Best Ways to Save for Your Mortgage Down Payment

Four simple methods to get the ball rolling on your down payment savings
Buying a home is ajanuaryfeatured_saveforhome huge step in life and begins with a huge hurdle: the down payment. Fortunately, by starting early and thinking things through, you can get a solid jump on saving. Here are some easy ideas to get you started.

Automate Your Savings
At your usual financial institution, open a savings account specifically designated for your down payment/mortgage. Not only will this allow you to conveniently transfer funds from one account to the other, it will also allow you to automate transfers or directly deposit part of your paycheck into the specified account.

Make a Budget
Create a spreadsheet that lists all of your monthly expenses and monthly net income. Not only will this tell you how much you can put into savings, it can also help you discern what monthly mortgage payment you can afford. If the buffer between expenses and income is already too small, this is an early red flag that you will have to start doing some things differently to afford your mortgage.

“Given that income and expenses are closely matched in many households, the only way to get ahead is to bring in more money or change your spending habits (meaning spend less) and avidly look for new savings sources,” says Peter Miller, The Simple Dollar contributor.

Invest Your Funds
If you are looking to buy a house within the year, Kathryn Vassel of CNN Money recommends keeping your money liquid; but if your plans are more long-term, it is a good opportunity to invest in order to boost savings. If you are looking at a 10-year time frame, stocks could be a good option for you, Vassel writes. If you think you’ll buy a house in five to seven years, consider investing in bonds: 50 percent in longer-term bond funds or individual bonds and 40 percent in short-term bonds that mature in one to three years, plus 10 percent in cash. Finally, try higher-interest CDs if you are still two to four years from buying a home.

Research Home-Buying Programs
One of the first steps toward saving for a mortgage is setting a goal. A general rule of thumb for the down payment is 20 percent of the home’s selling price, but many available government programs also offer lower down payments, down payment loans or grants, or housing discounts. For lower down payments, look into GSE loans or loans through the FHA, VA or USDA.

Whether you choose one of these savings methods or all of them, they will help you come up with the down payment for the home you’ve always wanted.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

The Power of Compound Interest

Why it really pays to invest early in a retirement account
Money in a savingsjanuaryfeatured_compoundinterest or retirement account grows over time as it earns interest. But the interest rate isn’t the only factor that determines how much it grows; compounding interest helps your funds grow faster because it lets you earn interest on the money you deposit plus previously earned interest.

Compounding interest gives young investors great power to save for retirement, even if they don’t currently have much to save.

People in their 20s and 30s who are working to build their careers are often tempted to put off investing in retirement for a time when they are more established financially. By doing so, however, they miss out on the big advantage they have over older, wealthier savers: time.

“If you invested $10,000 in a mutual fund and the fund earned a 7% return for the year, you’d gain $700,” according to NerdWallet. “Over the years, that money can really add up: If you kept that money in a retirement account over 30 years and earned that average 7% return, for example, your $10,000 would grow to more than $76,000.”

To test out the power of compound interest for yourself, try the Compound Interest Calculator from NerdWallet. It can show you exactly how far your money could go if you started saving today. Just plug in hypothetical savings amounts at https://www.nerdwallet.com/banking/calculator/compound-interest-calculator.

The earlier you start investing, the more time your money has to compound, and when you do the calculations, it becomes clear that saving a little bit of each paycheck today can add up to a much bigger sum at age 65 than if you wait a few decades to start saving, even if you can afford to save more each month when you’re older. The bottom line is that to truly take advantage of the power of compound interest, you need to start saving as early as possible, and the advantage you gain by doing so cannot be overstated.

Business Insider calculated how much you would need to save each month to reach $1 million by age 65 at a 6 percent return rate, and the results are astounding. If you start saving at age 20, you only need to invest $361.04 each month, while starting at age 30makes the required monthly savings nearly double to $698.41. If you wait until you are 50, you need to put away $3,421.46 each month to end up with the same amount at age 65.

You can see a chart that illustrates the calculated monthly savings required for each age group at http://www.businessinsider.com/compound-interest-monthly-investment-2014-3/#.U6xcEI1dWVh.

“When you start saving outweighs how much you save,” says Business Insider contributor Libby Kane. “Retirement accounts such as 401(k)s and Roth IRAs aren’t just savings accounts-they’re actively invested, and therefore have the potential to make the most of this benefit.”

