6 Financial Traps New College Graduates Should Avoid

Monday, June 12 at 08:45 AM
Category: Personal Finance
As college students graduate and start their careers, financial responsibility should be a top priority. However, it’s easy to fall into traps that could hinder new college graduates from securing their financial future.
 
New college graduates should avoid the following financial traps:
  • Not having a budget. Simply put, don’t spend more than you make. Calculate the amount of money you’re taking home after taxes, then figure out how much money you can afford to spend each month while contributing to your savings. Be sure to factor in recurring expenses such as student loans, monthly rent, utilities, groceries, transportation expenses and car loans. 
  • Forgoing an emergency fund. Make it a priority to set aside the equivalent of three to six months’ worth of living expenses. Start putting some money away immediately, no matter how small the amount. A bank savings account is a smart place to stash your cash for a rainy day.
  • Paying bills late – or not at all. Each missed payment can hurt your credit history for up to seven years, and can affect your ability to get loans, the interest rates you pay on loans and your ability to get a job or rent an apartment. Consider setting up automatic payments for regular expenses like student loans, car payments and phone bills.
  • Racking up debt. Understand the responsibilities and benefits of credit. Shop around for a card that best suits your needs, and spend only what you can afford to pay back. It’s a great tool if you use it responsibly. 
  • Not thinking about the future. It may seem odd since you’re just beginning your career, but now is the best time to start planning for your retirement. Contribute to your employer’s 401(k) or similar account, especially if there is a company match. Invest enough to qualify for your company’s full match – it’s free money.  
  • Ignoring help from your bank. Most banks offer online, mobile and text banking tools to manage your account night and day. Use these tools to check balances, pay bills, deposit checks, monitor transaction history and track budgets.  
College graduates can find many enticing ways to spend their paychecks from their first “real” job. However, by avoiding these financial traps, the new graduate can make financial responsibility a top priority instead of exceeding their new income.
 
Information courtesy of American Bankers Association. 
 
Tags: Budgeting, Debt, Financial Education, Savings
 

Watch Your Spending

Monday, February 27 at 09:30 AM
Category: Personal Finance

It often feels like you never have enough money to buy everything you want. Whether you make $150,000 a year or you make $35,000 a year, you can still be just as hard up for cash. In fact, those with the higher incomes may be even more in need of money to meet their expenses.

The simple truth is it isn't how much you make, it is how much you spend. If you make $100,000 and spend $120,000, you are still in debt just as someone who makes $40,000 but spends $48,000 is in debt.

With easily accessible credit it has become very easy to overspend and not even know it. Years ago, when you were out of money, you were out of money. But, today you can easily create debt and not realize how much debit you’re creating. Granted, sometimes events happen that are out of your control. People get ill, lose jobs and face other emergencies. But, many people with debt and money problems haven't faced these emergencies. And if they do in the future, they will have very little to fall back on.
 
What you have to learn is how not to spend your money. Not where and when to spend, but how not to spend at all.

The more you make, the more you spend. Have you ever noticed that as soon as you get a raise, you have it spent? In fact, plenty of people who are planning on getting a raise go ahead and buy that new car or bigger home before the raise even comes. And it goes beyond the large spending. There is a whole new attitude with a higher income. You think you can afford the little things now, but those little things all add up quickly.
 
The key to controlling your spending is found in setting goals. When you have a concrete financial goal you are working towards, you are better equipped to avoid temptation. You may be more willing to drive your older vehicle a few more years if you know the money saved will help you retire one year earlier. Not buying that sweater may seem like a little sacrifice next to realizing the goal of remodeling your kitchen.
 
When you are faced with the temptation to splurge, think about your goal. Find other ways to spend your time instead of shopping. If you never go in the store either in person or online, you won't spend the money.
 
Remember, each dollar you spend is costing you hundreds, if not thousands, of dollars in the long run. Spending is the problem, not the lack of money.
 
The most important thing you can do for your finances is to learn to budget. Take the time to make a budget work for you. A good budget will let you plan for the future, while keeping you aware of exactly how much money you have right now. It will help you see what you’re spending your money on and what you could be spending it on.
 
As you create a budget and watch your spending, you can make your income, big or small, fit your needs. 

Tags: Budgeting, Financial Education, Savings
 

Investors Fare Differently in Wake of Interest Rate Hike

Thursday, February 23 at 09:30 AM
Category: Personal Finance

What does the interest rate hike mean for consumers?

Consumers have enjoyed years of record-low interest rates that provided borrowers with low repayment options on everything from cars to homes, but the Federal Reserve’s rate hike in December caused some investors to wonder how the rate increase will affect their financial portfolios.

Additionally, the central bank has indicated more rate hikes could be coming as soon as this year. If these hikes happen, rates would begin to move out of the historically low range they have been in for the past decade.

What does this mean for consumers? How will higher interest rates impact investors and consumers who have become accustomed to a low rate environment?

Consumers who have savings accounts, or who invest in certificates of deposit or money market accounts, will earn more on their cash savings. For people dependent upon investment income from these low-risk options, even a modest increase in the rate of return can make an impact.

