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Term Life Insurance is a Must Have

Purpose of this article: to explain the importance of getting a term life insurance policy as soon as possible, especially if you have a spouse, partner, or dependent child (children).

Bullet Point Summary

  • We recommend a term life policy over all other types of life insurance policies.
  • Term life insurance policies provide death benefits to the policyholder’s beneficiaries if that person dies within the specified term of the policy.
  • Terms are usually set at 10, 20, or 30 years and the term you choose is specific to your needs and expectations.
  • General rule of thumb in deciding the amount of policy to take out: Take your annual salary, and multiply by 5 or 10 times.
  • If anyone in your life is financial dependent upon you and your income, term life is an absolute must have.

Overview

There are many types of life insurance policies that provide a variety of benefits to the policyholder’s beneficiaries, but our recommendation is that you consider a term life insurance policy over all the others.

Term life insurance policies are better than the rest for a few specific reasons:

  • The overall monthly premium (rate) usually costs less than the other types of life insurance options and once locked in, it will not change.
  • The period of time for the policy’s life is set in very easy to understand terms (usually 10, 20, or 30 years).
  • The policy can be cancelled at any time simply by not paying the monthly premium.
  • It’s very easy to understand and very much straightforward especially compared to the other insurance products out there.

The rest of this article will help you better understand the nuances of term life insurance policies and get you comfortable with why we believe you need to get one as soon as possible.

What Exactly is a Term Life Insurance Policy?

A term life insurance policy provides a death benefit to the policyholder’s beneficiaries if that person dies within the specified term of the policy. The specified terms are typically set at 10, 20, or 30 years. This death benefit can be paid in one lump sum or in monthly installments.

The monthly premium (rate) for your policy is determined by actuaries and underwriters who use a variety of factors like your age, health, occupation, hobbies, and driving records to calculate the risk of insuring your life. Once risk is assessed, the monthly premium (rate) will be set by the insurance company based on this assessment, the specified term, and the size of the policy.

How Much Will Your Term Life Insurance Policy Cost?

A term life insurance policy is typically the cheapest way to purchase life insurance coverage. Rates will very based on length of the policy, amount of the policy, and overall health of the insured.

Using ValuePenguin the following are visual representations of monthly premiums for term life insurance at differing levels of health (Preferred Plus, Select, Standard) and differing levels of coverage ($250K, $500K, $1M).

$250K policy varies in monthly premium from a low of $15 to a high of $140

$500K policy varies in monthly premium from a low of $22 to a high of $268

$1M policy varies in monthly premium from a low of $38 to a high of $508

You will notice that with term life insurance it can cost you as little as $15 a month to as much as $500+ a month depending on your age, health, term, and policy amount. In general, with term life insurance, it’s markedly cheaper the earlier you get it because a policy issued later in life has a greater likelihood of paying out. So, for your 20-somethings and 30-somethings reading this… GET YOUR POLICY TODAY!

What Amount Should I Choose?

Choosing the right term life insurance policy in terms of length and size is difficult because every single person’s situation is different. The amount you will need will depend on factors like your other sources of income, how many dependents you have, your debt levels, and in general your overall expectations on the lifestyle you want to live.

But with that said, you can apply the following general rule of thumb to find the starting baseline policy amount: Take your annual salary, and multiply by 5 or 10 times. The following chart details term life policy amounts based on annual salaries and the general rule of thumb:

What Term Should I Choose?

When you purchase term life insurance you will have to choose how long your coverage will last. Usually the terms are 10, 20, 30 but some insurance providers offer other terms. Based on our understanding of term life insurance policies and our work with some of our clients, the terms can be summarized as follows:

  • 10-year policies are popular for those people who are on a very tight budget and probably won’t require insurance after their term expires. We usually recommend this for someone in their late 40s to early 50s.
  • 20-year policies are the most popular, and are usually recommended for young families who often have large debt levels (school loans and mortgages) that would become troublesome if one of the breadwinners of the family happened to die unexpectedly. We usually recommend this for someone in their late 30s to early 40s.
  • 30-year policies are awesome because your monthly premium will remain unchanged during the duration of that period even though your health will likely change during the same time period. Because you lock in your rate in your late 20s and early 30s when you are healthiest, your premiums will remain the same. We usually recommend this for someone in their late 20s to early 30s.

Closing

Suze Orman is quoted as saying, “if you want insurance, buy term; if you want an investment, buy an investment, not insurance. As we mentioned in the beginning, there are many types of life insurance policies out there, but at Blue Elephant Financial Services, the only one we recommend is a term life insurance policy.

If you have anyone in your life that is financial dependent upon you and your income, term life insurance is an absolute must have. It will secure their future against the loss of income that your death will bring. The only thing guaranteed in life is death and taxes. Use term life insurance to plan for one of the two!

My hope in writing this article is that after reading this, you will feel more comfortable with term life insurance thus making it much easier for you to take the necessary steps to acquire your own policy.

