalized for pre-payment, then figure out what works with your budget. Some lenders will automatically apply any extra monies to the next month’s payment, allowing you to essentially pay a month early. So make sure your lender knows you want it anything extra to be applied to the principal and will continue to make monthly installments.

Consolidate—if it works for your situation.
Consolidation—rolling several smaller loans into one big loan with the same servicer, could make it easier to manage your payments. But, be careful combining federal and private loans. Consolidating federal loans with a private lender means you forfeit the buyer protections, like income-based repayment, that comes with them.

Though consolidation will usually leave you with a smaller monthly payment, it might also extend your repayment period. So even if you have a lower interest rate after consolidation, you could end up paying more overall when you factor in the extra time.

If this seems like the plan for you, IH Mississippi Valley Credit Union can help consolidate or refinance your private student loans with features like a low, variable interest rate and zero origination fees. Learn more from our partner, Student Choice.

Enroll in automatic payments.
Enrolling in automatic payments allows your lender to receive payments without requiring you to log in or mail a check each month. Just make sure the correct funds are available in your account before your due date so you aren’t charged overdraft fees. You can still make one-time payments too. So it won’t prevent you from paying a little more when you find yourself with extra cash.

Even better than reducing some stress, some servicers will reduce your interest by a small amount as an incentive to enroll in automatic payments. Check with your lender to see if they offer an incentive—according to FinAid.org, the most common discount is a .25% interest rate reduction.

Everyone’s financial situation is a little different, but the key to paying off any debt is consistency. By making at least the minimum payment each month, you avoid late fees and penalties, putting you much further ahead than if you skip payments.

Need help planning your payback budget? Talk to our financial services team about a free financial checkup.

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