“Many older Americans, in particular, draw income from Social Security and from the interest they earn on their retirement savings,” said Clay Nickel, director of investment strategy for Arvest Wealth Management. “As long as inflation stays in check, the possibility of a higher rate environment may be welcome news to these people.

“However, rates are likely to increase more slowly than past interest rate hiking cycles by the Federal Reserve. This means it may still be difficult to achieve longer-term financial goals through bank deposits, many of which still yield less than the inflation rate. Savers may need to look to investing in financial markets to meet longer-run objectives.”

Investors who will likely see the biggest negative effect on their money are those who have longer-dated bond holdings such as 30-year and fixed-rate bonds. Ironically, as rates go higher, the value of existing contracts decreases. While investors may not lose money per se, they will see a decline in the value of their bonds compared to what they could have earned prior to rate adjustments.

“Every portfolio is different and there are several factors to consider,” said Scott Phillips, chief investment officer for Arvest Bank. “In a rising interest rate environment, you want the maturity date of the bond to be short. The longer the maturity term, the more its value will fall.”

Phillips said selling longer-term bonds and reinvesting in shorter-term bonds puts investors in more of an offensive position and can help minimize loss for investors who may be considering selling their bonds. Investors who purchase a bond and hold it until maturity may be able to avoid any depreciation in the bond’s value, depending on where interest rates stand when the bond matures.  

Stocks, meanwhile, traditionally gain value during times of rising interest rates.

“Initially, people are fearful that rising interest rates will result in slower economic activity and that it’s not a good idea to invest in the stock market,” said Christopher Magee, senior trust investment officer for Arvest Bank. “Historically, stocks have reacted quite well after a jump in interest rates, but it’s still important for investors to be selective when purchasing stocks, as some sectors will perform better than others.

“Ultimately, every investor is unique with their own goals, timeframes, portfolio mix and risk profile. The important thing for them to know is that after 10 years in an historically low interest rate environment, the Federal Reserve has announced its belief that we will likely see rates slowly moving upward in the next year, so investors need to get with a trusted financial advisor, review their current plan and see what, if any, adjustments they need to make.” 

Tags: Financial Education, Investing, Press Release, Savings
 

Planning a Honeymoon – Save Now or Pay More Later

Monday, February 13 at 10:20 AM
Category: Personal Finance

If a honeymoon is in your plans, you should consider the financial aspects along with all the details of your trip. Those issues are how much the honeymoon is going to cost and how to pay it.

Costs of the Honeymoon
The actual costs will depend on the type of trip you plan. But, probably at a minimum you will have transportation (airfare, car rental or public transportation), accommodations (hotel), meals, activities and souvenirs. 

Save Before You Go or Pay
More Later
The actual cost of your honeymoon will depend on where you go and what you do on your trip, and those decisions are up to you and your soon-to-be spouse. One of the best decisions you can make is to save the money you will need before you go. That way you can enjoy the trip without financial worry.
 
Here is a simple chart showing how much you need to save monthly so you will have what you need before the trip.



Start Your Automatic Savings Today
An easy way to save is with an automatic savings plan. Set up a recurring automatic transfer with your financial institution to transfer the amount you need to save each month into a separate account. You can also have your employer deduct the amount each month directly from your paycheck and deposit it into the account of your choice. 

Paying More Later by Using Your Credit Card 
As tempting as it may be to just charge your entire honeymoon to your credit card, there is a cost to doing so. Weigh those costs with advantages you may have by using your credit card. Benefits could include earning rewards points with every purchase, bonus earning periods like two times points on purchases, and travel benefits such as complimentary auto rental insurance. Rewards points can often be redeemed as cash back towards your credit card statement or towards hotel deals. 

Here is a chart showing what your monthly payments would be to pay off the honeymoon.
 


Conclusions
Your honeymoon should be fun and carefree. Saving before you go can provide the peace of mind knowing that the cost is covered and help you save a bit of money. However, if you use a credit card be sure to understand your rate, understand your payment plan and maximize benefits such as rewards earning opportunities. Consider the following:
  • If you are planning a $7,500 honeymoon and save for 12 months, your total cost will be $7,392 because you will earn some interest.
  • If you return from your $7,500 honeymoon owning that amount on your credit card and pay it off over 12 months, your total cost will be $8,232.
  • If you decide to use your credit card as a financial solution to plan a $7,500 honeymoon and it offers one point for every $1 spent, you would receive 7,500 rewards points. Depending on your credit card rewards rate, this could be equal to at least $75 in points possibly redeemable for cash back or statement credit.  
The decision is yours, but factoring in total costs and benefits will help you minimize honeymoon planning regrets in the long run.
 
Tags: Credit Cards, Financial Education, Savings
 

A Penny Saved is a Penny Earned

Monday, January 23 at 12:25 PM
Category: Personal Finance
Savings can help you achieve financial goals. Whether it’s a comfortable retirement, a down payment for a house, or a new car or laptop, you can get there by setting money aside. And best of all, you can have what you want without getting bogged down in debt.
 
