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These 8 Everyday Financial Worries Have One Common Solution

These 8 Everyday Financial Worries Have One Common Solution

Recent data from a Money Magazine financial survey of American households sheds light on a shocking reality: 60 percent of respondents expressed anxiety about their family’s long-term financial stability. There are myriad experiences and likely a few horror stories behind these figures, with which most of us can identify — the housing market collapse, 401(k) balances, job layoffs, rising healthcare costs, etc. But with the economic rebound and 2014’s all-time stock market highs, you would think American households would have a brighter outlook on the future.

To that point, one especially interesting section of the survey indicated short-term optimism is exceptionally high for these very same folks. Ninety percent of respondents felt their financial circumstances would be the same or better in 2015. Yet their long-term sentiments were sharply different.

This survey is just a small window into the lives of everyday Americans ranging from recent college graduates and young professionals to high net worth business owners and retirees. Let’s examine the root cause for household financial anxieties and focus on eight of the most frequent financial concerns. Along the way, we’ll highlight one very simple, frequently overlooked answer, to calm each and every worry.

1. What happens if my income disappears?

Whether you’re working for an unstable company or in an altogether shaky industry, everyone loses some measure of sleep worrying about income loss. The question is: what have you done about it? Many fortunate employees have disability insurance as part of their company benefits. At the end of 2013, there were almost nine million Americans receiving Social Security Disability checks every month, with the average monthly payout being just over $1,100 each month.

While this serves a very important function, most could not survive such a sharp drop in income. The solution: disability and life insurance protection. A few dollars each month will provide exponential benefit in the event of temporary or permanent loss of wages.

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2. How will I ever erase my debts?

We all take on debt in some form or fashion throughout life — a mortgage on our first home, a loan for a new car, student loans for higher education, or credit card debt out of necessity. Plenty of financial pundits will tell you to erase all debt, but as I’ve mentioned before, not all debt is bad. Uncontrolled debt, however, can ruin your life and the lives of those around you.

A 2012 study of middle-income American households found that those age 50 and older carry an average of nearly 33 percent more credit card debt than those below age 50. Economic hardships, declining real estate values and a host of other problems are to blame, but the data raises an important question. Assuming those over age 50 aren’t working forever and assuming their savings aren’t rebounding, what happens to that debt when they die?

The short answer is their estate typically inherits the debt and offsets any assets. Translation: the debt comes out of the heirs’ inheritance. Plan for this in your younger years and secure enough life insurance to cover any business or personal debts you might leave to your heirs in the event of your untimely death.

3. Can I afford to raise children?

For couples planning for families in the near future or those who are “in the thick of it” already, the expenses of child rearing are nothing short of staggering. There are plenty savings vehicles and investment options for parents or grandparents looking to give Little Junior a boost. Some options offer more features than others but one especially flexible option involves life insurance.

The concept is simple: stash away savings, extra earnings, bonuses, inheritance, etc. into a life insurance policy that has tax-advantaged growth potential. In addition to growing your cash value for school tuition, room and board, or unexpected medical expenses, you also have life insurance attached to provide a lasting benefit at death. Best of all, if Little Junior lands a full-ride scholarship, the cash value is not required for education expenses as with a number of other savings options. The money is yours to do whatever you want.

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4. How do I plan for a tax-favored retirement?

Take a poll of your five closest pals and ask them who looks forward to paying taxes in April. Chances are you won’t get a very warm response. Ever since the Revenue Act of 1978 laid the foundation for the 401(k) plan as we now know it, the burden of a successful retirement has shifted to you and me. Thankfully, we have investment advisors to help guide us along the way, but my point is your parents’ and grandparents’ company pensions are largely a thing of the past.