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Start Repairing Your Credit Today

Purpose of this article: to give you some tips to start repairing your credit score day by day thus improving your ability to borrow money on better terms and your overall financial well-being.

Bullet Summary

  • Repairing your credit score takes some time. The following are the seven easy steps to start fixing your score today.
  • Always start by checking your credit score
  • Next obtain your free credit report and verify that the information is accurate. This will help you know your starting point.
  • Call your creditors and contact the credit bureaus when mistakes are found on your credit report.
  • Commit to paying your bills on time, every time as this is probably the single most important strategy
  • Ask for more credit limit from time to time to reduce your credit utilization rate down to 30%
  • Take out a personal loan to consolidate your credit card debt into one if you can.

Overview

Rome wasn’t built in a day. In fact, based on a Google search, Rome was built in 1,009,491 days. And repairing your credit won’t happen overnight. It’s a bit like losing weight: It will take time and there is no quick way to fix it, but you HAVE TO START NOW!

Your credit score is based on your credit history which is the sum of all your financial activities over the past 7 to 10 years. As you repair your credit history, your credit score will naturally improve over time. But for most of us, we only think about our credit score right before we need to take out a new loan. The following article will hopefully help you take some pre-emptive steps toward repairing your credit score now.

The First Step is Knowing Where You Currently Stand

The time to start repairing your credit score is well before you really need it. But before you can actually take steps to improve your score, you need to know where you stand. There is only one true way to know where you stand and that is to pull your credit report from one of the three credit agencies: TransUnion, Experian, and Equifax.

You can obtain your free annual credit report from the following link here.

Once you obtain your credit report and review it thoroughly, you will have your starting point from which you will hopefully improve. For more information on the importance of your credit score please see our article entitled “Your Credit Score … Three Digits Can Mean A Whole Lot.”

Next Step is to Fix the Mistakes on Your Report

The unfortunate reality of financial life is mistakes happen. And while you and I both are perfectly infallible human beings (kidding of course) the credit agencies are not.

The most common mistake that shows up on your credit report and drags your credit score down is incorrectly entered late payments.

This occurs when a credit card provider or a mortgage lender fails to enter a payment correctly and/or timely.

Payment history is a significant factor in your credit score. Remember that over 65% of your credit score is based on your payment history and how much credit you have used up (credit utilization). Given this it is vital that you ensure all your payment history entries on your credit report are accurate.

When you find a payment entry that is incorrect (i.e. applied late), dispute this with either the creditor or the credit bureau directly. You can also move all of your credit payments to auto draft from your bank account to ensure that the payment is issued to the creditor/lender on time. At minimum, you should have all your minimum payments on auto draft so that you can ensure that your payments are processed on time, EVERY TIME!

Ask to Remove Negative Comments

You have probably heard the saying: “You get more with sugar than with salt.” And in dealing with the credit agencies and creditors this couldn’t ring truer. When you have a negative comment on your credit report for say a late payment, you can simply call up your creditor and ask them nicely to remove the negative comment. I kid you not, but plenty of our clients have been able to remove negative marks from their credit history by simply playing nice.

This is simply because creditors have the power to instruct the three credit agencies to remove entries from credit reports for any reason at any time. Put another way, your creditor can decide whether or not to grant you mercy simply by how you ask for “forgiveness.” So, if you do anything at all, please start by calling up all of your creditors and playing nice with them to see if they will remove negative comments/remarks for late payments and other derogatory actions from your credit report.

And While You’re Asking for Things … Ask for More Credit Limit

As we mentioned above, over 65% of your credit score is based on your payment history and how much credit you have used up (credit utilization). Asking for more credit limit will decrease your credit utilization and increase your credit score. Credit Karma has a great step by step on how to ask for more credit limit.

The bottom line is if you have bad credit already, asking for more credit limit will be tough but it is still worth doing because every extra dollar of new credit limit will improve the ratio of credit utilization which will positively impact your credit score. You just have to ensure that you don’t use up the additional available credit should you be approved.

Use a Personal Loan to Consolidate Multiple Credit Card Debt into One

At first glance, the idea of taking on more debt to pay off credit card debt might seem counter intuitive. But the reality is a personal loan can help you consolidate all of your current credit card debt into one single payment, usually at a lower interest rate.

A personal loan works as follows:

  • You borrow funds from a creditor at an interest rate that is usually lower than the interest rates charged by your credit card provider.
  • You then use the funds to pay off your credit card balances.
  • Over time, you pay back the personal loan and thus reach a state of debt freedom

Personal loans are typically unsecured which means they don’t require the borrower to put down any collateral to obtain the loan, and the interest rate you pay depends on your credit score. Consider this … as of January 2018 the average credit card interest rate was higher than 16 percent[1].

So even if a personal loan has a higher interest rate than a secured loan, it will oftentimes be lower than the interest rate on your credit cards. Additionally, after consolidating your credit card debt into one, you will only have to make payments to one entity rather than all of the different credit card providers you had before.

