8 Ways to Get Financially Fit in Your 40’s (Part 1)

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Many people consider the prospect of turning 40 as a negative. We’re getting older and our bodies are starting to show their signs of wear and tear. Life as we knew it no longer exists; it’s time to buckle down and really start being an adult. Well, part of this is true. Turning 40 means we’ve officially hit the “middle age” mark. It’s time to start considering our future as much as the present.

For me, the old saying “Life begins at 40” couldn’t be more true. It’s a time to reflect on lessons learned. A time to use the past to help write our future. To quote one of America’s greats, Benjamin Franklin, “at 20 years of age the will reigns; at 30 the wit; at 40 the judgment.”  The wisdom we gain in the first half of our lives is instrumental in shaping the second half.

No matter what life changes you’ll experience over the next decade, many of us view our 40’s as a time to get serious about financial planning. It’s our first true glimpse at mortality and it awakens us to the truth – we still have 20-30 years to save and invest for our retirement years. And, if done correctly, we can release the shackles our past financial decisions have placed on us and take back our financial freedom.

Let’s check out some expert advice that everyone in their 40’s (or even 30’s) should seriously consider enacting in order to lay the groundwork now for financial security in the future.

1) Start an Emergency Fund

Have you ever been blindsided by life? Imagine car trouble and a medical emergency, all within a few days or weeks of each other. The financial and emotional stress can send you into a tailspin, leaving you scrambling to make it all work.

Most people in this situation have to borrow money or charge these unexpected events to a credit card, leading to a cycle of debt and financial insecurity. In fact, according to a recent NeighborWorks America survey, 34% of Americans have no rainy day savings to fund these unexpected emergencies.

So, how can you prepare for a rainy day? Well, that depends upon your unique situation. Experts suggest having a minimum of one month’s worth of take-home pay set aside. Ideally, three months salary should be your target number. For those who are self-employed or have a more inconsistent income, you should plan for up to 9 months in savings.

2) Manage Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is the figure lenders use to gauge how well you manage your debt. To ascertain your DTI, add up all of your minimum monthly loan/debt payments and divide the sum by your gross monthly income.

For example, if your home mortgage is $1,200/month, $400 for your vehicle, and you owe $300 monthly for minimum credit card payments, your monthly debt total is $1,900. With a gross monthly income of $3,900, your DTI would be approximately 49%.

DTI is one of the most critical components lenders look at when considering approving a loan. The lower the number, the less of risk you’re considered. While there’s no set rule regarding the numbers, experts recommend maintaining a DTI of 25% or less.

3) Get Serious About Unsecured Debt

Unsecured debt is one of the biggest financial burdens young adults take on. They carry the highest interest rate and you have nothing to show for it in the end except snowballing debt.

To determine if you’ve taken on too much unsecured debt, do an analysis. Itemize your debt by interest rate, so you have a clear picture of what you’re up against. Then, devise a plan to pay it off, ideally in the next five years. Consider tackling the credit card with the highest interest rate first. Pay the minimums on all other cards, putting all extra monies towards the high-interest card until it’s paid off. You’ll be reducing your debt-to-income ratio, improving your credit score, and putting yourself in a better situation financially.

Whether you have a significant amount of unsecured debt, or have kept it in check, it’s best to pay cash for as much as possible. This ensures you only purchase what you can afford.

4) Manage Your Credit Score

Another tool lenders use during the loan qualification/underwriting process is your credit score. Your FICO score can range anywhere from 300 to 850, with 850 being the best. While standards regarding what constitutes a good or bad score vary from lender to lender, the below is a good reference when determining your credit health. And the lower the score, the higher your interest rates (assuming you qualify) on everything from your home loan, to auto loans and credit cards.

Excellent Credit: 750+

Good Credit: 700-749

Fair Credit: 650-699

Poor Credit: 600-649

Bad Credit: below 600

To determine your credit score, we recommend checking with all three credit bureaus – Equifax, Experian and TransUnion. Everyone is entitled to one free credit report, per credit bureau, annually.

Stay tuned for Part 2, where we explore additional strategies for achieving financial freedom in your 40’s. Remember, it’s never too late!

7 Common Financial Mistakes 20-Somethings Make (and How to Avoid Them)

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Your 20s are a unique time. You’re discovering yourself and learning about what life is like in the “real world.” It’s a time for maturity and growth, all while trying to hold onto your youth. It’s also a time for milestones – you’ve graduated from college and, hopefully, will get your first professional job. Some will get married, buy houses, and even think about starting a family.

What you’ll also do, is make mistakes. And the beauty of it is, you will have time. Time to learn and grow from those mistakes, as well as recover from them.

While much of our personal growth stems from mistakes we’ve made, life is easier when we’re able to learn from other’s past mistakes. Today, we wanted to share some common mistakes made by 20-somethings along with some advice that might help you avoid the disappointment and allow you to focus on enjoying all that your 20s has to offer.

Mistake #1: Underestimating the Value of Disability Insurance

Life can change in an instant. You’re far more likely to suffer from a disability that prevents you from working than you are premature death. And the results can be catastrophic. In fact, According to the American Journal of Medicine, disabilities are responsible for 62% or all personal bankruptcies. Yet approximately 1/3 of the American population has disability insurance.

Don’t risk your financial stability just to save a little on your budget. Most employers offer disability coverage at an affordable price. If they don’t offer coverage, private disability insurers also offer affordable rates; and those policies can follow you from job to job.

Mistake #2: Not Having Life Insurance

Most young people believe they don’t need life insurance. But the reality is – this is the best time to buy. This is the cheapest your life insurance will ever be and your body is at its healthiest.