So how can we take control of our own retirement and help ensure we not only diversify our mix of investments but also diversify the tax treatment of our retirement assets? 401(k) balances were nearly $4.3 trillion at the end of March, 2014, which represents almost 20 percent of the total retirement savings for American households. Each and every dollar of retirement income taken from traditional 401(k) accounts is generally taxable. What if you could supplement these core retirement investments with an account that builds cash value and allows you to turn on a tax-free income stream? You guessed it — a cash value life insurance policy may be a good fit.

5. What will happen to my business and employees?

Most business owners, especially small business owners, are laser focused on growing their companies, building a loyal customer base and ultimately increasing net income. As a small business owner myself, I can tell you my focus is often tested by worries — especially financial worries. If I can’t continue working, who will take care of my client base? My employees? My family? Business owners who have partners have another set of concerns unto themselves: What if something happens to my partner? How will that affect the business and the rest of the partners?

A 2011 survey of more than 900 small business owners found that, while more than 40 percent of respondents said dealing with the death or disability of an owner or key employee was a major concern, fewer than 25 percent had formalized any planning to address the concerns. Disability and life insurance are critical components of any business plan, large or small. The coverage provides the cash flow and capital infusion to continue business operations, hire replacement leadership or buy out partnership interests from a deceased’s family.

6. I’m only getting older. What happens if I get sick?

You’ll never be younger or healthier than you are today. From a financial perspective, it’s imperative to take advantage of opportunities to capitalize on this gift. Start saving as early as possible and save in different ways. Cash in a bank account is good, but so are properly allocated investment accounts, quality real estate or even a life insurance policy that builds cash value.

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Many life insurance policies can be tapped before death in the event of chronic or terminal illness and some carriers even offer a long-term care insurance rider to help cover the cost of care for skilled nursing and home care among other qualifying expenses. Utilizing multiple avenues of savings, including a portion in life insurance, will put you in a stronger position to manage the rising costs of medical care due to illness.

7. Will I be able to continue charitable giving?

Giving to charity may have fallen along with the stock market a few years back, but as account balances have rebounded, so too has charitable giving. In 2013, Americans gave more than $335 billion to a mix of charities, just shy of the 2007 high of $349 billion. Giving has grown each of the past four years and the trend is expected to continue — as was evident with this summer’s wildly successful ALS Ice Bucket Challenge, which topped $100 million in donations from more than three million unique donors.

However, what happens if you die prematurely and your donations are lost? Chances are, the good works, community impact and critical services these charities provide will suffer greatly. Many donors choose to name their favorite charities as beneficiaries of life insurance policies to ensure their funding commitment continues. There may also be favorable tax benefits available to you as donor — a bonus over and above the lasting impact your gift is sure to have.

8. What will my financial legacy be?

Nobody sets out with a plan to leave survivors with a financial mess, but through life’s twists and turns some unfortunately end up with utter chaos. With simple planning in advance, you can chart the best course for your own financial legacy to carry on your values, give a boost to your heirs or simply safeguard treasured family heirlooms.

The term ‘estate planning’ may connote images of blue blood aristocrats with many millions in trust funds, but while few are fortunate to experience that level of success, each and every one of us needs some measure of estate planning. In it’s simplest form, estate planning is merely a directive for your heirs on how you’d like things handled when you’re no longer able to make the decisions and how you’d like things divvied up when you die.

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Studies show that more than 50 percent of American households don’t even have wills, let alone more detailed estate planning documents. Similar reports indicate more than 90 percent of millennials age 35 or under have no planning whatsoever. A simple, cost-effective way to provide a strong financial legacy is to incorporate life insurance into your estate plan. Ensure your wishes are carried out while protecting the assets and providing for the people you value most.

Winston Churchill famously declared,

“Let our advanced worrying become advanced thinking and planning.”

Worry, especially financial worry, is frequent, so it’s important to expect it, anticipate it and plan for it. While life insurance is not particularly sexy, it remains a versatile financial tool worth a closer look as you plan and prepare for the ups and downs of life.

