Personal Banking E-Newsletter - October 2011
Four Steps to a Simpler Financial Life
For many Americans, financial life seems to be getting more and more complicated. Perhaps that's because more workers bear responsibility for their own retirement savings thanks to the proliferation of 401(k) and other plans. Or maybe it's because there's so much information and so many investment choices to sort through. Whatever the case, here are some suggestions that may help to simplify your financial life.
1. Start with a Plan
A little time spent planning now can benefit you later. First, determine short-term financial goals. Do you want to purchase a home in five years? Are your kids heading off to college soon? Is buying a car a top priority next year? Next, think about long-term goals, such as saving for retirement and, if your children are young, college expenses. Estimate how much money you'll need to meet each of these goals.
2. Build a Better Budget
Next, look at your current monthly net income and then set up a budget. Creating a budget allows you to see exactly where all your money goes and to determine where you can scale back. After making cuts, invest that money to help pursue your financial goals.
3. Invest Systematically
You can take time and guesswork out of investing with a systematic investing program. With mutual funds, for example, you can make arrangements to automatically invest a specific amount of money on a regular (e.g., monthly) basis, a strategy also known as dollar cost averaging.* In addition to making investing easier, dollar cost averaging could potentially save you money. You'll buy more shares when prices are low and fewer shares when they're high. Over time, the average cost you pay for the shares may be less than the average price.
4. Rely on an Investment Professional
While the financial world is far more complex than it was just a few years ago, you don't have to go it alone. Think about tapping into your investment professional's expertise before making any major change in your investments. He or she can help you to evaluate how new tax rules and changing market conditions may affect your portfolio and, in turn, your financial goals.
*Dollar cost averaging involves regular, periodic investments in securities regardless of price levels. You should consider your financial ability to continue purchasing shares through periods of high and low prices. This plan does not assure a profit and does not protect against loss in declining markets.
*Source: Standard & Poors. © 2010 Standard Poor's Financial Communications. All rights reserved.
*Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates
Not FDIC insured
No Bank Guarantee
May lose Value
Not a Deposit
Not Insured By Any Federal Government Agency
Coulee Bank and Coulee Investment Center are not registered broker/dealers and are not affiliated with LPL Financial.
Five Disastrous Financial Moves We Cannot Seem to Avoid
There is no doubt that financial literacy has enjoyed a great boost, thanks in no small part to the internet and the decentralization of information. However, there are some very basic financial mistakes that we continue to make even though most people know better. In this article, we'll look at these potentially damaging oversights and why we continue to make them.
1. No Emergency Fund
It is true that most emergencies can be smoothed over by paying with a credit card and paying it off later. However, the biggest danger that comes with being short on ready cash is being ruined by the loss of a job. If you don't have savings to cover two or three months - or even two or three weeks - you'll either have to find a job quickly or begin selling whatever you can.
So why do we do it? One common reason that seems logical is that the money in the emergency fund is more efficiently used in paying down outstanding debts. This reduces the overall amount of money you'll pay in interest on your debts. It stands to reason that having fewer debts will allow you to pull that "credit" you've paid down if something should happen. However, if you've ever tried to get a loan when you've been unemployed or under-employed, you know the terms get worse and sometimes you'll be refused credit on any terms.
In short, there is no replacement for having a cash cushion rather than depending on the goodwill of banks. The 2008-2009 credit crises has driven home the fact that when people are hurting from economic factors, the banks are often hurting too - and thus reluctant to lend.
2. Improperly Insuring
Most people carry enough life insurance to cover any debts and provide for loved ones. However, these same responsible folk often overlook non-fatal dangers like disability, theft, fire and so on. We don't like to think of losing our legs in an accident or watching all our possessions go up in smoke, but it is worth the discomfort of considering these outcomes because it is usually possible to insure against them at reasonable rates if you shop around.
3. Not Writing a Will
Although most of us carry life insurance, we don't like dwelling on the thought that we will die - and could die very suddenly. So we end up putting off writing a will until we're "older" or, if we have a will, we update it less frequently than we should. Unfortunately, not having an updated will raises the probability that the settling of the estate is likely to be a nightmare for your executor and beneficiaries. To paraphrase Ben Franklin, nothing is certain except death and taxes, and both of these should be considered on an annual basis.
