Will you be renting forever? Three questions that can determine your housing future

Do you dream of owning your home, or are you content to rent?

Reportedly, more households are renting in the U.S. than at any point in the past 50 years. The lingering effects of the housing crisis plus changing attitudes about homeownership have left more people feeling inclined to rent.

Owning a home can provide you with an equitable asset once it’s paid off, but it’s not always the right move for everyone. If you’re weighing your options, here are three questions to ask yourself:

1. What are my lifestyle priorities?

Do you crave stability, or seek new experiences? Millennials in particular are known to move around, preferring to live in different areas before settling down. If you’re not tied to a particular place or occupation, owning a home might not be for you.

On the other hand, if you can see yourself happily living in the same place in, say, 30 years and are disciplined about money, then you’re a good candidate for homeownership.

2. Do I want to start a family?

Most parents want security for their family. When you rent, there’s no guarantee that you’ll occupy your space forever. A surprise eviction from your home can upend your children’s lives, potentially forcing them to change schools if you have to move to a new neighborhood.

On the other hand, renting may be an appealing option for single-income families. If one parent stops working to stay home with the kids, you may trade financial security for quality-time with your children. Crunch the numbers to see what makes the most fiscal sense.

3. What are my career prospects?

Reportedly, it’s becoming more difficult for people earning minimum wage to rent—let alone buy—a home, especially in and around popular cities. If saving for a home on your current salary is particularly difficult even after you reduce your monthly expenses, you may want to make a plan to increase your income by moving up in your industry or switching careers.

And remember, whether you want to buy or rent, it’s a good idea to build your savings account. Even if you don’t use the money to purchase a home, you might need it for an unforeseen personal expense or financial emergency down the road.

 

BALANCE

February 2018

Inside the new tax bill: four changes that may affect what you owe

If you’re scrambling to keep up with changes enacted by the new tax bill before you file for 2017, you can relax (for now). The bill that was passed by Congress last December doesn’t affect last year’s taxes.

However, you’ll need to catch up on the new rules for next year, which means you should start planning now. To bring you up to speed, we’ve listed four changes that promise to have a big impact on the financial lives of millions of Americans.

(Of course, to find out if these changes impact your personal financial situation, contact a tax advisor.)

Say hello to a bigger standard deduction

The new bill increases the standard deduction for filers. This means that fewer people will have to itemize individual deductions, and can claim the new, bigger standard of $12,000 (individuals) or $24,000 (married couples filing jointly), which almost doubles the current standard. If you itemized in the past, the good news is you’ll have to do less paperwork and potentially receive a bigger refund.

…and goodbye to the personal exemption

Now for the not-so-good news. If you relied on personal exemptions to lower your tax rate for you, your spouse, and dependents, the new bill doesn’t allow it. Even if you receive financial relief from other areas of the reform package, ending the personal exemption may negate it.

An expanded credit for an expanding family

Parents may owe less under the new bill. The child tax credit has been doubled to $2,000 for children up to age 17, and expanded to cover married couples making up to $400,000. Additionally, the income limit for single parents has been raised to $200,000. So if you’re struggling to cover familial expenses, you should get additional relief starting next year.

New homeowner, smaller deduction

Would-be homeowners, depending on your finances and where you’re looking to move, you may want to reconsider your budget. Going forward, you’ll only be able to deduct the interest on up to $750,000 of your mortgage debt (reduced from $1 million). Current homeowners, however, won’t be affected by the new rule.

 

BALANCE

February 2018

Putting Together a Great Wedding on a Budget

Before discussion about a ceremony or reception even begins, it’s smart for couples to have a frank talk about money issues in general. Share financial information such as current spending, savings, investment and credit status. While this conversation may not seem terribly romantic, honesty about respective finances is the first step to responsible financial planning and compatibility.

Once you’ve chosen a desired wedding date, set a savings target with a realistic budget. If you want to get married fairly soon, realize you’ll have less time to build a wedding fund. Start by making a general list (https://www.theknot.com/wedding-budget/start) of everything you might want in a wedding, and then adjust your vision to what will be in the bank by your desired date.