If you’ve been inspired by the mathematical magic of compound interest, harness that motivation by talking to your financial institution about opening up a retirement account or by committing to making regular contributions to your existing savings and retirement accounts.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

The Secrets to Saving More Money

Knowing which accounts to use can help you save more

Today, there are manysavingsecrets_featured options for where to put your money. From using regular checking and savings accounts to deciding whether to open a money market account or a CD (certificate of deposit) to even opening an account for holiday savings — each offers something to help you save a little more.

Money market accounts and savings accounts
In an article in the Houston Chronicle, finance contributor Leigh Anthony compares these two types of accounts. Both offer interest on all deposits made and are insured by the federal government, making them safe, low-risk investment options.

Both account types also have a federal limit of six transfers per month out of the account. However, money markets act more like checking accounts, giving you the ability to write checks, make electronic transfers, and withdraw money with an ATM or debit card. With savings accounts, you can transfer money, but you may or may not be able to withdraw funds directly without talking to a bank teller, depending on the institution.

“Interest rates on savings account[s] are typically very minimal as there is not a minimum balance required,” reports Anthony. “[W]ith a money market account, the interest rate is higher and may fluctuate based on a schedule posted by the [financial institution].”

A savings account would therefore be more appropriate for putting away cash that you want to save for emergencies or a future large purchase, whereas a money market account would be better for savings that you need to access more often, such as for major home renovations.

CD accounts
Anthony also discusses the difference between a CD and a money market account. Unlike money markets, a CD account has a set interest rate that doesn’t change through the investment term. You can set this term from anywhere between 30 days and five years — and then sit back as your money grows.

Furthermore, according to an article in the Wall Street Journal, CDs are reported as low-risk savings accounts with an interest rate that could be higher than a money market account. The money is (probably) federally insured, “and you’re guaranteed to get back what you put in, plus interest once the CD matures” through its predetermined term. But make sure not to withdraw funds before the maturity term ends, or you’ll face a hefty penalty.

Holiday savings accounts
While some institutions offer actual “holiday savings accounts,” this term is broad enough to encompass savings specific for holiday spending. Many people spend a lot of their money during the holidays for gifts and family meals, and a great way to make sure you have funds set aside for these purchases is to open an account just for holiday savings.

“The key is to think about holiday spending the same way you would other recurring, non-monthly expenses, like annual insurance premiums, quarterly tax estimates and home maintenance. Set up an account, and automate deposits from your paycheck like any other bill,” says CFP® Tom Gilmour of LearnVest Planning Services in a November 2014 article in Forbes.

If you need more guidance on what type of savings account to open, contact us and we’ll be happy to help.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Saving Versus Investing Over Time

Does one take precedence over the other?

It’s the age-old questionSaveVsInvest_Featured to which everyone wants an answer: Is saving over time or investing your money more likely to make you the big bucks?

While both strategically saving and investing will make you money, investing is more likely to up your financial game over the long term, and is best for helping you reach those faraway goals, such as saving for a wedding or a child’s college education. Savings accounts work better for goals in the near future, such as going on vacation or making a large purchase.

While investing over the long term certainly has its advantages, it can pose many more risks than saving accounts do. With funds ensured by the federal government, money up to $250,000 would be restored if anything happened to your financial institution with a savings account. In addition, savings are ready at hand in the event you need money quickly — a possibility investing doesn’t always provide.

Investing, however, offers the potential for major profit and a higher return than a regular savings account. Over time, your investment may appreciate, which will increase your net worth. So if you sell what you invested in for a higher price, you make a profit. With a savings account, you can earn interest, but that’s generally much less than an investment profit.

Of course, when you invest money, you risk losing some or all of it. The key with investing is focusing on the things in your control.

“The only thing that you can control is the amount of capital you invest. Even during periods of low market returns, the frequent addition of investment capital can have a lasting effect,” says Director of Investor Education Bob Stammers of the CFA Institute. “Consistently adding capital to your portfolio, [when combined with] the long-term returns earned on that capital, is an excellent way to steadily move toward your overall financial goals.”

Even if you’re investing your money, it’s still important to be good at saving as well.

“An average saver will do better than a great investor who doesn’t save,” says CFP Professional and Principal David A. Schneider at Schneider Wealth Strategies in New York City.

In addition, whether you save or invest, it’s best to start sooner rather than later.

“The sooner you start saving and investing, the easier it is on your budget,” says President Carrie Schwab-Pomerantz of the Charles Schwab Foundation. “The sooner you start, the less you have to save because you have time on your side.”

“Every $1,000 saved in your mid-20s grows to over $10,000 at retirement, assuming 6 percent growth every year. But waiting until your mid-30s means that same $1,000 will only grow to $6,000,” explains Chartered Financial Analyst and CEO Shane Leonard of Stockflare. Think of it this way: Investing a mere dollar at age 25 could be more than five times as valuable as doing so at age 45.