4. Ignoring Costs and Benefits
We are increasingly bombarded by advertising that frames wants as needs, and tends to muddy the financial part of the picture with deals, rebates and payment options. As a consequence, our current thinking tends to overstate the short-term benefits of owning a particular item now, and understate the long-term costs of paying for it.
Realizing that everything put on credit today is simply taking money from our earnings tomorrow can be very sobering. Even cash purchases cost more than you think. This quickly becomes apparent if you frame every purchase in terms of the labor you must perform to earn the purchase price in after-tax dollars. You don't need to take this to extremes that will result in you buying only the absolute essentials, but you may find that the real costs will take the luster off many of the perceived benefits that aggressive advertising creates.
5. Buying on Rises; Selling on Dips
You can believe in a stock and its business, own it while it gradually gains value, and still lose money. Much like falling prey to advertising, getting beat by the market is largely a psychological quirk. Many people tend to throw more money into a position when it is rising, and confirming their beliefs about the stock. When the stock hits hard times or simply falls on market whims, the same people quit buying or even begin selling.
You can take a one-year chart of any stock and see dips where, if you had bought, your profits would be much larger than only buying on the spikes in value. Sadly, very few investors can stay disciplined when the animal spirits are raging. Fortunately, strategies like dollar-cost averaging (DCA) can short-circuit our tendency to buy more when we feel we are right and to buy less or nothing when it looks like we are wrong. Before automating your investment in a stock, it is important to dig into the financials and the stock's story to make sure it is worth the long-term vote of confidence you'll be giving it through DCA or value averaging (VA).
The Bottom Line
In the end, your success on avoiding these potentially damaging financial mistakes depends heavily on your perspective. Sure you don't want to think about being horribly injured or your apartment being robbed, but there is a lot to be said for the peace of mind that comes with being prepared for these contingencies. You also don't want to have money and not be able to enjoy it, but there has to be a reasonable and real advantage that justifies the cost of a purchase. Similarly, when a stock you are confident in takes a dip, you can see it as a disaster or an opportunity to buy. Enlarging your perspective can be difficult, but the benefits that come with it clearly outweigh the costs.
Preparing for Fall: A List of Home and Garden Chores
There's no avoiding it. At some point, summer slips into fall, leading to cooler days and slightly chilly evenings. Look up now and you'll see leaves already have lost their glossy green gleam and some are already turning brown and falling to lawns and curbs.
The change in season also triggers a list of chores for homeowners that, while boring, have to be done to ensure a healthy yard come next spring and for the indoors to be protected from winter's frosty breath.
Below are a list of suggestions for yard and home to-do lists.
Fertilize before the first frost to provide nutrients for the winter months. Aerate for good root development. Keep mowing until it stops growing and can be kept 2 to 2½ inches tall.
Over seed your lawn when necessary. If there are bare spots larger than a softball, seed those areas through mid-October.
Kill the weeds now to minimize weed growth in the spring. October is a great time to get good weed control going.
Once your mowing season is over, drain the gas from the mower, clean the blades and put it in protected storage.
Early fall is a great time to plant. The soil is still warm enough for roots to grow, but the weather is beginning to cool, so you won't have to water as much.
Now is the time to plant spring flower bulbs and to lift bulbs that cannot overwinter such as dahlias.
Trim trees (hiring a professional is a good idea) if branches hang too close to the house or electrical wires.
Rake away all debris and edible vegetation away from the foundation.
Make sure your snow blower is cleaned, gassed up and ready to go.
Finally, it's a good idea to track down, dust off and inspect rakes and snow shovels. Replace them if they are worn.
Make sure gutters are secure and clean.
Make sure there is proper insulation in your attic to prevent snow melting on the roof, pouring into the gutter and refreezing. If you have an overhanging porch, call a roofer and electrician about adding warming cables to the lip of the roof.
Inspect your home's foundation and seal entry points to keep small animals from seeking the warmth of the indoors. Seal any cracks.
Inside your home, install and/or test smoke- and carbon monoxide detectors. It's a good idea to place a carbon monoxide detector near your furnace.