Featured photo credit: Screaming via freeimages.com

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Last Updated on March 3, 2021

Top 6 Hacks on How To Build Credit Fast

Top 6 Hacks on How To Build Credit Fast

When done right, credit can open doors and provide a lifestyle that you never imagined possible. Anything from flying around the world in first-class and staying at 5-star hotels entirely for free to starting and scaling businesses. It’s also an area where it can be easy to make mistakes and hard to recover from without the right information. In this article, I will break down how you can build credit fast so you can open doors in your life!

When you start to think about improving your credit score, you have to answer three important questions first:

  1. What are you trying to achieve by having good credit?
  2. What really is your credit score?
  3. How is your credit score calculated?

What Are Your Credit Goals?

Having a high credit score is great, but ultimately, your credit score is a tool in your personal finance arsenal that you can use to open doors. The first question you should ask yourself is “what will a higher credit score do for me?”

I work with many clients directly at Freedom Travel Systems to help them fully leverage the power of their credit so they can enjoy free luxury travel and start or grow their business. For my clients and many others, here are a few common goals many credit-savvy individuals have:

  • Free Travel – getting access to travel rewards cards so you can get tons of free travel and even get first-class flights, hotel suites, and luxury amenities all for free
  • Start/Grow a Business – getting access to business credit so you can start and grow a business with 0% or low-interest financing that does not impact your personal credit
  • More Approvals – getting approved for credit cards, auto loans, or mortgages so you improve your lifestyle or build your personal wealth
  • Better Rates – getting better interest rates on any loans you get will save you tens or hundreds of thousands of dollars over your lifetime

What Is Your Credit Score?

Your credit score is simply a 3-digit number that tells potential lenders how reliable of a borrower you are. Keep in mind that lenders, such as banks and credit issuers, stay in business by lending. Their goal is to find the people that have the highest probability of paying them back and they assess this primarily through your credit score.

What’s important to know is that there are two major scoring models used to create your scores. These scores are your FICO Score and your Vantage Score. More than 90% of lenders rely on your FICO score, so when you are checking your score, you want to make sure you see the actual score that the lenders use. And no, checking your own score does not hurt your credit!

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Then enters the 3 main credit bureaus, which are essentially agencies that collect credit information on you. These are Experian, Equifax, and TransUnion. These bureaus then apply a scoring model to the information they have on you and voila, you now have a credit score! Bureaus sometimes have different information on your report, which is why you will see 3 different scores.

How Is Your Credit Score Calculated?

Next, you need to understand how the credit score is calculated. This will provide a high-level overview, but there is more detail to each of these factors alone.

There are 5 main factors in the calculation of your credit score:[1]

  1. Payment History (35%) – This refers to the amount and percentage of on-time payments you have.
  2. Utilization (30%) – This is how much revolving credit you use as a percentage of the total revolving credit issued to you. Note that installment loans like auto-loans or mortgages do not count towards this while credit cards do.
  3. Age of Credit (15%) – This refers to how long your credit history is, primarily your “average age.”
  4. Credit Mix (10%) – This is how many different types of credit you have. For example, there are credit cards, student loans, auto loans, mortgages, personal loans, and lines of credit.
  5. New Credit (10%) – This primarily refers to how many inquiries you have for new credit.

Top 6 Hacks on How to Build Credit Fast

Now that you’ve learned more about your credit score, here are the top 6 tips on how to build credit fast.

1. Don’t Close Your Cards

Many of us are taught that getting a new credit card is bad and having too many will hurt your score. In fact, the opposite is true. You want to have many positive accounts reporting to your credit report. Logically, this makes sense because having more accounts with more on-time payments shows that you are a more reliable borrower. You just don’t want to open too many accounts too quickly since that can hurt your “new credit” factor.

Instead of closing a card, what you should do is simply keep the card open and put a small subscription service on it monthly. Why? Because each time you have an on-time payment, it helps build your payment history, the largest factor of credit.

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If you close a card, you are missing on potential on-time payments, age of credit, credit mix, and also lowering the total credit lent to you so your utilization percentage may go up. If you have an annual fee on a card you don’t like, see if there is a “no-fee” version of the card and downgrade it to that card rather than close it.

