Money Don’ts

Sometimes the difference between being eternally broke and financially comfortable is just a few simple things you shouldn’t do. Avoid these basic money mistakes:

• Not tracking your spending – Pay attention to where your money goes. Your credit card statement will help you do this, but don’t forget all the incidentals you pay cash for. With this data, you’ll find it easier to stick to your budget. And speaking of budgets …
• Not setting up a budget (and sticking to it) – This advice may seem really basic, but many smart people don’t take it seriously. Figure out how much money you realistically need to pay bills and buy needed supplies for a week or month, and don’t go over it.
• No emergency fund – Set aside some money for emergencies, and don’t touch it for any other reason. Ten or 20 dollars a month can add up, especially if it’s growing interest.
• Not shopping around – Take the time to look for the best prices and avoid those impulse buys. Stock up on essentials on sale, and always look for opportunities to negotiate a better deal.
• Borrowing too much money – Don’t put more on your credit card than you can pay off at the end of the month. Resist the urge to buy more house than you can afford, and don’t be seduced by reward programs that entice you to buy extravagances in order to get bonus points.
• Not watching your credit rating – Know your credit score so you can avoid problems when you really need to borrow money. Make sure all the information is correct, and watch out for signs that your identity has been stolen.

Can You Afford to Retire?

Have you ever sat down and figured out how much you’d need for a comfortable retirement? If not, don’t worry – you’re not alone! According to the U.S. Department of Labor (USDOL), fewer than half of all Americans have calculated how much they will need to save for retirement.

While it’s important to plan, it’s also important to set realistic, achievable goals. Know your options and ask questions. Set aside time to talk with your employer about retirement plans. Your employer may offer benefits like 401(k) plans which allow for an immediate tax deduction growth on your savings.

“While earlier generations of retirees relied on employer provided pensions, today’s workers will need to rely on their own work-related and personal savings for retirement,” said Stephen A. Cox, president and CEO of the Council of Better Business Bureaus. “That’s why it’s extremely important to have an alternate plan and save as much as possible.”

BBB and USDOL recommend that consumers consider the following to ensure a more financially comfortable retirement:

• Get started. Start saving now and continue to stick to your savings goal — it’s never too late to start saving. Make a budget and use it! Saving can be fun if you think big and realize how much it will pay off when the times comes to retire.
• Get realistic. According to the USDOL, you’ll need about 70% of your preretirement income. If you’re a lower earners, you’ll need 90% or more to maintain your standard of living when you stop working. The average retiree is in retirement for 20 years of their life. Plan ahead and learn how much you will need after factoring in Social Security and other sources of retirement income.
• Take advantage. Of your employer’s retirement savings plans, that is. If your company offers a 401(k) plan, participate in it. There may even matche a percentage of your contribution. If your employer doesn’t offer a plan, think about opening an IRA or Roth IRA. You can put up to $5,000 a year into an Individual Retirement Account (IRA) and contribute even more if you are 50 or older.
• Leave it alone. Avoid touching your retirement savings if at all possible. If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings in your current retirement plan, or roll them over to an IRA or your new employer’s plan.

About Credit Scores

You know a credit score is important when you apply for a loan or credit card – but do you know exactly what it is and how it can affect your chances in getting the financing you want?

Creditors use a credit scoring system to help determine whether to give you credit, and how much to charge you for it. Your credit information like your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt and the age of your accounts is collected from your credit application and your credit report.

Using a statistical formula, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor. A total number of points — a credit score — helps predict how creditworthy you are; that is, how likely it is that you will repay a loan and make the payments on time. Generally, consumers who are good credit risks have higher credit scores.

You can get your credit score from the three nationwide credit reporting companies — Equifax, Experian and TransUnion — but you’ll have to pay a fee for it. Many other companies also offer credit scores for sale alone or as part of a package of products. You are allowed to get one free credit report per year. Get it for free here: AnnualCreditReport.com.

Lions, Tigers, Bears, and Lenders?

Let’s play a game. I’ll give you a word and you tell me what comes to mind. Ready?

“Predator.”

Did you think of a prehistoric animal with claws and stabbing teeth? Or, a stealthy cheetah prowling for gazelle in the grassy plains of the Serengeti? Perhaps a portly Siamese cat stalking a house sparrow?

How about a slick-talking and personable sales person who promises easy credit? These crafty bipedal predators engage in an act called predatory lending — the practice of deceiving unsuspecting consumers with marginal credit into taking high interest loans, usually against the equity in their homes.