Before investing in life insurance through your employer, do your research and request quotes for individual policies. You’ll likely qualify for a cheaper rate and will still have coverage if and when you move on to the next stage in your career.

Mistake #3: Putting Off Saving for Retirement

While you have at least 45 years until retirement, it’s never too early to start saving. The earlier you begin saving, the more time you have for financial growth. The longer you wait, the more the math works against you. Saving early = a comfortable retirement.

Mistake #4: Focusing Too Much on Paying Down Student Loans

It’s only natural to want to pay down your student loans as quickly as possible. It’s the last thing tying you to your youth and it feels like a monkey on your back. While we agree, paying down debt should be a priority, many financial advisors urge 20-somethings to focus on maintaining a well-balanced budget. Many make the mistake of paying out too much too soon and find themselves in a situation where they must use credit cards to live. Interest rates on credit cards are around 20%, while student loan debt is tax deductible and comes with a much lower interest rate. Keep yourself more financially free by avoiding credit card debt as much as possible.

Mistake #5: Paying Higher Taxes

Everyone’s always excited when they receive their tax refund. But the reality is – you’ve given the government an interest-free loan using the money you’ve earned. Adjust your withholdings and use your hard-earned money throughout the year.

Mistake #6: Ignoring the Importance of a Good Credit Score

Believe it or not, you’ll have just as much difficulty obtaining a low-interest loan with no credit, than you will with bad credit. In fact, it’s no longer just banks who show interest in your credit score – employers, insurance companies, and landlords also consider your credit score when reviewing your application. Start working on your credit score now by paying your bills on time and opening up a credit card that you use and pay off each month.

Mistake #7: Living Above Their Means

When you embark on your path to adulthood, you’re pulled in a million different directions. You start out with virtually nothing, while earning the least amount of money. It’s easy to get caught up in trying to keep up with the Joneses. By the time you realize you’re living above your means, it’s too late. The damage is already done.

Rather than making big purchases on credit, set goals for yourself. If you want that new couch, make it a short-term goal and save for it. Put money away in a rainy-day fund; you never know when unexpected expenses might come up.

In the end, the best advice for continued financial independence is to learn to properly budget what money you have and stick to your plan. Often, young workers have a tendency to spend as soon as they get paid with no foresight to unforeseen costs and expenses. This may work for a while, but eventually most want more than to just get by. Especially as we age, many realize the importance of planning for your future while you’re young. The practice of budgeting and being financially intelligent is a lifelong endeavor and is made more successful by initiating positive habits at a young age. Even enacting a few steps are steps in the right direction. Get your money working hard for you now so you don’t have to work so hard for your money later.

9 Advantages of Term Insurance

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Ushering in the New Year fills us with hope and promise. It’s a time to reflect on all the great memories and lessons learned. Whether you make annual resolutions or continuously add to your list of goals, we start with a clean slate – 365 days to build the next chapter in your life’s book. For many, getting more financially fit is part of their goals moving forward. Investing in term life insurance is a wonderful and affordable way to ensure financial security for you and your family for years to come.

Navigating the ins and outs of life insurance options can be disconcerting, which can cause many to “save it for another day.” If you’re considering your first life insurance policy, there are a number of things to consider. Before making your final decision, we recommend speaking with a knowledgeable professional about your unique needs.

Term life insurance offers many advantages over permanent life products.

More Coverage for Less Money

Term life insurance policies allow for the largest death benefit at the lowest price, particularly in your youth. Some premiums increase at each renewal, however, so be sure to review the policy’s illustration with your agent before making a commitment.

Flexibility

The great thing about term life insurance is that it comes with many options. Coverage is offered for as little as one year, or as many as thirty years.

Simplicity

Unlike permanent insurance, term life is easy to understand. Because it’s simple in nature, shopping for quotes is both quick and easy, as is the decision-making process. You have just three decisions to make – length of term, coverage amount needed, and favored insurance company.

Added Riders for Broader Coverage

None of us can predict the future, making it that much more difficult to commit to a life insurance policy long-term. Insurance providers understand this and offer a number of riders to accommodate your evolving needs. If you’re unfamiliar with these riders, our blog Hidden Value: 8 Term Life Insurance Riders You Should Consider offers details on term insurance riders and their advantages.

Not Part of Probate

Unless the estate is named as the beneficiary of the estate, life insurance death benefits are not included as part of the probate estate. Thus, beneficiaries are paid without any of the typical delays cause by administration of the estate.

Often Exempt from Taxes

Term life death benefits are typically exempt from federal income taxes, as well as from state inheritance taxes.

Meets Short-Term Life Insurance Needs

If you’re looking to fulfill temporary life insurance needs, term life insurance is typically your best option. This is particularly true for consumers under forty-five and for terms of less than ten years. If term of protection needed is between ten and fifteen years, or if you’re older than forty-five, it’s best to meet with an insurance professional to discuss your options.

Convertible

We all know how difficult it is to make a decision now that can affect you for years to come. Most term policies have an option to convert to permanent insurance at a later date. This allows policyholders to have the best of both worlds – higher death protection during the younger years and locked-in premiums later in life, as they build up cash value.

Affordable for Those Just Embarking on Their Careers

Many young professionals realize the value of purchasing life insurance, yet don’t have the funds to commit to permanent policies. Because term insurance doesn’t build cash value, insurance carriers are able to offer higher coverage at a fraction of the cost of a permanent policy. This affords young families the peace of mind of knowing their loved ones are cared for should something happen, without breaking the budget.

While our life insurance needs vary, depending upon each unique situation, term insurance is a viable option for many. Vista Life Plan’s term life insurance tool can help you easily compare rates.