How to shave years off your mortgage without refinancing!

Recently, I've been seeing a lot of NY Lottery advertisements.  Apparently, the jackpot is growing and folks are getting excited about it.  I admit that every once in a while I buy a ticket and start to dream about what I would do with my winnings.  I have to admit that I am a pretty boring dreamer because the first things I think of are paying of my student loans and mortgage (then I'll plan a big vacation).

Those of you who have been reading my posts for a while know that I am ALL ABOUT paying off debt.  That mortgage debt is a big one.  Paying if off feels pretty unobtainable.  Many people just barely qualified for a 30 year fixed mortgage, let alone a lesser term.  If you started that mortgage at the age of 40 or more, you are looking at being stuck with that payment until you are 70 years old.  While, that might sound fine for some, the idea of being saddled with that payment beyond the age of 60 is daunting to say the least.  So, what do you do about it?

Perhaps you should consider making one extra payment per year.  Let's look at some numbers.  If I opened a $150K  mortgage today (8/10/16) with a 30 year fixed rate of 3.40% (APR), my monthly payment would be $532.18 (this does not include the property taxes, which many of you will roll into the monthly loan payment; the property tax amount does not matter for the sake of our scenario, just know that you will have to account for that).

If I paid only the exact payment every month my loan would be paid in full on August 10, 2046.

What happens if I make one extra payment per year.  If I paid an extra $532.18 to the principal each year (on Aug. 10), that make my payoff date Dec. 10, 2042.  I know many of you are thinking that coming up with an extra $532.18 each August is going to be difficult.  What if you divided this "extra mortgage payment out over the course of the year?  You would be paying an extra $45 per month, and your loan would be paid in full by Nov. 10, 2042 (1 month earlier this way).  I don't know about you, but I could come up with $45 per month!  If I could double that, my mortgage would be done by Dec. 10, 2039.

I know these dates seem really far away, but let's look at it another way.  An extra $45/month (or 1 extra payment/year) gets my 30 year loan paid off in just over 26 years.  When I doubled it to $90/month (or 2 extra payments/year), my 30 year loan would be paid off in just over 23 years.

So, if you cannot qualify for a mortgage term that is less than 30 years, this strategy may help you save yourself a lot of years in mortgage payments (not to mention money in interest).  If you would like to see what your own numbers would look like, I like the calculators on bankrate.com, but really there are a lot of them online, and you can easily change the dollar amounts, interest rates, and dates to suit your needs!

So, your Social Security Number may have been compromised! Now what?!

I want to share a story with you.

A couple of years back, I filed my taxes.  I was very eagerly awaiting a refund, and decided to call the IRS when a couple of months had passed and I had still not received anything.  I was placed on hold several times, and finally got to speak with a real human being.

Unfortunately, the woman on the other line had bad news for me.  Apparently someone else had filed a tax return using my Social Security Number!  They "couldn't tell me" who it was, or any information about them, but they COULD tell me that both returns were under investigation, and that it would take up to 8 or 9 months for me to get this all sorted out!  I never use my tax return to budget for necessary living expenses, so I was going to be fine financially, but I was still really scared!

I had no idea how my Social Security Number (SSN) had been compromised (I never carry it), or to what degree!  If anything like this ever happens to you, here are some important steps to take:

1. Immediately check your credit report.  Request reports from:  Experian, Transunion, and Equifax.  You get one per year for free by going to:  www.annualcreditreport.com.  There are other sites, but this is the free one!  Others will typically have other services attached to them that you do not need.  Make sure there isn't anything on the credit report that isn't yours.  If there is, you can dispute it!  It takes time, but it is completely doable.  If you want your credit score (the literal number), they will charge you a fee for that (usually $7 or so per agency), but the report itself is free, and all you really need.
2. Call at least one of the credit reporting agencies and request a "90 Day Fraud Alert."  Once you have called one agency, they will automatically notify the other two for you.  This doesn't literally freeze your credit report, but if someone tries to get credit with your Social Security Number, a note will come up on the lender's screen saying that there is a "fraud alert." 
3. If you feel really certain that someone is actually trying to get credit using your SSN, you can request a "Credit Freeze."  This will cost you around $30, but it will literally make it impossible for someone to pull you credit report in order to apply for new credit.  This does include you!  If you do this, you will also have "unfreeze" it if you want to apply for a loan of any kind.
4. Get the IRS to issue you a tax ID number that is NOT your social security number.  They do this automatically if you've ever had a situation like mine, but there is a process by which you could request this if you believe your SSN was compromised in a different way.