As the numbers start looking real to you, determine what can be purchased or done inexpensively and others that will require professional help. Take a look at the guest list and see if you can make some cuts. Consider a handheld music player hooked up to a great speaker system instead of a live band. Are you content with your brother’s photo and video skills, or is it a better idea to hire a professional team?

Consider off-dates, off-times and off-venues. Though wedding season is more year-round than it’s ever been, wedding prices still tend to be highest throughout the warm months. Explore winter dates and more obscure venues. Take City Hall, for example. Depending on the municipality, you can either schedule ahead or show up with local license and ceremonial fees as the only costs involved. There’s no need for expensive wardrobe or other trappings. What about having the wedding at home? It’s free space and, depending on the talents of friends and family, homemade food and decorations can also keep expenses to a minimum. But remember that the home or property owner may need a special insurance rider to cover any potential damage or liability, particularly if liquor is being served.

And finally, consider a “surprise” wedding. Planning a party or gathering where a wedding breaks out can provide money-saving advantages to guests and bridal party alike. Having a wedding at a party – especially a regular holiday party you host where family and friends already know to gather – requires little more than a legal officiant and whatever food, beverage, entertainment and insurance costs you need to consider. An unannounced wedding eliminates all pre-wedding costs related to invitations, showers and parties, and you can give your guests a break on gifts.

Bottom line: Flashy weddings aren’t worth jeopardizing your finances for years to come. Make creative, affordable wedding planning part of your love story.

Getting Paid For Your Passion

Flip through the cable channels these days and you’re bound to see shows about people who have turned a hobby into a business. Whether it’s making cupcakes, being a personal organizer/de-clutterer, or “picking” antiques, these jobs all became moneymakers after starting as fun activities. While you may not get your own TV show, there’s no reason why you can’t create a financially successful venture out of what you love to do.

Think Expansively

If you are attracted to the idea of turning a passion into a business, think not just of a typical definition of “hobby,” but of all your skills. One way to investigate this is to think of what your friends or family typically ask you for help with that they don’t like to do or don’t know how to do. Or what you like to do that others might find tedious, like party-planning or troubleshooting computer problems. Making a list of these types of strengths can help you identify marketable talents.

Will it Stay Fun?

What you don’t want to do is take an enjoyable activity in your life and turn it into drudgery. This is one reason why it’s important that you:

Don’t Quit Your Day Job

There’s nothing wrong with starting out small. By easing into your potential business, you avoid blowing a lot of money early and you give yourself time to assess the viability of your gambit in a measured way.

Find a “Focus Group”

Wondering if there is a market for your wares? Get exposure the old-fashioned way by displaying your offerings in public. For example, if you are a photographer, think about purchasing a booth at a festival or fair to show off your work. Or donate your goods or services as part of a non-profit event. Online marketing is important, but pounding the pavement can help get the word-of-mouth rolling.

Research the Market/Competition

Business school professors talk a lot of “relevant differentiation.” Put more simply, you need to figure out what is going to set apart your business. It’s very hard to succeed in establishing a personal business these days just by offering the lowest prices, so look for what you can offer customers that others can’t.

Wear Your Fun Hat AND Your Business Hat

Even though the activities associated with your enterprise can feel more like a pastime, you need to avoid letting your expenses and time swerve into unproductive efforts. Keep records of your hours, your costs and your sales to judge how to optimize your resources.

Really Reach Out With Your Outreach

One of the huge advantages you have now in starting a business is the dramatic leveling of the playing field that has happened because of the internet. Whether it is through your own web page or via Etsy, Craiglist or Facebook, it is vital to use as many outlets as possible to reach potential customers. One method a lot of hobby-to-business entrepreneurs have enjoyed success with is positioning themselves as an expert in their chosen field. This can be done by authoring how-to articles on sites like about.com or ehow.com, or by creating a blog about your topic of expertise.

Reputation Matters

In this computer age word gets around fast, good or bad. Set yourself apart by providing exemplary service. If you aren’t feeling motivated to provide great customer care, maybe your chosen endeavor isn’t meant to be a business.

Know the Tax Consequences

It’s never a good idea to try to “hide” any income you are making. Consult with a tax professional for advice on how to best report your expenses and profits. Also ask about the best strategies for eventually picking a legal entity for your business.