Stop by to see what kind of investment and saving options we have for you today.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Saving for a Child’s Education While Paying Off Your Own Student Loans

Should you save first or prioritize paying down your own loans?

Determining how much482232067(1) to save for your children’s education and how much to spend paying off your own loans can be a confusing prospect. Should you focus on your current loans, or look toward the future? Many people feel conflicted because they feel like they should put their children first, but know they need to pay off their loans in order to help the financial prospects of their whole family.

The following information can help you determine the right path for your family. Although deciding how much to spend paying down debt and how much to save for the ever increasing costs of college can be an emotional conundrum, there is actually a fairly clear-cut answer. Before focusing on just your children, you need to protect the financial interests of your entire family. This means ensuring that you have sufficient savings and that you pay down debt quickly.

First things first, many financial experts suggest that your main priority should be ensuring that you have sufficient savings for an unforeseen circumstance like a medical emergency, or a job loss.

“With the uncertain economy, experts suggest that you squirrel away at least four to seven months’ worth of living expenses,” states Scott Westcott on Yahoo News Finance.

Once you put aside enough money for an emergency, you have to determine where the rest of your money should be spent. Performing some simple calculations can help you see how far your dollar will go in each scenario: paying down debt or saving for college. Most likely, you will find that paying down debt is your best option as far as getting the most bang for your buck.

“Calculate if the potential earnings on your investments for your child’s education will likely outpace the interest rate you’re paying on your student loan debt,” states Westcott.

Even if you can create an investment portfolio that is well diversified and may perform better than the interest rate on your loans, there are many reasons to pay down your debt before saving for college. It’s important to keep in mind that you’re not being selfish, but rather are helping your entire family by paying down your loans.

“If you’re concerned about saving for your child’s future education, eliminating your own loans should take priority,” according to the Women & Co. blog at the Huffington Post.

When your child approaches college age, the amount of debt you have will likely influence the places he or she applies to. Paying down debt will also help you obtain a loan in the future when you more accurately know how much college will cost.

“If you pay off your loans and build a solid financial base then you will have more options to pay for college down the road. If you don’t build a solid financial base, then it is harder to not only help your kids but yourself,” states personal finance advisor Andrea Travillian, who is the founder of Smart Step, Inc. “No one will give you a loan to retire, but worst case scenario your child can take out a student loan.”

The realities of retirement planning should be a serious consideration. Not only will your options for retirement savings decrease as you get older, the investments you do make will not have time to go as far if you wait.

“But putting off saving for retirement until you’re debt-free could cost you the most valuable asset you have: time,” warns Sandra Block from Kiplinger. “Thanks to the magic of compounding, even small contributions to a 401(k) or similar retirement plan will grow significantly, especially if your company matches contributions.”

The fact that you should focus on your own debt and retirement doesn’t mean that you will be ignoring the needs of your children until your debt is gone. If you make a very serious budget, you can tackle your debt most efficiently and start putting away money for your children faster.

Lyz Lenz from the Mint Life blog describes how she was able to plan for her own education debt and her children’s by enforcing a strict budget. They bought bulk groceries, cut down on clothes shopping and even reused sandwich bags to save, and it all added up.

“Two months ago, we were able to pay off one loan two months early and we’re inching closer to our goal of eliminating my college debt by early next year,” states Lenz. “‘What will we do with all that money, when we don’t have to pay Sallie Mae?’ I recently asked my husband. ‘We’ll save it for more college,’ he replied.”

The bottom line is to talk to your financial institution about a savings account so that you have money saved for any unforeseen circumstances and find out what your best options are for retirement savings. In the meantime, get serious about your budget and you will place yourself in the best position to begin saving for your children’s education.


Used with Permission. Published by IMN Bank Adviser
Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Financial Tips for College Graduates

Preparing for the real worldFinancialSkills_2 can be a daunting task for a college student and knowing where to begin might seem hopeless. One of the most important things to work on as you begin to contemplate your life after college is building solid financial skills. Having well-grounded financial skills will help you not only personally, but also professionally. Here are some tips to help you get on the right track.