In my situation, my SSN was only compromised for tax purposes.  This person was trying to file false tax returns in order to obtain money from the government.  They did not try to get credit using my number (fortunately).  I have been using an alternate number to file my taxes each year (as issued by the IRS), and I placed a 90-Day Fraud Alert on my account.  About a year later, the IRS did give my me return, so despite the stressful situation, all ended well.

There are tons of ways that your SSN could be compromised, and hopefully this never happens to you, but if you do have an experience that makes you think your SSN is at risk, there are some steps you can take to protect yourself.

Life Insurance 101

This week was Valentine's Day, and I want to tell you what I got for my significant other:

1. A lovely potted flower
2. A lovingly prepared dinner
3. ...and a life insurance policy

Am I romantic or what?

I know, getting someone a life insurance policy as a gift might be about as exciting as getting them a vacuum cleaner, but I have to tell you, both are very much needed!  Besides, nothing says "I love you" more than making sure they are taken are of if disaster occurs.  I know those of you that are in your 20's and 30's are going to be tempted to dismiss this post and tell me that you have time to do it later, but I am going to urge you not to drag your feet on this one.  If you are in decent health right now, you will be insurable.  If you wait until later, and your health declines, you could find that you are uninsurable, or that the premiums are going to be much higher than they would be if you bought a policy earlier in life.  Also, do not think that just because your work place has insurance on you that you are fine.  It is likely enough to cover funeral expenses but little more.  You will have that as long as you work there, but not any longer.  Also, you need to give your family a little more financial peace than simply "getting you buried," right?

If there is anyone that depends on you financially, then you need life insurance.  There are primarily two things that you need to consider first and foremost:

1. How much money do you need the death benefit to be?
2. Which type of insurance should you buy?

So, the first questions "How much life insurance do I need?"  There are a TON of theories on this.  Some folks say that you need at least 20 times your annual income.  This is a million dollar death benefit for someone that makes about $50,000 per year.  Sounds like a ton right?  Well, there is another reason for this.  If your loved one gets paid out a million dollars and invests it all.  If they got a 5% return, and only lived off of the interest, they would be able to replace your salary without ever touching the original payout amount.

Is there a minimal amount of life insurance you need?  Something less than a million dollar policy?  Well, this is something that you need to really think about.  Evaluate your family's honest needs.  Do you have children?  If so, would there be childcare needs, etc?  If there are not any children, does the other adult have the ability to support themselves?

Let me tell you the manner in which I evaluated my family situation.  My family (household) consists of two adults, both of which are able to support themselves.  When only one of us is working, it is very tight but doable.  Knowing this, I have elected to purchase  policies on both of us.  The death benefit is enough to allow us to pay off our house and have two years worth of the other person's income.  I feel as though this is an amount that will safeguard my family, but I would also be pretty leery of having a death benefit that was any less than this.   This dollar amount would allow the survivor to live mortgage free, which would drastically cut down the remaining monthly expenses.

The second question is "Which type of insurance should I buy?"  There are a few basic types of life insurance:

• Whole Life
• Universal Life
• Term Life

Most people will be just fine with term life.  Term life is just a straight up insurance policy where you decide how long you need to be insured, and the dollar amount you need as a death benefit.  People with children frequently choose a term based on how long they will be financially responsible for children.  They do this thinking, "I know my spouse will be able to support him/herself once the kids are grown."  This is a pretty logical choice.  Others choose a term that relates to their retirement age.  Once their spouse will be able to collect their retirement funds, social security, pensions, etc., they feel confident that those items will take care of their spouse, and feel that they no longer need the insurance.  Remember, when the term expires, your policy is done.  Also, generally a term life insurance policy usually has a fixed premium (at least for an initial span of time), so the younger and healthier you are when you get one, the cheaper it will be.  Of course there are special types of term policies that allow you to continue coverage once your term is done.  Typically, these policies offer a smaller death benefit after certain ages (they decrease after 65, 75, etc.).  The premiums usually also increase when you switch age brackets.  When I was shopping, I notice "TERM" life and "LEVEL TERM" life insurance.  So, if you are looking at term life, be sure that the company doesn't have multiple kinds of insurance policies that fall into the "term" category.  If they have multiple types, make sure you know what you are getting.