2. Use Autopay to Never Miss a Payment

This one is easy to do and easy not to do. Go into your credit card account and set up auto-pay. You can choose to either pay the full amount, the statement balance, or the minimum payment. Personally, I like to set up autopay to pay the minimum payment so that I never get a late payment. Then, I go in and manually pay the statement balance each month by the payment due date.

This helps me personally see my spending and have a manual review of my charges while ensuring, not have to pay interest, and still get the benefit of making sure that I never miss a payment if something goes wrong. Think about it, if you were to have a medical or family emergency, the last thing you want to experience on the back end of that is a late payment and a drop in your credit score. So, set up autopay.

A pro tip is to update your payment due dates across all bills and accounts to be the same so that you can “time batch” the process and have one time a month where you sit down and handle your payments. You can do this by simply contacting the credit card company or doing it online.

3. Get a Credit Limit Increase to Lower Your Utilization

One of the factors that get most people into trouble is using too much of their allotted total credit. Their utilization, which is the percentage of revolving credit they use, goes up, and their score tanks. You should aim for less than 30%, and in an ideal world, less than 10%.

To help drive this down, call your credit issuer and ask for a credit limit increase. This will help increase the total amount of credit extended to you and drop your utilization. Oftentimes, they will only give it to you when your utilization is fairly decent (less than 50%), so work to pay it down as best as possible before doing this. You should ask if the credit limit increase will give you an inquiry as some banks do a hard inquiry while some do not. If they do a hard inquiry, it is often better to just get a new card altogether or pass.

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4. Add Authorized Users to Increase Your Age, Add History, and Decrease Utilization

This is one of the best hacks out there as it helps with the 3 biggest factors of improving your credit: payment history, utilization, and age. This concept is also called “credit piggybacking” where someone with great credit history on a card adds an authorized user (AU) to the card. When the AU gets added, the credit history and information from that card are added to the AU’s report!

This is extremely helpful for people with young credit because it can drastically increase your age of accounts. It can also help many people with limited payment history or high utilization.

Please be aware that anything good or bad on that account you are added to will show up on your report. So, you want to avoid any cards with negative marks or high utilization. That being said, it is a one-way street, so nothing that you do with your credit can impact the primary account holder.

This is so valuable that there are companies that sell AU accounts. I always suggest starting with your family and/or personal network first as there are likely people in your network that can help!

5. Space Out Your Application Strategy

New credit is the smallest factor of credit, but it still matters! If you are looking to build up your credit, you should space out your applications. If you apply for too much credit in a short period, it looks very needy in the eyes of the lenders. For this reason, it is safest to apply for cards slowly over time unless you have really studied more in-depth how this works. A good rule of thumb is once every few months.

If you are in the credit game for the hopes of getting tons of credit card points for free travel, which is what I personally take full advantage of, you will want to familiarize yourself with the different bank rules and card promotions to put together the right application strategy. Applying blindly will waste inquiries and leave tons of benefits on the table!

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6. Review Your Report for Negatives

If you have any negative or “derogatory” marks on your credit report, this will hurt you drastically. They do impact you less as they age, however, you should review your credit report to ensure that everything on your report is 100% accurate and actually yours. Wrong information ends up on credit reports all the time and you will want to take personal responsibility for making sure it is accurate.

The “burden of proof” is on the credit bureau to confirm that any information on your report is in fact accurate. If you find inaccuracies, you can dispute that with them, or you could consider getting a credible credit repair company to help you.

Final Thoughts

There you have it, the top 6 tips on how to build credit fast so you can get closer to reaching your goals. Now that you’ve learned more about how credit score works and how you can improve yours, you’ll hopefully be able to make better financial decisions and achieve your financial goals quicker.

More Tips on How to Build Credit Fast

Featured photo credit: CardMapr via unsplash.com

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