However, if you’re like most people, you don’t save as much as you’d like to. Or, you don’t save at all. Americans spend more than we earn. Today’s high energy, home and food prices may make saving seem less possible than ever. But, the time is now. With a little forethought and effort, saving money is possible.
 
Make Saving a Priority
You’ll be more likely to save money if you make it a priority. Sit down and figure out what you’d like to save money for – retirement, a house, car, college, dream vacation – and how much it will cost. Then make your plan:
  • Set a timeline for when you’d like to reach your goal.
  • Set a schedule by dividing the total goal amount by the number of weeks, months or pay periods between now and your goal date.
  • Be vigilant by treating your savings contribution just like any other must-pay expense, such as rent or groceries.
Find Money to Save
While it may seem difficult sometimes just to make ends meet, chances are you have extra money you didn’t even know about. Here are some ways to find it:
  • Keep track of everything you spend for a week. You might be surprised what you’re buying, and what you can do without.
  • Make purchases with cash. This can help you stick to a budget and avoid impulse purchases. Simply decide ahead of time how much you want to spend and then set aside that amount in cash before you go shopping.
  • Lower your bills. Many creditors will give borrowers a lower interest rate if they’re asked. Also, conserving electricity and gas can make a big difference.
  • Rank your nonessential expenses. Keep the ones you like the best and cut the items on the bottom of the list.
  • Pack a lunch or cook more dinners at home. Eating out at restaurants can eat up a lot of money that could be saved.
Pay Yourself First
You're probably inclined to pay everyone else first – whether it’s your landlord or your grocer or the electric company. But it’s vital to start paying yourself first by saving money. Once you’ve made a contribution to your financial longevity and well-being, then you can divide up your money to cover everything else. Don’t worry. You'll more than likely have plenty left over to cover everything you need.
 
In fact, most banks make this easier. You can have them automatically transfer funds from your checking account to your savings account. You might also check with your employer. Companies will often deduct savings from paychecks if asked.
 
When you make saving a priority, look for money to save and pay yourself first, you set yourself up to meet your savings goals. 
 
Information courtesy of Arvest Money Skills. 

Tags: Budgeting, Financial Education, Savings
 

Don’t Let a College Savings Plan Crack Your Retirement Nest Egg

Wednesday, January 18 at 09:15 AM
Category: Personal Finance

Balancing saving for retirement and saving for your child's college can be tricky. Here are some tips to help you manage both at the same time.

LOWELL, Ark.  Two of the largest savings plans consumers need to fund and manage in their lifetime are saving for their child’s college and for their personal retirement. These are plans that take time to adequately build, but one doesn’t have to negate the other. Both can be managed successfully and simultaneously through early planning.

“Above all, start saving for both as soon as possible,” said Donny Rogers, President of Arvest Bank Trust. “From the moment you get your first job to the moment you learn you’re going to be a parent, set aside money and let it grow.”

Rogers says the balancing act begins with determining how much of the college expense parents want to fund and what other big-ticket expenses they may also cover for their children. 

“It’s smart to focus on saving for college, but the reality is that there are a few other large expenses that require long-term budgeting,” Rogers said. “If you plan on buying your teenager their first car or paying for a daughter’s wedding, you need to factor those expenses into your budget so you segment your savings plans across the board. I always tell parents that it’s fair to require some ‘sweat equity’ from their kids so they contribute to the expense of paying for a car or shouldering a portion of any student loans. There’s no expectation that parents pay 100 percent of all of those expenses.”

A 529 Plan offers a tax-free savings option for college that is specifically earmarked for post-secondary education. These state-specific plans have different rules of engagement but typically can be used to fund expenses from tuition to housing to other necessary items for school. Significant supplemental funding is also available in the form of academic, athletic and arts scholarships.  

While you can borrow for college expenses, you can’t do the same for retirement savings. Therefore, it’s critical to begin saving early for your retirement nest egg and to budget in parallel with other savings priorities. Maximizing an employer’s 401(k) matching option puts “free money” in your account. In the event you need to adjust your savings more heavily toward college, be sure not to reduce your retirement savings below the level of employer matching. It’s recommended that 10 percent of your income be allocated toward retirement every year.

“Regardless of how well you plan, there will inevitably be change and the need for adjustments along the way, and that’s perfectly normal,” Rogers said. “Consistency will reward your efforts when you need to utilize those funds.”

The so-called “catch-up plan” that allows individuals age 50 and over to make extra contributions can help consumers make up for lost ground during the saving process, once college and major expenses have been paid for, but Rogers advises customers not to lean too heavily on that option. He says the number of variables involved in retirement planning can sometimes cause consumers to miss significant savings. Those may include the length of time one plans to work, or is able to work; the kind of lifestyle one wants to lead after retirement; the security of their career and other potential factors or risks.

In addition, the rate of inflation and the rising cost of college tuition will affect how much of an impact savings for college and retirement have on the larger family budget, making that early foundation and steady savings plan even more important in the long run.

Tags: College, Financial Education, Press Release, Retirement, Savings

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