Whole Life and Universal Life are considerably more expensive.  While a term life insurance doesn't have any "cash value," meaning they aren't worth any money unless the insured passes away.  These other types of policies carry a cash value.  It is sort of like it is half investment and half insurance.  As long as the premium is paid, you could conceivably keep this type of policy for your entire life.  Now, that does come with a price.  They have a more expensive premium for sure.  For most people, I think TERM make more sense.  I personally like to keep my investments separate from my insurance policies, however, if you feel that your circumstances warrant coverage for longer than a 10, 20, or 30 year TERM policy will allow, you should investigate this type further.

I am NOT licensed in insurance in any way.  Someone that is licensed in insurance can give you a great deal of information with regards to any policy types that you are interested in.  That being said, I would warn you against going blindly into an appointment where insurance is involved.  An insurance salesperson is exactly that, a SALESPERSON.  While they have a lot of knowledge that can help you greatly, it is also their job to sell policies.  An honest and reputable person will only help you to get into a policy that will benefit you, but still, you need to be your own expert.  You CANNOT go into an appointment having no idea what you want, or what you need.  If the sales person operates on commission, they will make money from selling you more expensive policies.  Also, no one cares more than you about your family.  You have a lot of reason to want to make sure that you know what you are getting, and that you are getting what you want and need.  Don't let someone determine that for you because you "don't know" or are too afraid to take a hands-on approach.

More to come on insurance on future posts.  Hopefully, this will get you started toward making some choices that will allow you to sleep well at night knowing you family will be safe.

Credit Cards and Credit: How many is too many?

Sometimes people contact me in order to ask certain personal finance questions.  I received one question today that I felt was worth bringing to your attention.  This person was recently denied a credit card for having "too many open accounts."  It is true that this person has several credit accounts, but is not maxed out on any of them.  Furthermore, this person has more credit available than what they have in use, and make all payments on time.  In other words, they have relatively low balances.  This person was confused about the decline because they felt as though they had been doing everything in a responsible manner.

In general, a person with "too many credit cards" presents a higher risk to the lender.  Lenders especially dislike seeing a number of credit inquiries in the past 12 months.   They look upon it poorly.  They  think to themselves, "Why does this person need so much credit?"  Let's consider this from another perspective (the lender).  Having too many credit cards is a somewhat opposite problem as that of having no credit cards, but a problem nonetheless.  When a lender sees someone with no credit cards they think "How do we know you're going to pay us back?  You have no track record."  With someone that has too many, they think "Danger, danger!  Red alert!  If this person's financial world turns upside down, what are they gonna do?  Max out all of these credit cards, then we will be one of 10 companies in line with our hands held out!  No way!  Stay away from that one!"

...And you have to admit, they have a point.  One of the risks that they take when they lend  to you is the fact that the credit card will be unsecured debt, meaning they can't come and repossess anything in order to make their money back if you fail to pay.  Quite frankly, if you were to file a bankruptcy, they very well might be out of luck! So, when they see "too many accounts," they tend to get a little skiddish.

Now for the magic question...  How many credit cards is "too many"?

Unfortunately, there is no right answer to this question.  Since there are a number of things that compose your credit, and each individual situation is different, that can't be boiled down to one simple number.  With that being said, here are a couple of guidelines.

1. If you don't need to credit, don't open the credit card.
2. Aim to have only 2-6 credit cards.

If you have more credit cards that this, don't rush out and start closing your credit accounts.  That could lower your credit score by making it look like you have a higher amount of debt compared to the credit available.  This is one of the factors involved in the composition of your credit score.  

For further information about what goes into composing your credit score, try going to the websites of FICO, Equifax, Experian, or Transunion.