Last but Most Important … Pay Every Bill on Time

The single most important strategy to repair your credit today is to commit to paying every single bill you have on time, every time. Just one late payment of 30 days has the potential to drop your credit score by 90-110 points. So, to say this is the most important step is a bit of an understatement.

Closing

Your credit history good or bad can impact your ability to buy a home, purchase a car, get a better credit card, get cellphone coverage, and even impact the type of employment opportunities you may have.

Repairing your credit score will take some time. On average, negative comments and remarks on your credit report remain on your report for about 7 – 10 years. Remember that your credit history is really just a story that tells future lenders how you manage your financial affairs. And everyone likes a good comeback story.

If you are just starting your credit repair journey, you can use the strategies discussed above to navigate this process. My hope in writing this article is that after reading this, you will take some steps towards successfully repairing your credit score.

[1] https://www.creditkarma.com/credit-cards/i/loan-pay-off-credit-card-debt/

Follow our seven steps to help repair your credit. Always start by (1) checking your credit score and (2) obtaining your free credit report. This will help you know your starting point. (3) Call your creditors and (4) contact the credit bureaus when mistakes are found on your credit report. (5) Paying your bills on time, every time is probably the single most important strategy on the road to repairing your credit. Remember that a missed payment can drop your credit score over 90 points. (6) Ask for more credit limit from time to time to reduce your credit utilization rate down to 30% and (7) take out a personal loan to consolidate your credit card debt into one if you can. These seven strategies will help you improve your credit score over time and get you on the path to better credit management and financial well-being.
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When Big Credit Card Companies Reject You Because You Have Limited Credit History, Turn to the Petal Card

Purpose of this article: to give you a strategy to turn to when you can’t get a credit card because of limited or no credit history. Please note that we are not paid to recommend products like this, and our decision to do so is solely based on our experiences and our client’s experiences with this product.

Overview

Building credit from scratch is one of the hardest financial things you will embark on as you start your financial well-being journey. Credit card companies want you to have a solid credit history, but it’s simply hard to start building the needed history when no one will give you a card in the first place. 

In our post entitled “How to Build Credit from Scratch” we suggest that even though you are just starting out, you should apply for a credit card even with limited or no credit history. For some of you, this strategy will work in your favor and you will be able to obtain a store credit card or an unsecured credit card (traditional credit card). But for some of you, this strategy doesn’t work and you are left going back to the drawing board on how to build your credit history.

The following article will introduce you to the Petal Card which will allow you to start building your credit history even though you may not have the necessary history to obtain a traditional credit card.

What Is the Petal Card?

The Petal Card was founded by Jason Gross who was looking to solve one of finances basic paradigms: It takes credit to build credit. Consequently, he set out to design a card specifically for people who have no credit scores. Their approach is simple enough: They look at your income and analyze your spending to create a digital financial record.

By analyzing your bank account transactions (with your permission of course) Petal gets a better sense for your monthly cash flows than any credit score would ever give. As a result, this approach can open up sound credit options to many people who simply don’t qualify under the traditional means of deciding credit worthiness.

On top of this algorithmic and data driven approach to making decision on your credit worthiness, the Petal Card doesn’t believe in tacking on petty annual fees or other security deposit type fees.

Will I Get a Credit Limit?

Similar to traditional credit cards you will get a set credit limit. This credit limit will be set based on your income levels and your spending patterns. Put simply, the Petal Card looks at your digital financial record to determine what credit limit you need. Based on our work with some of our clients, we have seen credit limits as low as $500 to as high as $5,000.

One thing to note about this credit limit is it’s not static. The Petal Card consistently checks your digital financial record to see if there are any updates to your income levels or spending patterns. As both factors change, your credit limit can be bumped!

Drawbacks to the Petal Card

Currently the single largest drawback to the Petal Card is that its availability is capped by the waiting list. Eventually the plan by the Petal Card team is to make this product available to all consumers. But right now, you have to join the waitlist. To apply now click here. ***As of October 2018 the credit card is now open to the general public. Waitlist will no longer apply.

The second drawback is in regards to the lack of rewards that this card will offer you. Unlike traditional credit cards, the Petal Card won’t offer you cash back or travel points. But in our opinion, this is a minor drawback. The major reward of the Petal Card is the fact that it gives you the chance to start building credit when you otherwise wouldn’t have been able to. It also allows you to build credit within a reasonable cost structure as the interest rates associated with the Petal Card are reasonable.

The last drawback we see is in regards to the sharing of your data. In this day of age of data breaches and hacks, giving up your bank account information can be a scary hurdle to overcome. However, the company will not be able to alter your account information or change anything. 

Closing

The Petal Card is a really good option for you if you are looking for a credit card that is simple and has no fees. It will give you a chance to build the necessary credit history that you otherwise will not be able to do with traditional credit cards.