Always Keep Learning and Evolving

The best way to limit your business is to only think short-term. Tastes change, as do ways of doing business. If you are not staying up on the latest trends in your field and looking for ways to capitalize on them, you will eventually fall behind the competition.

The old saying advises to “do what you love and you’ll never work another day in your life.” While even the most fun careers will sometimes feel like work, creating a business you truly love can help you create your most fulfilling life possible.

Five Keys to Investing For Retirement

Making decisions about your retirement account can seem overwhelming, especially if you feel unsure about your knowledge of investments. However, the following basic rules can help you make smarter choices regardless of whether you have some investing experience or are just getting started.

Don’t Lose Ground to Inflation

It’s easy to see how inflation affects gas prices, electric bills, and the cost of food; over time, your money buys less and less. But what inflation does to your investments isn’t always as obvious. Let’s say your money is earning 4% and inflation is running between 3% and 4% (its historical average). That means your investments are earning only 1% at best. And that’s not counting any other costs; even in a tax-deferred retirement account such as a 401(k), you’ll eventually owe taxes on that money. Unless your retirement portfolio at least keeps pace with inflation, you could actually be losing money without even realizing it.

What does that mean for your retirement strategy? First, you might need to contribute more to your retirement plan than you think. What seems like a healthy sum now will seem smaller and smaller over time; at a 3% annual inflation rate, something that costs $100 today would cost $181 in 20 years. That means you may need a bigger retirement nest egg than you anticipated. And don’t forget that people are living much longer now than they used to. You might need your retirement savings to last a lot longer than you expect, and inflation is likely to continue increasing prices over that time. Consider increasing your 401(k) contribution each year by at least enough to overcome the effects of inflation, at least until you hit your plan’s contribution limits.

Second, you may consider investing at least a portion of your retirement plan in investments that can help keep inflation from silently eating away at the purchasing power of your savings. Cash alternatives such as money market accounts may be relatively safe, but they are the most likely to lose purchasing power to inflation over time. Even if you consider yourself a conservative investor, remember that stocks historically have provided higher long-term total returns than cash alternatives or bonds, even though they also involve greater risk of volatility and potential loss.

Note: Past performance is no guarantee of future results.

Note: Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency.Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such a fund.

Invest Based on Your Time Horizon

Your time horizon is investment-speak for the amount of time you have left until you plan to use the money you’re investing. Why is your time horizon important? Because it can affect how well your portfolio can handle the ups and downs of the financial markets. Someone who was planning to retire in 2008 and was heavily invested in the stock market faced different challenges from the financial crisis than someone who was investing for a retirement that was many years away, because the person nearing retirement had fewer years left to let their portfolio recover from the downturn.

If you have a long time horizon, you may be able to invest a greater percentage of your money in something that could experience more dramatic price changes but that might also have greater potential for long-term growth. Though past performance doesn’t guarantee future results, the long-term direction of the stock market has historically been up despite its frequent and sometimes massive fluctuations.

Think long-term for goals that are many years away and invest accordingly. The longer you stay with a diversified portfolio of investments, the more likely you are to be able to ride out market downturns and improve your opportunities for gain.

Consider Your Risk Tolerance

Another key factor in your retirement investing decisions is your risk tolerance–basically, how well you can handle a possible investment loss. There are two aspects to risk tolerance. The first is your financial ability to survive a loss. If you expect to need your money soon–for example, if you plan to begin using your retirement savings in the next year or so–those needs reduce your ability to withstand even a small loss. However, if you’re investing for the long term, don’t expect to need the money immediately, or have other assets to rely on in an emergency, your risk tolerance may be higher.

The second aspect of risk tolerance is your emotional ability to withstand the possibility of loss. If you’re invested in a way that doesn’t let you sleep at night, you may need to consider reducing the amount of risk in your portfolio. Many people think they’re comfortable with risk, only to find out when the market takes a turn for the worse that they’re actually a lot less risk-tolerant than they thought. Often that means they wind up selling in a panic when prices are lowest. Try to be honest about how you might react to a market downturn, and plan accordingly.