Have your furnace inspected and cleaned before cold weather hits. It will not only save you from a chilly night with a broken furnace, it will be less expensive to have it done before the height of furnace season.
Locate your water main in the event you need to shut it off in an emergency.
Insulate exposed plumbing pipes.
Drain air-conditioning pipes. If your AC has a water shut-off valve, turn it off.
Use weather-stripping around doors and windows to prevent cold air from entering. Consider getting new energy-efficient windows to take advantage of a $1,500 federal tax credit. It expires at the end of this year.
Switch screens to storm windows.
Make sure the cap on the top of your chimney is secure. You really don't want critters climbing down and making your house their home.
If the chimney hasn't been cleaned for awhile, call a chimney sweep to remove soot and creosote.
Inspect the damper to make sure it opens and closes properly.
Because we all know that no one wants to even think of doing any of this stuff right now, do yourself a favor: Clip or print out this article and put it somewhere safe. Very soon, it will seem pertinent, if not urgent.
5 Refinance Tips for Borrowers
As homeowners rush to take advantage of the lowest mortgage rates in history, it's easy for them to get lost in the refinance stampede. That's why it has never been so crucial for borrowers to stay on top of their game after they submit loan refinance applications.
Banks, brokers and underwriters are overwhelmed with the significantly higher volume of refinance applications they have received since mortgage rates recently tumbled. Lenders that used to ask for 30 days or less to close on a refinance loan now say they need at least 45 days and in some cases 60 days. That is -- if all goes as planned.
One missing document or delay by the borrower responding to a lender's request could easily jeopardize or stall a refinance in the midst of a refi boom, says Mathew Carson, a mortgage broker at First Capital Group Inc. in San Francisco.
"As a borrower, you need to make sure when you lock your rate you have all your documentation ready to go," Carson says. "Once you lock, the clock starts ticking."
Prepare in advance
To speed up the process, borrowers should begin to assemble their paperwork as soon as they decide to apply for a loan, says Rob Nunziata, president of FBC Mortgage in Orlando, Fla. They'll need the last two copies for each of the following: pay stubs, W2s, bank statements (including all pages) and tax returns.
Once you lock a rate, get the documents to the lender within a day, says Dan Green, loan officer at Waterstone Mortgage in Cincinnati.
"Mortgage underwriting is first-in, first-out, and you want to be at the top of the pile," Green says. "Therefore, sign your paperwork within a day and schedule that appraisal for as soon as humanly possible. Underwriting can't begin until these two events have finished."
Communicate with your lender
Underwriters may ask for additional documentation once they get to your file, so it's important to stay in touch with your loan officer and be diligent.
"Borrowers need to be involved in the process, making sure things are moving as expected," Carson says.
There will be a waiting period when there's not much the loan officer and the borrower can do. Even during that time, borrowers should not be afraid to check on the progress of their refinance.
"Checking in once or twice a week is pretty reasonable," Carson says.
Know what to expect
Borrowers should also ask their lenders upfront for a time frame on when they should expect to close on the refinance loan and lock their rate accordingly, says Nunziata.
Normally, a borrower locks a mortgage rate for 30 days. If the loan doesn't close before the lock expires, the borrower often has to pay a fee to extend the rate, or go with the new current rate. Because lenders are taking longer to close, it's wise to lock for at least 45 days, Carson says.
"It's nearly impossible to close (on a refinance) in 30 days right now," says Carson, who works with about 40 lenders, including some of the largest banks. "Most of our refis are taking 45 days."
Some banks actually are requiring borrowers to lock for at least 45 days and sometimes 60 days, Green says. The longer lock periods may translate into higher closing costs or slightly higher interest rates. But that's the only way to ensure you won't get stuck with a higher rate if they rise when you're about to close.
Some lenders, mostly regional and smaller local lenders, are still offering 30-day closing refinances. Borrowers should look beyond the large banks and consider quotes from these lenders before deciding.
"Shop around and always check the pricing," says Michael Becker, mortgage banker at WCS Funding in Lutherville, Md. "When big lenders get overwhelmed they may raise their rates to slow down applications. Local companies can sometimes offer you services that the big guys can't."