Farnoosh Torabi's Blog, page 60

How To Retire by 50

For Darrow Kirkpatrick, retirement means no work, all play, and enough money to fully enjoy the golden years. And at just 50 years old, he’s arrived. I sat down recently with Darrow for Yahoo! Finance to discover how he retired at 50. Watch for tips on how you can too and read more here.

What do you think it takes to retire early? Connect with me on Twitter @Farnoosh, and use the hashtag #finfit.

Erasing Student Loan Debt

[image error]There’s an old proverb that states: “A journey of a thousand miles begins with one step.” For recent college grads, saddled with tens of thousands of dollars in student loans, the path towards full repayment could be a long and stressful one. One key is to take advantage of the many tools and resources to help guide borrowers along the way.

I recently spoke with Heather Jarvis, a student-loan expert who graduated from Duke University School of Law with about $125,000 in student loans. She dug herself out of debt, while practicing as a public interest attorney, and now advocates for borrowers.  Here’s some of her advice:

 

Face the Reality…Sooner Rather Than Later

“The first thing you need to do … is take inventory of your debt,” says Jarvis. “Before you graduate it’s time to look at your loans, how much you owe, to whom and how can you begin repayment.” She says begin with a full list of all your loans. If you’ve lost track or need help, visit the National Student Loan Data System for an itemized list. You can also check your credit report at AnnualCreditReport.com for private loans (it’s free to check once a year). Next, contact you lenders to discuss the terms of your loans and to update your contact information to begin communication. Updating your address, phone and email is critical, as bills and important letters from  your lender may get sent to an old address.

Establish a Repayment Plan

Next, and perhaps the most critical step, is to begin scheduling your payments before the grace period expires. If you don’t arrange the terms of your loan repayment, your lenders will set them for you (and in this economy, often more than most grads can afford). For federal borrowers, there’s some helpful news. If you have federal loans, Jarvis says look into an income-based payment plan to lighten your monthly load at IBRinfo.org. For those without jobs or steady income, she says there are also ways to postpone repayment through deferment or forbearance. Just be careful that if you do postpone payments, interest sometimes still accrues and will be added to the principal, making your loan more expensive over its lifetime.

With the appropriate terms in place, it’s important to track your progress. Repayment calculators and useful budgeting tools available at Mint.com can help you keep a running tally of all of your balances in one place, while also tracking your progress toward repayment goals.  

Don’t Let Things Turn Ugly

It’s critical to never miss a monthly payment to avoid default, interest accrual, garnishment of wages and damage to your credit score. “Take any money you have to pay down your student loans,” says Jarvis. “The biggest mistake you can make is allowing interest to accrue and capitalize when it doesn’t have to.”  Student loans are often categorized as “good debt” due to their relative low interest rates and educational purpose. But falling behind on monthly payments can easily turn good debt into ugly debt.

Assume Control

“No one cares about your debt more than you,” Jarvis says. “This isn’t like college where there’s a counselor  to walk you through it. You’re at the helm now and student loans are incredibly complex, maybe more than mortgages and auto loans.” To demystify the process, Jarvis says communicate with your lenders every chance you get. They can often help with planning repayment and their mailings, which may seem pesky, but include important changes that will effect your loan. Finally, if for any reason your financial situation changes,  Jarvis says  reassess your payments to reflect that. “In this economy, many graduates don’t have a lot of money. You’ll probably start off with small payments but the day will come when you can make huge strides to repaying your loan.”

Photo Courtesy, Maria GB2D

#AskFarnoosh: Getting ‘Serious’ About Retirement

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This Friday, I’ve chosen a retirement question asked on Twitter that is, likely, on many baby boomers’ minds.

@Kesjv81d (aka Victor) asks me: 

I’m 50. At what age should you start moving investments to a safer place? 

Dear Victor,

For this, I consulted with Stephany Kirkpatrick, the director of financial planning for LearnVest.com, a Web site that integrates budgeting, investment and planning tools. She says 50 is the right age to get more serious about retirement planning and minimize your exposure to risky investments.

“At that age, the average American is probably 10 to 15 years out from retirement,” she says. “The time horizon is short enough that you should be cognizant of how much risk you’re taking on.

Now’s a smart time to review your portfolio’s allocation and make necessary adjustments if you’re overexposed to the stock market. Kirpatrick calls this “realigning your risk.” And you should do this at least twice a year – no matter your age.