2016 Social Security Game Changers!!!

It's all over the internet right now, and I hope you've been paying attention!  For those of you who are at or nearing retirement age or have family members that are, there are a few changes being made to Social Security Retirement Benefits in 2016 that you should be take into consideration.

Every year it seems that there are some changes that occur, but this year there are a couple of major game changers, so please pay attention!

1. Say goodbye to "File & Suspend"!  This is a BIG deal!  Historically, there has been a hugely beneficial money move for married couples called "File and Suspend."  This is where one person, upon the age of 66, files to claim their benefit, but suspends payment.  This means that they don't actually collect a check, allowing it to gain 8% interest per year up until the age of 70, allowing themselves to receive a much higher check when they do start to collect their check.  Then, the other spouse (lower wage earner) can claim a spousal benefit, while "filing and suspending" their own benefit (which will also start gaining approximately another 8% per year).  So, these couples have been wisely able to collect one Social Security check, while allowing their future payouts to gain interest, giving them both a higher future benefit.  This is a super smart move!  Well, this move can only be made until May 1, 2016.  Well, now, the "spousal benefit" part of that deal will go away.  You can still file and suspend in order to make your own payment higher, but while you do so, you spouse can no longer claim a spousal monthly benefit.  For further details about the official regulations regarding the "file and suspend" strategy, contact a financial planner or Social Security representative.
2. Say goodbye to "Lump Sum Payouts"!  One feature of "file and suspend" is the ability to collect more money later.  Historically, you could either collect higher monthly payments, or choose a lump sum payout.  People that chose the later frequently received checks up to half a million dollars.  This is a huge benefit for those who run into some sort of financial pickle that is highly unforeseen (think: medical bills, etc.).  Well, the lump sum payout is also going to be no longer.  Again, the deadline for this is also May 1, 2016.

Other changes being made are important, but much more typical.  They include:

1. Social Security payments will not see any raises in 2016.  Frequently, there is an increase for the cost of living, etc.  Well, not this year.
2. Medicare Premium adjustments are also typical.  If they are taken out of your check, you will likely not see a difference, but please check with Social Security via their website, or a representative for individualize information.

If you or a loved one rely on Social Security, it would be wise to investigate any upcoming changes, and how they might impact your individual situations.  It seems that there is still time to take advantage of some of the Social Security features that are going away, but you will need to act quickly.

If you are reading this, and have a family member that is impacted by Social Security changes, please don't be afraid to talk with them about it.  Sometimes, it is necessary to show people in our lives that we love them, by not "minding our own business."  Besides, if they don't want to talk about it, they don't have to do so.  At least you will have done your part!

Roth IRAs and Emergency Savings a Clever 2-in-1

Sometimes, I feel like I'm being pulled in too many directions when it comes to deciding what to do with my money.  It feels like there is not enough money coming in to contribute to all of the places that I need to be.  I've paid off all of my credit card debt, but I still have student loan debt that I'd like to eliminate.   I haven't obtained an 8 month emergency savings account yet, and I'm concerned about saving for retirement.  I feel like I have to choose, but I'm torn.  On the one hand, the more debt I have, the more income I need, so eliminating that will free up some money.  On the other hand, my retirement isn't going to pay for itself, and right now, I have 30 years until I retire.  That makes this the perfect time to allow my money to really compound and grow for retirement, but if I delay contributing, I will just end up having to save EVEN MORE money later in order to catch up.  Still there is a THIRD side to my conundrum.  If I don't have a properly stocked emergency savings, any disaster that comes upon me will require me to wrack up a credit card balance.  I REFUSE to let THAT happen!  So, what's a person to do?

Kill two birds with one stone, that's what.  Open a Roth IRA and start contributing the max (or as much as you can).  In 2015, as long as you are earning income, and make less than $116,000 (or $183,000 if married) you can open one.  You are allowed to contribute $5500 per year ($6500 if you are 50 years of age or older).  That's $458.33 per month.  If you can pull it off, the benefits will be tremendous.

Now, I'm sure a few of you are confused about how this relates to your emergency fund, right?  In a Roth IRA, you are allowed to withdraw any money that you contributed without a penalty.  You just have to be sure that you don't dip into any of the interest that it earns.  The interest earned in your Roth IRA must be left very well alone.  Well, actually, there are circumstances where you can also take the earnings, but that is considerably more complicated.  My recommendation is to simply leave that part alone.