According to Nancy Anderson of Forbes.com, nine out of 10 baby boomers provide their adult children with some kind of financial support. While every parent wants to help their children succeed in life, it’s also important that parents don’t compromise their retirement savings in the process. Teaching their children how to effectively manage their money can make a significant difference – and it’s never too late to start. Some of Anderson’s financial tips include:

Understand the value of the dollar
Especially for college students who are eating at all hours of the day or night, being mindful of their spending is important. Instead of having that pizza delivered from down the road or buying three coffee drinks from the library cafe, try thinking ahead before an all-nighter of studying; pack snacks that you already have on hand and bring a thermos of coffee. The small expenses can quickly add up to a big chunk out of your budget.

Keep a good credit score
As you contemplate moving into the real world, there are things you’ll want to do that your credit score will have an impact on such as renting an apartment, buying a new car, etc. Sign up for a credit card with a low spending limit and set ground rules for yourself when it comes to using it to avoid getting yourself into trouble. Parents can consider setting up a joint card while their kids are in college and work together to pay off the balance each month to get a good start on good credit.

Save, save, save
Putting money into a savings account that you don’t touch is one of the key factors to success; the standard rule is to have approximately six months of expenses saved to ward against the unexpected. Your financial institution may offer the ability to auto-draft money from your checking to your savings account so you’re automatically saving money with each paycheck. According to research by Bankrate.com, 76 percent of Americans live paycheck to paycheck; another study from CashNetUSA revealed that almost half of those surveyed had less than $800 saved for emergencies.

When it comes to learning more about managing your finances, you may come across terms that seem foreign and intimidating; however, taking some extra time to research these things now and understand how they can impact your financial future is important for your success.

“Young college graduates, who start saving now, can save far less money and be much wealthier than Americans who realize in their 40s and 50s that they have to get busy stashing money away,” according to Lynn O’Shaunessey of CBSNews.com. Here are some of O’Shaunessey’s tips:

Maximize your savings with compound interest
Even if you start your savings account with meager contributions each month, compound interest, like a snowball, can turn those contributions into something more significant as the years go on.

Open a Roth IRA
A Roth IRA is basically your retirement savings account; even though retirement may seem like decades away, you want to make sure that you’re comfortably prepared for it, so opening an IRA now will be sure to benefit you in the future.

Work on creating a stock portfolio
Investing in stocks can have a major impact on your finances and also teach you a lot about money as you become more experienced with the process. Start by investing in just one category while setting the goal to eventually spread your finances across large-cap and small-cap index funds, which will provide you with the best return for your investment.

Manisha Thakor of Forbes.com suggests that parents talk to their college-aged children about their own financial successes and blunders: “The more intergenerational dialogue we have about the basics of personal finance the better off this country will be.”


Used with Permission. Published by IMN Bank Adviser
Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Savings vs. Student Loans: Which Should You Prioritize?

Ask a group of financial shutterstock_128157245advisers to name one thing people should do to improve their financial outlook, and “save” is guaranteed to be the top response. But given a choice between savings and debt reduction, which is more important?

If you want a mathematical answer, there’s a lot of number crunching involved. Given today’s economic climate, the interest on your debt — even the relatively low interest charged federally subsidized student loans — might be higher than what you can earn through secure savings vehicles like savings accounts, CDs and money market funds. Given this situation, paying off your student loans early could be to your advantage.

“Once you have a modest balance in your emergency fund (say around $1,000 or so), begin working on your debt reduction plans,” suggests one popular online banking service. “That way, if an emergency does come up, you can address it without adding to your debt. Once you’ve eliminated your high interest debt, you can concentrate on saving up even more in your emergency fund. It’s conventional wisdom to have at least six months of living expenses saved up in an easily accessed account.”

Of course, if the situation changes and it becomes easy to get returns on savings and investments that are at rates higher than your student loan debt, then the effects of compound interest make maxing out your savings contributions each month a better long-term choice than maxing out your loan payments.

“From a financial standpoint, if the interest rate on your debt is lower than the interest rate on your savings or investment, then you’d get a higher return by saving versus paying off debt,” says credit and debt management expert LaToya Irby. “There are also tax benefits to retirement savings. The money you contribute to a 401(k) can often [be] excluded from your taxable income, resulting in a lighter tax burden. Take advantage of your employer’s offer to match contributions to your 401(k) plan. Don’t turn down free money.”

In other words, it’s better to save when saving gets you more money than you’ll spend on the student loan. Your own specific financial situation — the interest rate you have to pay on your student loan debt, the interest rate you can earn in safe and secure investments and the impact of your savings decisions on your tax burden are all important considerations.

In all likelihood, you will be better off in today’s economy paying down your student loan debt first. There are also psychological aspects of this question to consider, however, and the general recommendation given by financial and personal wealth experts is to save something — typically a set percentage of your income — every month. This will build a strong savings habit that you can make even stronger when you clear out that student loan debt.