One rule of thumb you may have heard about is to take the number 110 or 100 and subtract your age to determine the percentage of stocks suitable to have in your retirement portfolio. So at age 50, for example, you may not want more than 50% to 60% of your holdings in stocks. Kirkpatrick, however, is a bit more conservative. “Typically, 10-15 years out you should have less than 40% in stocks or other risky investments,” she says. Why? “Many people are living longer than expected. You could experience higher expenses for things like healthcare, or inflation could rise like we’ve never seen before, reducing your buying power,” she points out.

Legal Risks of Social Media: How to Play It Safe

[image error]Social media is nearly impossible to escape. Platforms like Twitter, Facebook and LinkedIn have become an integral part of how we communicate in both our personal and professional lives. At the same time, this new media also exposes us to potential legal risks and challenges.

I recently spoke to Attorney Robert McHale, author of “Navigating Social Media Legal Risks,” which was released earlier this year. It’s chock full of great advice to help you avoid legal pitfalls while Tweeting or posting on sites. In the book, McHale describes the world of social media as a kind of public square where many real-world laws around copyrights, endorsements and defamation still apply. If you’re not careful, it’s easier than you think to fall victim to legal prosecution or a fine.

Here are some important takeaways from our conversation.

Everything’s Public

It’s safe to assume that anything posted to social media is open for public consumption, even if your account is private. In his book, McHale describes a 2009 case involving MySpace that ruled that the female plaintiff had no right to privacy around an article she posted to the site. The decision also ruled the article wasn’t protected from reproduction.

This is a major concern for the average user but, especially, creative professionals – photographers, writers and designers who open their content to reproduction. “Your copyright exists automatically, but some content could be reproduced under Fair Use Law for example,” says McHale. If you choose to post your original content online, he suggests you protect it with watermarks or other tags declaring your ownership to discourage reproduction. And if you become aware that someone has copied or used your work on a social media platform, report the issue with the site. Most have policies to remove it in a timely manner.

Be Careful When You Re-Tweet

Many users – especially journalists – attempt to safeguard their accounts by indicating in their profiles that retweets or “likes,” for example, are not endorsements. That’s smart because if you use your account for professional purposes, supporting a business or individual with whom you have a relationship could be a conflict of interest. McHale tells me that, “online, as in the real world, you’re obligated by standard disclosure laws.” In Chapter 6, McHale writes you can mitigate your liability with disclaimers. So  if you’re going to promote a business partner on your Twitter timeline, for example, disclose the relationship with a #partner, #paidcontent or #sponsored hashtag.

If You Don’t Have Anything Nice to Say…

Laws that govern defamation and libel also apply to your blog posts, status updates, tweets – and possibly your retweets! “The technology is so new new that there aren’t definitive answers,” says McHale. “But it’s safe to say…that if you’re posting or sharing false claims then you’re opening yourself up to liability.” Everyone has their right to free speech, but making a claim like “Company X makes a harmful product” could be defamatory and ”liking” or retweeting a negative claim could potentially be seen as an endorsement of it. When in doubt, consider the old proverb: If you don’t have anything nice to say, don’t say anything at all.

Best to Keep Personal and Business Separate

Finally, McHale says keep your work and personal accounts separate. Employers may not have the right to pry into your private profiles but what you share online could have major implications for your work. Keep the boundaries clear by avoiding references to your job on personal accounts. For example, don’t  tag your employer in your personal Twitter bio. Aside from blurring the line between professional and private, McHale says your employee could  potentially make a claim that your followers, like clients, belong to the company.

Dress to Impress on a Budget

 

 

Sometimes you want to make the best impression, whether you’re interviewing for a job, going on a first date or simply wanting your wardrobe to make a statement. For those of us on a budget, here are some ideas from Taylor Jacobson, celebrity stylist on Oxygen’s upcoming winter series Hollywood Unzipped. She’s got great tips on to how to look like you’re worth a million bucks — even when you’re not.

Read more here.

What are some ways you’re dressing to impress? Connect with me on Twitter @Farnoosh, using the hashtag #finfit.

The Real Cost of Knock-Offs

[image error]Think you’re saving money by shopping on Canal Street? While some fashionistas take pride in their knock-off purchases – saving up to 90% — they may actually be doing more personal financial harm than good.  There’s research that says opting for that deeply discounted bag may lead you to spend more than you would have had you just splurged for the authentic version.

In fact, a study from the Massachusetts Institute of Technology Sloan School of Management found that purchasing counterfeit products like knock-off designer handbags makes you up to 70% more likely to splurge on the bag you’re really coveting, particularly when the fake starts to show wear and tear.  And according to researchers at Northwestern University, exposure to these counterfeit goods makes people more aware of, and desirous of, the genuine article.  These ‘gateway’ couture knockoffs give you a taste of the real thing — especially when you receive compliments on your accessory — that makes replacing the fake with the real version extremely tempting.