So, if you are strapped for cash, but feel the need to do SOMETHING to start saving, I recommend opening a Roth IRA and funding to the max (or as much as you can).  This can double as an emergency savings as long as you only withdraw the contributions (not earnings).  You are to avoid having to do this at all costs.

Part two of this strategy is to consider where you will open it.  If you open it at a discount brokerage, you can invest in a manner that will likely grow your money much more quickly, but if you need access to the money, it will take longer (3-4 days) for them to transfer the money to your bank account.  My strategy is to open a Roth IRA savings at my local credit union.  Right now, the interest rates are terrible, but I can get the money into my checking account the very same day that I call them.  In a true emergency, this is a bonus.  I will only fund this one up to 1 month of my expenses.  Then I will switch over to funding one at a discount brokerage to maximize my money's growth.

Eventually, I will be able to fund both of these things separately, but until then, this is a good strategy.

Update:  It is also important to note that you can contribute to your IRA for the PRIOR year all the way up to the day that year's taxes are due!  For example, I am writing this update in Feb. of 2017.  Right now, since I haven't maxed out my IRA for 2016, I can make a contribution, and have my financial institution apply it to the 2016 tax year.  This is perfectly legal.  If you didn't contribute to it at all last year, you can use this strategy, and it will allow you to take the Retirement Savings Credit, which could be a HUGE benefit on your taxes!

How finding my "holiday magic" lead to starting a new holiday tradition

In my house, we are gearing up for the holidays.  We had already decided to stuff stockings for each other, and only to give one gift per person.  Furthermore, we set dollar caps on the amount to be spent.  That being said, I feel that we have done a terrific job of taking care of our monetary selves, but to be honest, I feel as though we were neglecting our emotional selves.

As a little girl, I always looked forward to Christmas as a magical holiday.  I'm not even referring to the myth of Santa Claus, or even the sheer amount of gifts under the tree.  I am referring to an emotional well-being that I've always felt as a result of the time I've spent with people I love and the sharing of stories and traditions.

When I reflect on that time, I realize that the gifts that I looked forward to were largely based on time spent with people, and traditions.  The problem is that many our holiday traditions are intertwined with a culture of overindulgence.  In order to replicate the "magical" feeling I had as a child, I felt the need to be honest in pinpointing that which created it.  My fondest, most magical holiday memories are watching a holiday program (children's play, ballet, singing Christmas tree, bands, choirs, or a holiday movie...), baking something with my mother or grandmothers (frequently something Norwegian, as that is my cultural background), music, and staying up late, in my pajamas, watching a movie with my family.  There are very few times, when the memory involved a gift.  When that did occur, it was usually a give that was the kind you cannot buy in a store:  the blanket my grandmother crocheted when I was an infant that was given to me as a teen, the wedding ring that my late father had given my mother, etc.  Really, if I am honest with myself, it was never about the money.

We have discussed this at my house, and have decided to try out a new holiday tradition.  The one gift each of us will be getting is a box with new pajamas and our favorite movie snacks.  We are going to decide on a favorite holiday film (possibly more than one) to watch, pop popcorn, and sit with our beverages and snacks of choice, and enjoy some time together.  I am already feeling the anticipation of my new PJ's, and hope very much that sour patch kids make the box.  I'm voting for Home Alone, and possibly some cartoons from my childhood.  Prior to the holiday itself, I think I want to make some Norwegian edible, and go see something live (maybe the Rockettes).  Even with show tickets this should cost us $200 or less, and the idea of it provides me with more happiness than the idea of expensive gifts.

I know that this has been a slightly different kind of post because it is less about advice, and more of my personal story, but there is a reason for this.  I want to challenge you to consider the source of holiday magic for you.  When you get to the root of it, does the source of your holiday bliss need to set you back financially?  I've discovered that mine does not.  My goal right now is to achieve financial freedom.  I want the freedom to choose what I am going to do with each and every day of my life.  I do not want to do anything out of obligation, and that is worth so much more than becoming intoxicated by December, and experiencing "holiday hangover" in January.