Get the Petal Card if you want to build your credit history from scratch and cannot obtain a traditional credit card or a store credit card. With the Petal Card, you will get access to a decent credit limit, you will avoid those pesky fees, and you will be well on your way to building your credit history.


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How to Build Credit from Scratch

Purpose of this article: to give you some tips to start building your credit history and explain why building up credit history is important to your financial well-being.

Overview

Credit is one of those tricky things … you need to have a solid credit history to get a decent credit card or a loan, but it’s hard to start building history when no one will give you credit in the first place. So what options do you have to establish credit history without credit in the first place? The following article will walk you through some solid options for building your credit history from scratch.

Option 1: Apply for credit card even with limited/no history

The best credit cards with the best interest rates are usually reserved for people with extended years of good credit history. If you are just starting out though, there are still a couple of credit card options for you even with limited or no credit history:

• Apply for a store credit card

Oftentimes stores extend credit cards to their customers with little to no credit history. These cards typically have very low credit limits and high interest rates, but they do give you a chance to prove that you can handle your finances in a responsible fashion. Once of my favorite store credit cards is the Target REDcard because it gives you 5% off every purchase every time and gives you free online shipping.

• Apply for an unsecured credit card (traditional credit card)

Traditional unsecured credit cards are not off the table when you have limited credit history. It just usually means that your credit card will have lower limits, more fees, and a higher interest rate associated with it. Credit card companies like to be compensated for taking on risk, and cardholders with limited to no histories bear the brunt of this. Credit Karma has a good list of unsecured credit cards for 2018.

• Apply for a secured credit card

If you are unsuccessful in opening a store credit card or a traditional unsecured credit card, your last credit card option is a secured credit card. With a secured credit card, you make a cash deposit upfront, say $300. This cash deposit serves as collateral against the credit card. You then charge the card accordingly and pay the card off each month. If you don’t make payments in full, you incur interest. The cash deposit is returned to you when you close the credit card. The key with secured credit cards is their duration of use should be short and only long enough to give you enough credit history to qualify for a better unsecured credit card. NerdWallet has a list of the best secured credit cards for 2018.

Option 2: Get a Co-signer or become an Authorized User

You have heard the adage that sharing is caring and with the co-signer or authorized user strategy, this adage really rings true. This is because when someone agrees to be your co-signer or allows you to be an authorized user on their credit card, they are ultimately committing to repaying your debts should you be unable to.

When someone agrees to be a co-signer to your loan they ultimately agree to pay off the loan if you cannot make the payments. When someone allows you to be an authorized user on their credit card they allow you to use their credit card and build history. But ultimately, they are legally obligated to pay for any charges unpaid.

Both situations require a huge degree of trust and should not be entertained lightly.

Option 3: Use your monthly rent to build credit history

Assuming you do not have a monthly mortgage payment (since you are just starting to build your credit history), you can use your on-time monthly rent payment to your landlord to build credit history.

Some landlords report positive payment history to the credit reporting agencies, and even if your landlord doesn’t, you can use a variety of rent-reporting services to get your positive payment history reported.

The only downfall of the rent-reporting services is that they aren’t free. I guess there is no such thing as a free lunch.

Option 4: Use your monthly student-loan payment to build credit history

The average student loan debt hover around $37,172 per person. If you happen to be one of the many citizens burdened with student loans, you can at least use your monthly on-time payments to build some positive credit history. This is because student loans are considered installment loans that are paid back over a set period of time.

So, paying back your student loans on time will positively impact your credit history, and just staying on top of your loans each month is enough to boost your credit score into the 700+ range over time.

Closing

Your credit history good or bad can impact your ability to buy a home, purchase a car, get a better credit card, get cellphone coverage, and even impact the type of employment opportunities you may have.

Building and maintaining positive credit history takes some time. Remember that your credit history is really just a story that tells future lenders how you manage your financial affairs. If you are just starting out on your credit journey, you can use the strategies discussed above to navigate this process.

My hope in writing this article is that after reading this, you will take some steps towards successfully building your credit history.

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Your Credit Score… Three Digits Can Mean A Whole Lot

 

Purpose of this article: to explain what goes into your credit score and give you tips to improve your overall credit score.

Overview

Your credit score is a number that approximates how likely you are to repay your debt. This number is used by lenders to decide whether or not to approve you for new loans. And while your overall credit history is captured and maintained by the three main credit bureaus (Equifax, Experian, and TransUnion), the actual score is calculated by the VantageScore and FICO models.

Credit scores range from 300-850 and your score within this range is based on many factors such as how often you make payments on time, and how many accounts you have in “good-standing.”

It is possible at any given time to have different scores given the various scoring models that are in place, but the bottom line is that your score is based on the information within your credit report. It’s a good habit to review this information annually to ensure that it is correct. You can access your free annual credit reports from here.

The Main Factors that Affect Your Score

The factors that are generally considered when calculating your credit score are as follows:

• Payment history – do you pay your bills on time every time?