Additionally, buying and selling fake designer handbags is illegal. Counterfeit bags infringe on the copyright and trademarks of the designers and brands who make the originals, and harm legitimate retailers.  Experts say these products are predominantly made using child labor in China, and even contribute to a billion dollars in lost tax revenue in New York City, for example.

Photo Courtesy, bbaunach.

Should I Switch to a Credit Union or Online Bank?

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Customers aren’t crazy about their banks. According to a recent survey, consumers give the big banks what amounts to a “C” grade for their overall experience. Many remain loyal, however, despite growing dissatisfaction.

The 2012 J.D. Power and Associates retail banking satisfaction survey measured customer satisfaction in retail banking along six criteria: account activities, account information, facility, fees, problem resolution and product offerings. Results show the biggest hit to customer satisfaction from the year prior is rising disapproval in account fees for things like monthly maintenance.

Banks seem to have offset the negative impact however. Between 2010 and 2012, customers have become increasingly more pleased with bank facilities, locations and service. For example, 76% of customers say they’re greeted by a bank employee when they enter their bank, up from 68% in 2010.

Nonetheless, research shows 72% of consumers would consider switching banks if fees increased, according to Greg McBride of Bankrate.com.

The good news: There are alternatives through credit unions and online banks – and it could be worth it to make the switch. Credit unions, with their community approach to banking, have always been an attractive alternative to the hassles of big banks and the advent of technology has moved more bank activity online, giving tech-savvy consumers a low-cost option. Here’s more of a breakdown of each alternative:

Pros and Cons to Credit Unions

Credit unions are member-owned, non-profit entities. McBride says that translates into a communtiy approach and ultimately more favorable terms for accounts and other products. “Credit unions are perfect for the consumer who wants to get away from rising bank fees. Many are expanding their networks and free checking accounts are still plentiful at credit unions,” he says. The downside: Most charge a nominal fee for membership. They’re relatively small size also often means less support in the form of local branches, 24-hour customer service, online help and ATMs. Recently, however, credit unions have banned together in surcharge-free ATM alliances to help their customers avoid fees. Contact large institutions in your are but also inquire within your workplace, union or professional organization to find what credit unions are available to you.

You can search for a local credit union at ASmarterChoice.org

Perks to Online Banking

Online banking is more popular than ever because of their competitive rates. Banks like Ally, Everbank and ING Direct offer yields well above their traditional counterparts because they’re not limited by large operational cost. Many also offer accounts that reimburse you for ATM fees. “This is an area where online banks match, maybe even beat traditional banks,” says McBride. “A large network of practically free ATMs makes them competitive. It takes away the network edge that the big banks have.” Online banks are also generally easier to join than credit unions and traditional banks with membership just a few clicks away.

How to Decide?

“Before making a move, consider your financial personality; how you bank most often and what’s most important to you from a bank,” says McBride. There are undoubtedly advantages to banking with large institutions. If you’re someone that makes regular cash deposits, likes access to a teller or depends on mobile banking, there’s no match for the big banks. Their networks and support come at a cost however – namely increasing fees. Credit unions and online banks offer higher yields on their accounts and less fees on average.

To help you better compare, Bankrate has an easy-to-use tool to locate financial institutions in your area – or online- with the best rates and other features to fit your needs.

Photo Courtesy, 401(K) 2012.

Teens & Money: 3 Ways to Help Them Care

[image error]In our shifting financial landscape, it’s important to teach our kids the basics of personal finances, but according to a recent survey by ING Direct, only 17% of teens say they know much about managing money.

Also from the research: most teenagers get their money from jobs outside of the home (44%) and their primary money concerns include saving and budgeting. The survey also finds that nearly a quarter of the teens don’t know the difference between a credit and debit card.

Sounds familiar? Here’s some advice on how to educate your teen and have the money talk.

 

Make Money a Daily Topic

Mom and dad are more prepared to talk to their kids about drugs and alcohol than finances, according the ING data. Most parents don’t even know where to start says Tamsen Butler, author of The Complete Guide to Personal Finance: For Teenagers and College Students. “So many parents are too deep in the day-to-day and [don't see that] their kids don’t get things.” Interestingly though, more than half of teens (52%) say they learn about money at home. So, parents – whether you know it or not, like it or not – your kids are observing and learning about money – from you. As such, make financial literacy a day-to-day priority and take an active role in teaching them good behaviors.  Butler recommends starting when your kids are simply sitting in the grocery cart, explaining shopping choices and payment. “[Make money] a topic in your daily life as a family,” says Butler.  Then, advance the conversation – to saving for a car or college – once they’re teenages.