The Pitch
If you listen to the radio or read your junk mail, you’re probably very familiar with this pitch: “Slash your monthly payments by combining all of your high interest credit cards into a home equity loan. You’ll write just one check each month, and you’ll be able to deduct the interest from your taxes.” Many homeowners successfully use the equity in their homes to pay down debt in part because they’re able to secure prime loans, conventional loans at reasonable interest rates. Borrowers who obtain loans with good interest rates typically have a Fair Isaac & Company (FICO) credit score, a three-digit number that represents credit worthiness, in the range of 700 to 850. (Recall the credit score scale ranges from 300 to 850.)

Individuals who have marginal credit, a FICO score below 450, often qualify for what are known as subprime loans. Fair subprime lending has enabled low to moderate-income borrowers with blemished credit histories to secure credit. But, because of this population’s propensity to default on loans, subprime lenders charge higher interest rates for their loans. According to the consumer advocate group Association of Community Organizations for Reform Now (ACORN), predatory lending practices—financing excessive fees, charging higher interest rates than a borrower’s credit history justifies, and prepayment penalties—occur most often in the subprime lending market.

Who is at risk for becoming a victim of predatory lenders? Low income, elderly and minority consumers who are anxious to have access to credit are at risk. Borrowers—particularly those who can’t speak English—who don’t understand the loan application process, are also at risk.

Predatory lending practices — a cursory look
As the subprime lending market has grown so has the incidence of unscrupulous lending practices. The following are examples of predatory practices that have stripped consumers of their wealth in the way of high-interest rates and exorbitant up-front fees, and if they can’t keep up their monthly payments, foreclosure.

Financing excessive fees into loans — Predatory lenders often charge up to eight percent in loan origination fees, compared to one to three percent assessed by other financial institutions.

Your right: If your lender wants to charge you more than three percent, find out why, and then consider applying for a loan at your credit union. In addition to offering fair loans at reasonable interest rates, these democratically controlled financial cooperatives counsel members on the differences and advantages of lending products and help them understand loan disclosures, rates, fees, and terms.

Charging higher interest rates than a consumer’s credit warrants — Consumers who don’t know their credit scores, or don’t understand that good credit scores can mean an interest rate difference of two to three percentage points (thousands of dollars over the life of the loan) are vulnerable to this predatory lending practice.

Your right: Protect yourself by checking your credit history and score. You can access a multitude of credit score providers online. Most providers offer a range of services from a one-time check of your score to a one-year subscription, which will enable you to monitor all changes to your credit information. If you use more than one provider, you’ll likely discover you have different credit scores. This is because providers may apply competing mathematical formulas to the data held by the three major credit bureaus (TransUnion, Equifax and Experian) to determine your score.

Consolidating debt in a high interest loan without regard to the borrower’s ability to make the monthly payments — The motivation for some lenders, especially when there is a significant amount of equity built up in the home, is foreclosure on the house which then can be resold for profit.

Your right: Before you consider borrowing money against your home, consider seeking help from a legitimate non-profit credit counseling service such as GreenPath Debt Solutions. To locate an office near you, go to the National Foundation for Credit Counseling’s (NFCC) Web site and click on the Member Agency Locator link. You can also call (800) 388-2227 for 24-hour automated office listings.

Attaching prepayment penalties to a loan — According to ACORN, more than two-thirds of subprime loans come with prepayment penalties, which come due when the borrower pays off a loan early through refinancing or sale of the house. One particularly disturbing example of a prepayment penalty is when it’s combined with an adjustable rate loan. In this instance, a borrower pays a lower rate in the first couple of years of the loan, after which, the rate rises dramatically. Unable to make the monthly payments, the borrower is forced to refinance, and in doing so, must pay a prepayment penalty, often several thousand dollars.

Your right: Predatory lenders often fail to call the borrower’s attention to the prepayment penalty clause in the loan application. Before you sign the papers, ask a lawyer or a trusted friend to review the documents.

Visit Wayne Westland Federal Credit Union for more!

Credit Cards

Here are some ways to responsibly choose and use a credit card.

Read the fine print. If you receive an offer for a pre-approved credit card or if someone says they’ll help you get a credit card, find out the details first. You need to know what interest rate you will be paying and for how long. Some credit cards offer low rates as “teasers” that are raised after a certain period of time or only apply to balances transferred from other cards. You also need to know about any annual fees, late charges or other fees, and whether there are grace periods for payment before interest is applied. If the terms of the offer aren’t provided or aren’t clear, look for a credit card from someone else.

Shop around. Interest rates and other terms vary widely. There are also different types of cards, such as secured cards that require a deposit to cover any charges that are made, cards that can also be used as telephone calling cards, cards that allow you to either charge something and pay later or deduct the charge from your checking account immediately, and cards that can only be used to charge merchandise from a catalog. Make sure you know what kind of card you’re being offered and what type of card meets your needs best.

Don’t pay fees up front to get a credit card. Legitimate credit card issuers don’t ask for money up front, unless you’re applying for a secured card. If you are applying for a secured card, make sure you understand how your deposit will be used. Don’t pay someone to help you get a credit card; if you have good enough credit, you can get one yourself, and if you have bad credit, no legitimate lender is likely to give you one.