Remember that there are many ways to manage risk. For example, understanding the potential risks and rewards of each of your investments and its role in your portfolio may help you gauge your emotional risk tolerance more accurately. Also, having money deducted from your paycheck and put into your retirement plan helps spread your risk over time. By investing regularly, you reduce the chance of investing a large sum just before the market takes a downturn.

Integrate Retirement with Your Other Financial Goals

Think about establishing an emergency fund; it can help you avoid needing to tap your retirement savings before you had planned to. Generally, if you withdraw money from a traditional retirement plan before you turn 59½, you’ll owe not only the amount of federal and state income tax on that money, but also a 10% federal penalty (and possibly a state penalty as well). There are exceptions to the penalty for premature distributions from a 401(k) (for example, having a qualifying disability or withdrawing money after leaving your employer after you turn 55). However, having a separate emergency fund can help you avoid an early distribution and allow your retirement money to stay invested.

If you have outstanding debt, you’ll need to weigh the benefits of saving for retirement versus paying off that debt as soon as possible. If the interest rate you’re paying is high, you might benefit from paying off at least part of your debt first. If you’re contemplating borrowing from or making a withdrawal from your workplace savings account, make sure you investigate using other financing options first, such as loans from banks, credit unions, friends, or family. If your employer matches your contributions, don’t forget to factor into your calculations the loss of that matching money if you choose to focus on paying off debt. You’ll be giving up what is essentially free money if you don’t at least contribute enough to get the employer match.

Don’t Put All Your Eggs in One Basket

Diversifying your retirement savings across many different types of investments can help you manage the ups and downs of your portfolio. Different types of investments may face different types of risk. For example, when most people think of risk, they think of market risk–the possibility that an investment will lose value because of a general decline in financial markets. However, there are many other types of risk. Bonds face default or credit risk (the risk that a bond issuer will not be able to pay the interest owed on its bonds, or repay the principal borrowed). Bonds also face interest rate risk, because bond prices generally fall when interest rates rise. International investors may face currency risk if exchange rates between U.S. and foreign currencies affect the value of a foreign investment. Political risk is created by legislative actions (or the lack of them).

These are only a few of the various types of risk. However, one investment may respond to the same set of circumstances very differently than another, and thus involve different risks. Putting your money into many different securities, as a mutual fund does, is one way to spread your risk. Another is to invest in several different types of investments–for example, stocks, bonds, and cash alternatives. Spreading your portfolio over several different types of investments can help you manage the types and level of risk you face.

Participating in your retirement plan is probably more important than any individual investing decision you’ll make. Keep it simple, stick with it, and time can be a strong ally.

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* Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. NASA Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

CUSO Financial Services, L.P. and its representatives do not provide tax advice. For such advice, please contact a tax professional.

Three Powerful Steps to Paying Down Holiday Debt

Did you go a little crazy with holiday shopping last year? You’re not alone. Reportedly, retail sales were expected to top $680 billion dollars during the 2017 holiday season.

It’s hard to resist the temptation to over-spend when buying gifts for your family and friends, especially when so many retailers offer their deepest discounts of the year. So if you find yourself suddenly buried under a mound of credit card debt, here’s how to dig yourself out:

1. Add Up Your Seasonal Costs

The first step is to simply calculate the exact amount of your holiday debt. This is helpful for a couple reasons. For starters, you need to know your target number so that you can make a plan for repayment.

But it also lets you establish a limit for 2018’s seasonal spending. Provided that your budget is the same for this year’s holidays, you can either make a plan to save more or spend less on gifts than you did in 2017.

2. Tackle Higher-Interest Debt First

Not all debt is created equal. You’ll pay more in the long run on credit cards with higher interest than on lower-rate cards. So rather than splitting your repayments evenly across your accounts, make the more expensive cards your priority. Otherwise, your holiday purchases will weigh you down well into the new year.

3. Re-Organize Your Budget

If you’re struggling to get ahead of your seasonal debt, you may need to take a long, hard look at your budget (and if you’ve never made a budget, the beginning of the year is a great time to start!). Can you eat out less? Make coffee at home instead of buying it every day? Identify areas where you can save and apply the extra money towards the costs of those holiday purchases.