Encourage Kids to Earn

Butler says lessons around the value of a dollar are best learned in practice. ”Teens can take what they’ve earned and put it into a checking or savings account to really build skills around budgeting and saving,” says Butler. “What we know as adults is that those things have to become habitual.” Most teens earn money from jobs outside the home, but if yours doesn’t, you should consider an allowance based on chores that go above and beyond their normal family duties (like making their beds or clearing their plates after meals). One rule of thumb is to provide $1 per number of years old per week. So, if your child is 10 years-old, offer $10 per week. As they get older into high school, that rule of thumb may not suffice, so consider giving them enough to cover some activities such as going to the movies with friends and sneakers, as well as buying lunch fro school. They’ll have to budget with what you allot them them…all of course, still in exchange for household responsibilities and chores. If that’s not enough, there’s always part-time work!

Create Teachable Moments

Lastly, don’t dismiss your teen’s financial wants. Instead, use them as teachable moments.”If they come to you asking for a cell phone of even just for cash to go to the movies, it’s an opportunity to teach them about money,” says Butler. Maybe you start comparison shopping together and hunt down the best deals. Or, perhaps you discuss what your child can do to earn that cell phone. Remember: Within a few years, your teen will be faced with even bigger decisions – from where to attend college to landing that first job – that will greatly impact their financial futures. A little prep work today will go a long way in furthering their financial lives as adults.

And if they have questions, they’ll at least feel confident they can turn to you for advice (rather than a bailout!)

Photo Courtesy, Tax Credits.

Top Financial Scams of 2012

Living in the age of information and technology comes with many conveniences, but it also means we need to pay extra attention to potential scams. Check out my latest video on the top financial scams of 2012, how to recognize and avoid them.

Read more here.

What are some other common financial scams? Connect with me on Twitter @Farnoosh and use the hashtag #finfit.

How to Buy a Second Home

[image error]The housing market recovery, fueled by record low interest rates, is still going strong. The average interest rate on a 30-year fixed-rate mortgage fell to 3.72% in mid September, according to the Mortgage Bankers Association Mortgage Index, the lowest rate in the history of the survey. And Fed chairman Ben Bernanke recently announced efforts to further stimulate the economy and keep interest rates low until 2015.

All this has not only peaked the interests of home buyers and owners seeking to refinance, it’s also lifted the market for second-property buyers.  (Farnoosh covered a similar story back in 2009 during the height of the recession.) The National Association of Realtors estimates last year vacation-home sales rose 7% and investment-home sales surged 64.5%. Together they accounted for 38% of all market transactions.

For those who are interested in getting in on the action, consider these tips:

Be Patient

Generally speaking, banks have tightened their lending practices since 2008 for obvious reasons. Obtaining your first mortgage can be challenging enough – but securing a second home loan? The standards become even stricter and the process longer, as banks worry you may be stretching yourself too thin with two mortgages, according to Michigan mortgage broker Jim McDonald. He says most banks ask for a so-called Letter of Explanation as to why you want to a second property, in addition to the the usual underwriting that checks your credit and debt-to-income ratio.

If you’re planning on renting the home and using it as an investment property, the bank may then request a cash flow statement that shows the property’s rental history, among other items. As for your personal financials – you’ll need to be up to date on payments for your primary mortgage, have a good credit score (we’re talking 740, 760 or better) and 20% in cash for a downpayment to earn a low interest rate.

Do Some Real Math

Before shopping around for a second home, make sure you have enough income to easily cover the cost of your existing mortgage, as well as savings equal to six or more months of expenses in case of an emergency. Then assess the annual costs of a second home which – in addition to the mortgage – will include utilities and maintenance, plus possible management company fees, which can run you three to 10% of rent. When in doubt, best to overestimate your costs!

Be Strategic About Location

Like any other property, the location of your second home is essential. Of course, you’ll want a spot that’s conveniently located and that you can visit as much as possible (and possibly retire to down the road). Additionally, assess the area’s rental market in case you ever decide to become a landlord. Speak with local realtors to get a sense of the rental market and average rates. You can also check real estate site Zillow.com for up-to-date, local market activity. Currently, across the country, landlords are making out quite well. Housing vacancies are at a 5-year low, according to recent Census data, and the average rent paid nationally has risen to an estimated $871 per month!

Photo Courtesy, Svenstorm