• Length of credit – how long have you had your accounts open?

• Type of credit – are your loans auto, student, mortgage, credit cards, etc.

• Use of credit limits – how much of your available credit limits is currently used up?

• Number of hard inquiries on your credit report

Why Does Your Credit Score Matter?

Since credit is simply borrowed money provided in the form of a loan, credit issuers like banks or other financial institutions want to make sure of your likelihood to repay. Consequently, they use your credit score as this indicator. Low scores indicate lower degree of repayment while higher scores indicate a higher degree of paying on time.

The amount of money you can borrow as well as the interest that you will be charged is primarily determined by your credit score rating and where you fall in the range. This is why your credit score really matters!

The following score range comes from Credit Sesame:

You don’t necessarily need perfect credit to get the best interest rates and borrowing options, but the closer you are to the 700+ range the better off you will be.

The Formula to Getting a Better Score

Given everything we have talked about the formula to getting a better credit score is pretty simple:

1. Payment History (35%) 

Pay all of your bills on time… no exceptions!

2. Credit Utilization (30%)

Do not use more than 30% of your available credit at any given time. If you are above 30% today, call up your credit card companies and ask them to increase your available credit. Doing so can instantly drop your utilization rate!

3. Age of Credit (15%)

Hold off on closing down old accounts because longer credit history is beneficial to your credit score

4. Type of Credit Outstanding (10%)

Mix the type of loans you have. Credit card debt (i.e. revolving credit lines) are penalized more than mortgage, auto, personal, and or student loans. Put another way, debt that is usually not tied to an asset is penalized more from a credit score standpoint.

5. Number of Hard Inquiries (10%)

Don’t open more than 2 credit cards a year. Usually new credit cards require a hard inquiry into your credit history and that negatively impacts your credit score

 

*Please note that this breakdown is based on the FICO scoring system. The VantageScore 3.0 credit scoring system weight each variable slightly different but Payment History is still the most important under both scoring systems.

Closing

Your credit score is one of the most important three-digit numbers you will manage in your financial life. It really can mean the difference between thousands of dollars paid over the life of a loan. When it comes to maximizing your credit score, the steps detailed within this article are the easiest and most effective ways to do so. If you only do two things, please make sure you pay your bills on time and call your credit card company today to ask for more available credit. My hope in writing this article is that after reading this, you will take some steps towards improving your credit score.

On an aside: If you currently do not use a credit monitoring service, please sign up for Credit Karma as soon as possible. It’s free to use, very effective, and can help protect you from fraudulent activity on your credit reports. Given the Equifax hack that occurred earlier this year, it’s imperative that we all monitor our credit more closely these days.

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My Financial Habit: Coffee Shops and Lattes

Purpose of this article: to show how my afternoon latte habit adds up and give you some thoughts on things to consider if you have a similar financial habit in your life

Overview

I have a financial confession to make… I love afternoon lattes and it’s costing me dearly! And like many of you out there, I know every single time I buy my latte, I am overpaying severely. According to USA Today’s coffee calculator, the markup on my latte can be as high as 300% depending on the coffee shop. But I will not deny that there is something quite special about a hot off the press latte!

How Much Is My Latte Habit Costing Me?

Based on an analysis of my spending over the last 535 days here are my financial stats:

• I have visited my local Charlotte coffee shops 71 different times, and have spent a total of $643 on afternoon lattes. The cost per trip is $9.04 (my goodness!)

• My average monthly spend over the last 18 months is $35.67

• The most I spent in one month was $81.23 in November 2017

• Over this time period, I spent roughly $1.20 a day on my latte habit.

At a 300% markup, my afternoon latte habit should have only costed $215 if I was disciplined enough to brew my own coffee. This is a difference of $428 extra that I have spent over the last 18 months.

What Could I have Done with the $428?

So, what could I have down with this additional $428? Here are a few things I could have done with that money…

• During the time period of 3/1/17 to 8/18/18 the S&P 500 returned an approximate +19.6%. Had I invested my $428 during this time period, I could be roughly $84 richer.

• Based on the Bureau of Transportation, I could have taken a round trip ticket to almost any US city. The average round trip price during the first three months of 2018 was $346.49.

• I could have used that money to pad my emergency savings account. Recent studies show that very few of us Americans have enough savings to cover a $1,000 emergency.

There are countless other more positive money management actions I could have pursued instead of spending this extra money on my afternoon latte habit. The point I am trying to make here isn’t to pass judgement on this money spending habits. It’s to make myself more aware of an area of spending that may not truly be worth it in the long run.

If you are like me, you probably have some areas of money management that you wish you were better at. I hope my financial habit confession was helpful for you to hear. Please let us know what financial habits you have and wish to break.

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Open an Ally Online Savings Account NOW

Purpose of this article: to explain why you should open an Online Savings Account with Ally Bank today

UPDATE (12/20/19): the current annual percentage yield (APY) for the online savings account with Ally as of December 2019 is 1.60%.