“Allocate 50% of all you are able to save to your emergency fund, and 50% to debt reduction until you have four to six months’ of living expenses in your emergency fund,” recommends Ted Hunter, author of Money Smart. Once you’ve built up this emergency fund, “eliminate all debt except that which involves your home and your car, then maximize the tax-deferred savings allowed to you.”

Whether you follow Hunter’s strategy or not, you’ll need to examine your specific debt obligations and savings/investment opportunities before making a decision. With low returns on today’s savings vehicles, aggressively paying down your student loan debt while still contributing regularly to savings is likely to be the best choice.


Used with Permission. Published by IMN Bank Adviser
Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Set A Financial Goal. Win Money To Achieve It.

That’s right, this year we want toSnapshotPromo help you make your financial New Year’s resolution happen. Whether you want to sock away cash for a new car, or pay down debt, use $napshot to do it and you could win as much as $1,000.

Consumers like you, that use online financial management tools like $napshot, report saving an average of $100 monthly, just by setting and tracking financial goals. We want you to see how easy it is to gain more control of your money and reduce money-related stress. In fact, you’ll automatically be entered into a drawing to win cash prizes if you use $napshot to set a financial goal before February 28th, 2014. Click here to see the full promotion specifics on the AOFCU website.

To get started using $napshot today, log in to MyBranch and click on the eServices tab, then $napshot and then select “Goals” from the menu. $napshot is free to all AOFCU members. Try it out today!

The True Cost of a College Education

Consider all tuition expenses so you can manage your budget and earn a college degree

A college education is crucial, particularly in today’s challenging job market. Not only does a college or university degree drastically improve a person’s chances of earning his or her dream job, but it also helps ensure a higher salary.

According to U.S. News and World Report, those who hold bachelor’s degrees typically earn roughly $2.27 million in their lifetime. Conversely, people who have only their high school diplomas usually make about $1.30 million in lifetime earnings.

“The payoff from getting a college degree is huge and is actually increasing,” said Jamie Merisotis, president and chief executive officer of Lumina Foundation, a nonprofit organization that focuses on boosting the number of college graduates in the United States. “For people wondering [if] a college degree [is] worth it: Not only is it worth it, but the premium is growing.”

Gaining an edge in today’s job market is vital, which is making it more important than ever before for both kids and parents to save for school. A recent Millionaire Corner Survey showed that 34 percent of investors said they were currently involved in paying for a child or grandchild to go to college. Meanwhile, 46 percent of these people were concerned about college expenses.

Despite the challenges that surround paying for a college education, there’s tremendous value in getting a degree. However, those who consider the actual cost of tuition – not just the list price – can budget accordingly.

Check out the following tuition expenses to fully understand the true cost of a college education.

  • Housing – College housing is crucial, and the costs of living on- or off-campus vary widely in cities and towns nationwide.Recent U.S. Census Bureau data revealed that 12 percent of college students live on campus. It might prove more cost effective, however, to save money, live at home and commute to campus. Start searching for housing early and review all housing expenses before enrolling in school to determine what option works best.
  • Food – Many colleges and universities require students to sign up for meal plans while other schools may allow pupils to simply buy groceries and cook meals on their own. Weekly, monthly and semester budgets often are helpful for those who are trying to better understand food costs. In addition, picking up a few cookbooks or looking for recipes online is great for those who want to make tasty meals on a budget.

  • Books – Remember, classes change every semester. The U.S. Government Accountability Office notes that textbook prices have risen three times faster than inflation over the past 10 years, a trend that may continue in the foreseeable future.Fortunately, purchasing books online or at secondhand bookstores may be cheaper than buying directly from a college or university. Students can also sell their books at the end of each semester and use the money toward future college expenses.
  • School fees – Tuition is more than just the list price, and many schools charge extra fees that aren’t always included in the initial tuition price. Parents and students need to review every expense associated with a college or university prior to enrolling. Ask questions when selecting a school to avoid potentially expensive school fees down the line.
  • Incidental expenses – Emergencies can happen without notice, and it never hurts to have extra money in the bank. Putting aside even a little money helps, and those who do so may reap significant rewards down the line. 
According to Scholarship Experts, the list price tuition and fees charged by American four-year colleges and universities has increased at an annual rate of 7.1 percent. As the U.S. economy improves, these costs are likely to rise as well, but understanding the true cost of college education allows parents and students to prepare.

Used with Permission. Published by IMN Bank Adviser 
Includes copyrighted material of IMakeNews, Inc. and its suppliers.