Use your credit wisely. Many Americans are in debt because they have taken on more credit than they can handle or have not used credit responsibly. Don’t apply for more cards than you absolutely need, and don’t charge more than you can afford. To maintain a good credit rating, pay bills promptly. Avoid interest charges by choosing a card that offers a grace period and paying the entire balance due each month. If you can’t pay the full balance, choose a card with the lowest interest rate.

Get help if you feel you’re in over your head. Ask your credit union for assistance. For additional help, visit the National Foundation for Credit Counseling’s website.

This article was submitted by the National Fraud Information Center, a program of the National Consumers League that assists consumers with recognizing and filing complaints about telemarketing and Internet fraud. Submission of this article does not imply an endorsement or recommendation of Wayne Westland Federal Credit Union.

Top 10 Ways to Prepare for Retirement

1. Start saving, keep saving, and stick to your goals

If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you're not saving, it's time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it's never too early or too late to start saving.

2. Know your retirement needs

Retirement is expensive. Experts estimate that you will need about 70 percent of your preretirement income—lower earners, 90 percent or more—to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead.

3. Contribute to your employer’s retirement savings plan

If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Find out about your plan. For example, how much would you need to contribute to get the full employer contribution and how long would you need to stay in the plan to get that money.

4. Learn about your employer's pension plan

If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer. Find out if you will be entitled to benefits from your spouse's plan.

5. Consider basic investment principles

How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan's investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.

6. Don't touch your retirement savings

If you withdraw your retirement savings now, you'll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer's plan.

7. Ask your employer to start a plan

If your employer doesn't offer a retirement plan, suggest that it start one. Many retirement saving plan options are available. Your employer may be able to set up a simplified plan that can help both you and your employer.

8. Put money into an Individual Retirement Account

You can put up to $5,000 a year into an Individual Retirement Account (IRA); you can contribute even more if you are 50 or older. You can also start with much less. IRAs also provide tax advantages.

When you open an IRA, you have two options—a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide an easy way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA.

9. Find out about your Social Security benefits

Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You may be able to estimate your benefit by using the retirement estimator on the Social Security Administration's website. For more information, visit their website or call 1-800-772-1213.

10. Ask questions

While these tips are meant to point you in the right direction, you'll need more information. Talk to your employer, your bank, your union, or a financial adviser. Ask questions and make sure you understand the answers. Get practical advice and act now.

Source: United States Department of Labor

How to Budget

You can make your own budget worksheet using either a pen and paper or a computer spreadsheet program. Think of your budget in terms of two things: money and time. Money, of course, is divided into its own two categories: Income and Expenses.

Follow these steps to make your budget worksheet:

1. List your income in a vertical column down the left side of the page. Think of all the sources of income (including paychecks and interest) that you receive. Also, consider how often this income becomes available to you. For example, are you paid weekly or every other week?


2. List your expenses below your income in that same column. Begin with major expenses such as a car payment, car insurance, food (including school lunches), clothing, and entertainment. Include all expenses, whether you pay in the form of a check, cash, credit card, or the amount is deducted from your credit union account. Remember to include any finance charges, such as interest on your auto loan.


3. Now, list the related timeframes in a row across the top of the page. For instance, does the expense or income occur weekly, per paycheck, monthly, quarterly, or yearly? Is the expense tax-deductible? If so, add a heading for this in your horizontal row. When you are finished you should have the beginning of a grid or chart. Use this as a worksheet to help you categorize and plan. When you first start using your budget worksheet, you might find that you change it often. That’s good! Your worksheet should be a working document.


4. Now that you have a “skeleton” worksheet, add anticipated expenses. Are you planning to go to college or participate in a wedding (as either a bridesmaid or a groomsman)? All of these require that you spend a lot of money. (Hint: Anticipate that you will have to spend more than you’d prefer, and budget accordingly. It’s better to be prepared than shocked.) You can also consider anticipated sources of income, such as the yearly birthday check from your Aunt Mildred. Be careful, though; don’t spend the money before you have it.


5. Don’t forget the “small stuff”! Do you buy soda pop or special coffee, eat lunch out, or buy snacks from the vending machine? If so, keep track of how often you do—and how much you spend. All of these purchases add up throughout the week, the month, and the year. So budget for these, or do without!

Remember: Use your budget as a tool to help you achieve your goals. Once you set up your categories and make it a point to record the appropriate dollar amounts, you’ll see how easy it is to continue recording your income and expenses.

The most difficult part is getting started. But once you have your plan in place, you’ll recognize the power of the information that you have at your fingertips!

Visit Wayne Westland Federal Credit Union for more!