UPDATE (6/20/19): the current annual percentage yield (APY) for the online savings account with Ally as of June 2019 is 2.20%.

Bullet Point Summary

  • Ally continues to be one of the few financial institutions that consistently gives returns back to its customers.
  • The APY that Ally offers for its online savings account is one of the best out there.
  • The Online Savings Account is easy to use, with no maintenance fees, and very few restrictions.
  • Your deposits are insured by the FDIC up to the maximum allowed by law which is $250,000.
  • The only thing to watch out for is that you will owe taxes on the interest you receive within this account. Ally will send you a 1099-INT.

Overview

Ally Bank recently announced an increase to their annual percentage yield (APY) which is the interest rate they pay you on your savings deposits with them. Over the past 12 months, they have increased this rate from 1.0% to 1.80% and have one of the highest rates of all banks out there:

With no minimum deposit requirements, and a seamless online experience, everyone should maximize their savings by opening an account with Ally Bank today.

It’s Simple… Your Money Grows More with Ally Bank

Because Ally pays a higher interest rate than most banks, your money grows much faster with Ally. The following graph shows what $1,000 is worth in 30 years across a sample of different banks. Please note that inflation has not been considered and thus the 30-year returns have not been adjusted downwards for simplicities sake:

Before consideration of the impact of inflation, a $1,000 deposit with Ally Bank today would net you $1,708 in 30 years!

Compare to the average of the big banks (PNC, Wells Fargo, and Bank of America to name a few), Ally Bank is a NO BRAINER!!!

Features of the Online Savings Account

*Taken directly from the Ally Bank website. See link here:

• No monthly maintenance fees
• Earn a rate 20x higher than the national average
• Deposit checks remotely with Ally eCheck Deposit
• Grow your money faster with interest compounded daily
• Six transactions limit per statement cycle
• Your deposits are insured by the FDIC up to the maximum allowed by law which is $250,000
• Protect your legacy. Open this account for a Trust. Learn more

Closing

Very rarely are money management decisions this easy. When it comes to maximizing your savings, an Online Savings Account with Ally Bank is simplest and most effective way to go. My hope in writing this article is that after reading this, you will visit Ally Bank and open an Online Savings Account. Your future-self thanks you!

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How to Complete Tax Form W-4

Purpose of this article: to help you feel confident in completing your Tax Form W-4

Bullet Point Summary

  • Form W-4 is the form that determines how much federal income tax is withheld from your paycheck.
  • In general, the more personal allowances you take, the less tax will be withheld from each of your paychecks.
  • This form can be updated throughout the year as your situation changes. For example, getting married and having kids during the year changes your filing status and number of dependents.
  • Given the tax reforms passed in 2018, it is vital that you review this document and ensure that you are withholding the appropriate amount. Millions of Americans faced unexpected tax surprises earlier this year.

Overview

The purpose of Tax Form W-4 is to help your employer withhold the correct amount of federal income tax from your paycheck. But if you are like most of us, you submit this form once with your employer upon being hired and never revisit it. This article will talk through why you should revisit this tax form every time your personal financial situations change.

How Does It Really Work?

In general, Form W-4 is focused on honing in on the number of “personal allowances” that you will take. The more personal allowances you take, the less tax will be withheld from each of your paychecks. Conversely, if you claim zero personal allowances you will have the most tax withheld from your take-home pay.

So, it is very important to get the right balance of personal allowances claimed. Claiming too little will mean that too much tax is sent to the government ending in a refund. But claiming too many will lead to too little tax being sent to the government ending in a possible large tax bill come April.

In order to figure out how many allowances to claim, you will need to consider the following:

1. What is your tax filing status?
(a) Married filing jointly
(b) Married filing separately
(c) Qualifying widow(er)
(d) Head of household
(e) Single

2. How many jobs do you have?

3. Do you have any dependents?

4. Will you take any credit for child tax or other dependents?

Once you gather the answers to the three questions above, you are ready to fill out the Personal Allowances Worksheet on Form W-4. Below is a screen shot of what the Personal Allowances worksheet looks like on the actual Form W-4. The next section will walk you through how to complete this form.

How Should I Fill Out Form W-4?

The following video below will walk you through how to fill out Form W-4. Please note that the assumption within this video is that you will not take itemized deductions and you will not need to fill out the Two-Earners/Multiple Jobs Worksheet on Page 4 of Form W-4.

With the new GOP tax plan, the standard deductions have increased so a lot of you may choose this route over itemizing. Always remember though, you should itemize deductions if your allowable itemized deductions are greater than your standard deduction.

[embedyt] https://www.youtube.com/watch?v=Dw8bWZsMsyc[/embedyt]

Closing

The vast majority of people will usually end up with 2 allowances (1 for themselves in Line A and 1 for their filling status in Line B-D), as the video above shows. The purpose of Form W-4 is to help ensure that you pay enough tax upfront so you don’t owe additional taxes later on in April, but this form is far from perfect as it can’t account for every single persons’ tax situation. As a result, I suggest that you always do the following at the beginning of each tax year:

1.      Use the IRS withholding calculator (see here) to calculate how much tax    you should withhold. Fill out Form W-4 with 0 allowances and withhold any additional tax needed from your paycheck by filling out Line 6.

