We all want to do what is best to try and set ourselves up for financial success. There are so many different messages out there; sometimes it can be difficult to know where to start. Make sure you are talking to the right people when seeking advice. Talk to a person in the profession. Aunt Sally and Uncle John mean well, but is it their job to know the answer to what you’re asking? If not, you’re probably asking the wrong person. It’s probably not a good idea to ask your Attorney Dad to perform your root canal.
When it comes to your credit, there are a lot of mixed messages out there. Different advice is given for different purposes. Advice will change based on your end goal. Are you trying to improve your credit to buy a car, buy a house? Credit counselors will advise you to dispute your derogatory credit, because it will raise your score. That may be true, but it won’t help you get a mortgage.
Most disputes need to be removed to get a mortgage, and removing the disputes will lower your credit score, making you potentially unable to qualify. Some will also advise you to not pay your collection accounts. Again, if you are looking to get a mortgage, this may not work for you. Although medical collections are ignored, any non-medical collections with an aggregate total of $2,000 or more need to be paid. It’s also believed that 2 years after bankruptcy, you can get a mortgage. Yes, it’s true that you can, but only if you’ve established no new credit, or perfect credit.
Some people think that paying off and closing their credit cards will help their score. Keeping your credit balance below 30% of its limit will defiantly raise your score, but closing your credit cards will lower your score. Don’t open or close any new credit if you are looking to buy a home.
Now we will switch gears, and talk about Savings. Another thing we all strive to do, but what’s most important? Most parents make the mistake of thinking that saving for their children’s education and leaving an inheritance is important. It’s a nice thought, but you need to help yourself before you help you children, because if you don’t, you’ll be a burden, which is worse than not being able to help. First, make sure you have a healthy savings account. You should have up to 6 months of expenses. At some point, you will need that money, a new roof, furnace, medical bills, unexpected reduction in income, etc.
Next, you need to get Life Insurance not only to cover the expenses for the loss of life, but to allow your remaining family members to continue to live the lifestyle to which they are accustomed. The death will be hard enough; it doesn’t need to be made any harder. In addition to this, you should also make sure a Will and Trust are in place, so that your loved ones don’t have the time , expense, and stress of probate. Plan where you will live out your days, and share your plan with your family so that your wishes are clear.
This leads to Retirement savings. Make sure you are saving enough to retire comfortably, and at the very least not run out of money before you die. Don’t assume you will die young, so you can spend more money. I’ve seen many use this “logic” as a way to avoid saving and planning. Chances are, and God willing, you will live a long and healthy life.
After all of this is taken care of, set up, and planned out, you can start saving for your children. If you don’t have enough to pay for their college, (and let’s face it, will any of us at the rate tuition increases?), they can get loans. Don’t worry so much about your child’s student loan burden, it’s much better than the “I have to take care of my parents” burden. At least the student loan interest is tax deductible.
Amy Couper, a 2000 graduate of the University of Illinois Champaign-Urbana, is a Loan Officer with Key Mortgage Services. She has been in the Financial Services Industry for 11 years, starting as a Personal Banker, held Series 7 and 66 licenses, prior to becoming a Loan Officer. She has been originating Residential Mortgages for 6 years. For Amy, excellent customer service and communication are key to creating an enjoyable home buying experience.
Amy Couper Senior Mortgage Officer, NMLS#425280