Real example of using the IRS Withholding Calculator. Download PDF here: Mae Mae Nguyen – IRS Withholding Calculator Example.

2.      Use the Federal Income Tax Calculator (see here) from Smart Asset to further analyze your tax liability for the coming calendar year. You want to hone in on the sweet spot where you pay the correct amount upfront and neither owe nor get a refund check in April.

3.      Come see us at Blue Elephant Financial Services with any of your tax planning and tax related questions.

My hope in writing this article is that after reading this, you now feel a bit more comfortable with taxes. Filling out Form W-4 correctly will ensure a less bothersome tax season for you.

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Three Apartments … Need to Choose One

Purpose of this article: to help a graduate school student choose between three apartments.

Overview:

Sienna Nelson is on her way to UT Austin College of Pharmacy this coming Fall where she is pursuing her Pharm.D. degree. As mentioned before, the estimated total cost of attendance is $172,886 of which about $88,000 is budgeted for her cost of living (about $22,000 a year).

With a tight living budget, Sienna is trying to decide between three apartments with different monthly costs, levels of amenities, and distance to school.

Below is a quick cash outflow analysis created to help her decide which apartment to go with. Excel file has been attached below and can be sent upon request.

Apartment 1: $945 monthly rent, no laundry or dryer:

Apartment 1 is a 5-minute walk from the bus stop that Sienna will take into school each day. Since she is very close to the bus stop, her plan is to save on fuel costs by walking to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin is that bus transportation is free for all students with an I.D.

Because her apartment under this scenario is a 5-minute walk from the bus, Sienna will walk to the park and ride each morning and not incur any additional travel cost.

Since her apartment under this scenario doesn’t have a laundry or dryer machine in her unit, she will have to use the shared laundry and dryer machines downstairs. We estimate that it will cost her $30 a month. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

Apartment 1, laundry, and travel to school each day is estimated to cost Sienna $11,752 each year. Over the next four years of school, that equates to $47,008.

Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized.

Apartment 2: $1,033 monthly rent, laundry & dryer:

Apartment 2 is a 1-mile drive from the bus stop that Sienna will take into school each day. Since she is semi-close to the bus stop, her plan is to save on fuel costs by driving a short distance to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin, is that bus transportation is free for all students with an I.D.

Because her apartment under this scenario is 1-mile away from the bus stop, Sienna will need to drive to the park and ride each morning. We estimate that will cost her $6 a month in fuel.

Since her apartment under this scenario does have a laundry and dryer machine in her unit, she will be able to save some. We estimate that it will cost her $8 a month in energy to wash and dry her clothing. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

Apartment 2, laundry, and travel to school each day is estimated to cost Sienna $12,611 each year. Over the next four years of school, that equates to $50,445.

Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized.

Apartment 3: $940 monthly rent, laundry & dryer:

Apartment 3 is a 3-mile drive from the bus stop that Sienna will take into school each day. Since she is semi-close to the bus stop, her plan is to save on fuel costs by driving a short distance to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin, is that bus transportation is free for all students with an I.D.

Because her apartment under this scenario is 3-miles away from the bus stop, Sienna will need to drive to the park and ride each morning. We estimate that will cost her $18 a month in fuel.

Since her apartment under this scenario does have a laundry and dryer machine in her unit, she will be able to save some. We estimate that it will cost her $8 a month in energy to wash and dry her clothing. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

Apartment 3, laundry, and travel to school each day is estimated to cost Sienna $11,639 each year. Over the next four years of school, that equates to $46,557.

Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized

Which Apartment Should She Choose?

Based on our pure financial analysis, we recommend that Sienna choose Apartment 3. It is -1.0% and -7.7% cheaper than Apartment 1 and Apartment 2 respectively. The summary table below shows a side by side comparison of the total cost of each apartment:

An argument could be made that Apartment 1 might be worth it holistically to Sienna because the difference in cost is only $113 a year, but it’s much closer to the bus stop and ultimately school. What we can all agree upon is that Apartment 2 is out of the equation and ultimately Sienna now has the tools necessary to make the best decision for herself!

Everyone’s situation is slightly different but please know that we at Blue Elephant Financial Services are here to help you make the best financial decisions possible.

 

Excel Link:  Sienna Nelson – 3 Apartment Choices

 

 

 

 

 

 

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Graduate School is Worth It… Most of the Time

Purpose of this article: to help you figure out if going back to school for your master’s degree is worth it.

Bullet Point Summary

  • Graduate school is worth it for most people that pursue business, law, or medicine because these professions have a high degree of pay back.
  • In order for graduate school to be worth it for you, you have to know what you plan to pursue after your graduate degree.
  • You must look at your current income and compare that to your potential future income post graduate degree.

Overview

Let me start by saying I have a bias towards graduate school being that I received my master’s degree in business administration. That being said, nowadays it certainly feels as though the bachelor’s degree is no longer enough to get a decent paying job. In 1950, some 34% of adults had completed high school; today, more than 30% have completed a bachelor’s.

To be clear though, the stats absolutely still show that having a college degree of any kind is better monetarily than not having a degree:

But there is definitely a glut of young people entering the work force with bachelor’s degrees. So, with bachelor’s degrees so commonplace is the master’s degree worth your time? The long answer is it depends on your field of expertise. Below I will show you a couple examples of some clients of mine who have had to wrestle with this decision.

Scenario 1: Sienna Nelson, Pharmacy Technician

Sienna Nelson, 23, is currently a Pharmacy Technician at CVS Health in Houston Texas. Her current yearly salary is $40,000. She has been accepted to the UT Austin College of Pharmacy where she is considering pursuing her Pharm.D. degree. Yearly tuition for this program is $21,126, with an additional $15,638 estimated a year for living expenses, and the degree will take her four years to obtain plus two years of paid residency. After doing some research (see here), she has decided to take out $136,760 in loans from the federal government (interest rate of roughly 6% to 7%), which after four years will cost an estimated $172,886 (includes accrued interest during the time she is in school).

As a pharmacist, the profession Sienna plans to pursue after her degree, she stands to make on average $130,000, with a low point of $105,000 and a high point of $150,000. Her plan is to pay off her graduate school loans in 17 years. Is graduate school worth it for Sienna Nelson?

The long and the short answer for her is a resounding YES!

Assuming that Sienna’s income before graduate school grows at a steady 3% each year (roughly the rate of inflation), in 25 years, she will have a gross yearly income of $81,312 (started at $40,000). Her 25-year period gross earnings will total $1,458,371 (before taxes and living expenses).

By leaving her current job to pursue her Pharm.D. degree, assuming the same steady 3% growth each year, and a starting salary of $105,000 in year 7 after her residency is completed, Sienna stands to make $2,510,337 after debt repayments (before taxes and living expenses) over the same 25-year period. This includes four years where she makes $0 while in school as well as an average of $49,681 each year over the two-year period when she is in residency.

Put simply, by taking on $172,886 in debt, Sienna has grown her total 25-year earnings by $1,051,966 or +72%. And even though the total amount she will repay in debt is $226,295 because of the interest, she is still in a much better situation than before. The return on her investment in herself is a whopping +365% and her decision to go back to school is a no-brainer!

Scenario 2: Natalia Bessemer, Audit Manager

Natalia Bessemer, 26, is currently an Audit Manager at Ernst & Young in Arlington, Virginia. Her current yearly salary is $75,000. She has been accepted to the University of Virginia, Darden School of Business where she is considering pursuing her MBA. Yearly tuition for this program is $68,350, with an additional $26,674 estimated a year for living expenses, and the degree will take her two years to obtain. After doing some research (see here), she has decided to take out the full $190,048 in loans from the federal government (interest rate of roughly 6% to 7%), which after two years will cost an estimated $216,713 (includes accrued interest during the time she is in school).

As a brand manager, the profession Natalia plans to pursue after her degree, she stands to make on average $115,000, with a low point of $100,000 and a high point of $125,000. Her plan is to pay off her graduate school loans in 19 years. Is graduate school worth it for Natalia Bessemer?

The long and the short answer for her is a PROBABLY.

Assuming that Natalia’s income before graduate school grows at a steady 3% each year (roughly the rate of inflation), in 25 years, she will have a gross yearly income of $152,460 (started at $75,000). Her 25-year period gross earnings will total $2,734,445 (before taxes and living expenses).

By leaving her current job to pursue her MBA, assuming the same steady 3% growth each year, and a starting salary of $110,000, Natalia stands to make $3,238,399 after debt repayments (before taxes and living expenses) over the same 25-year period. This includes two years where she makes $0 while in school.

Put another way, by taking on $190,048 in debt, Natalia has grown her total 25-year earnings by $503,954 or +18%. And even though the total amount she will repay in debt is $331,420 because of the interest, she is in a better situation than before. But unlike Sienna, Natalia’s return on investment is only +52%. So, going back to school isn’t the same “no-brainer” that is for Sienna.

Side by Side Comparison of Sienna and Natalia

Closing

Going back to Graduate School is time consuming and a significant financial commitment. As we have shown in the two examples prior, both Sienna’s and Natalia’s decisions to go back to school pay off financially over a 25-year period on paper. But going back to school is bigger than just the financial return. You have to weigh all the pros and cons that often times do not show up in an excel model. Everyone’s situation is slightly different and life happens, but regardless, please know that we at Blue Elephant Financial Services are here to help you decide if graduate school is right for you.