Money Matters

DISCUSSING THE HOW

TO’S OF PERSONAL FINANCE

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TABLE OF CONTENTS 5

How to Earn a More Affordable Mortgage

7

How to Pay Off Your Mortgage Early

8

How to Refinance at the Right Time

9

Weighing the Pros and Cons of a Reverse Mortgage

10 Real Estate Investing for Beginners 11 Home Improvements That May Actually Lower Home Value 12 Things to Know About Credit Scores 13 The Benefits of Financial Planning 15 Financial Considerations for Those Nearing Retirement 16 Joining a Credit Union 17 How to Handle a Temporary Loss of Income 18 How to Save on Prescription Drug Costs 19 How to Properly Store Personal Records

Published by The Bulletin Special Projects Department on Monday, Feb. 24, 2014.

Content courtesy of Metro Editorial 4 | MONEY MATTERS 2014

HOW TO:

Earn an Affordable Mortgage Take every step possible to ensure your mortgage application is both approved and most affordable.

Home ownership remains a dream for many people. But on the heels of the recession that began in late 2008, prospective home buyers are finding it far more difficult to secure a mortgage than it was in the years before the economy took a turn for the worse. Stricter guidelines now govern both borrowers and lenders alike, and the process can quickly frustrate prospective homeowners.

But strict guidelines and more diligent lenders do not mean prospective borrowers will not be able to secure a loan to finance their home purchases. It just means those borrowers might want to take every step possible to ensure their loan applications are approved and their mortgages are affordable.

This includes assembling a team of trusted partners before the home buying process even begins, says Scott R. Halligan, CRB, GRI, managing principal broker with Coldwell Banker Morris Real Estate in Bend.

“Our economy is improving, but with lower inventory, tighter credit standards and interest rates starting to climb, it becomes even more critical for prospective home buyers to meet early with their real estate professional and mortgage broker so that a game plan can be drafted prior to taking the field and starting the home buying process,” Halligan said.

Renee Dornhecker, branch manager and mortgage loan originator with Landmark Professional Mortgage Company, agrees.

“It’s a great idea to plan ahead when you are considering buying a home,” she said. “Meeting with an experienced loan officer before you are ready to buy will help you make sure you have as many program and rate options available to you when the time comes.”

Address credit concerns before beginning the process.

Poor credit is a prospective borrower’s worst enemy, and it’s an instant and glaring red flag to lenders. And thanks to inaccuracies on their credit reports, some people may have poor credit and not even know it. Before they even begin the process of applying for a home loan, would-be applicants should go over their credit reports with a fine tooth comb, ensuring there are no potentially harmful inaccuracies that may affect the ability to secure an affordable mortgage.

Inaccuracies or poor credit histories can bring down individuals’ credit scores,

which lenders use to determine home loan interest rates. So prospective applicants should have any errors to their credit reports corrected and/or work to improve their credit scores before applying for loans.

Pay down debt.

Even if an applicant’s credit score is solid, lenders may scoff at applicants with substantial amounts of debt. Credit card debt should be paid down before beginning the process, and it also may benefit applicants to pay off any additional loans, such as car notes or student loans, before applying for a home loan. The less debt an applicant has, the more attractive that applicant becomes.

Avoid overusing credit cards.

Using credit too frequently also can make it more difficult for prospective home buyers to secure a home loan. Credit card holders each have a maximum limit on their credit cards, and financial experts recommend using less than 20 percent of available credit to maintain a strong credit rating.

Don’t bluff on loan applications.

Some borrowers might be tempted to

MONEY MATTERS 2014 | 5

inflate their earnings on home loan applications, including counting overtime or bonuses they haven’t yet earned when listing their annual income. Borrowers can expect lenders to request documentation of any extra income, including bonuses, so applicants should avoid including additional income on their applications unless they can prove it.

Applicants also must avoid hiding past issues on their applications.

Banks performing their due diligence will eventually discover any past problems, so applicants should be straightforward from the start. Applicants concerned about their earnings should know that it’s acceptable to include information about assets such as retirement plans and savings even if those funds don’t figure to be used to pay the mortgage.

Make a substantial down payment.

Lenders look fondly on borrowers who can afford hefty

6 | MONEY MATTERS 2014

down payments, feeling that such borrowers are less likely to default on their loans.

In addition, the larger the down payment, the less the monthly mortgage payment will be, saving borrowers a significant amount of interest fees over the course of the loan.

According to Dornhecker, programs exist that make it simpler to save for a down payment.

“There are savings programs available to help you save for your down payment, and some will match your contributions three to one,” she said.

The ultimate goal throughout the process, Dornhecker added, is to be prepared every step of the way. Set the tone at the beginning of the process.

“The more you know ahead of time about the process, the more prepared and smooth your home buying experience will be,” she said.

HOW TO:

Pay Off

Your Mortgage

EARLY Paying off a mortgage early may seem like a monumental task, but it can be accomplished in a variety of ways.

Though the apprehension over mortgage payments may wear off once homeowners get settled, that doesn’t mean homeowners don’t wish they could pay off their homes before those mortgages reach maturity.

Though it might seem impossible in those first few months after buying a home, paying a mortgage off early can be accomplished in a variety of ways.

Increase what you pay each month. Any type of loan, be it a traditional credit card or a mortgage, will disappear faster when borrowers pay more than the bare minimum. By paying just a little more each month, more of your money is going to the principal on the loan, lowering the amount of interest you will pay over the life of the loan at the same time. For example, a $200,000 30-year mortgage loan at 7 percent interest will cost borrowers $1,330.60 per month (costs may vary depending on taxes), and that loan will be paid off in 30 years. But borrowers who increase their payments by just $50 per month can pay off the loan in 26 years and nine months. What’s more, borrowers who only make the minimum payment each month will have paid $279,017.80 in interest charges over the life of the loan, while those who increase each month’s payment by just $50 will have paid just $242,588.80 in interest over the life of the loan.

That means that extra $50 per month saves borrowers $36,249 in interest charges.

One thing borrowers must be certain of is that any extra money they send in each month is applied to the loan’s principal, and not just set aside for the next month’s payment. Talk to your lender to verify this, and when doing so, make sure you don’t have to pay any prepayment penalties if you do, in fact, pay the mortgage off before it reaches full maturity. Such penalties can be significant, but they might be worth paying for the peace of mind of knowing you will be paying your mortgage off several years early.

Consider bi-weekly pay-

ments. Bi-weekly payments, in which borrowers make halfpayments every two weeks instead of one full payment once per month, are another way to pay your mortgage off early. A typical mortgage agreement has borrowers making payments once per month, meaning they are making 12 annual payments.

But a bi-weekly payment system takes advantage of the fact that there are 52 weeks in a year. So by the end of one calender year, you will have made 26 half-payments, or 13 full payments. Such a payment system enables some borrowers to pay off their 30year mortgages in as little as 24 years.

When looking into bi-weekly payments, consult your lender to determine if there are any penalties to such a system. Some lending institutions charge customers who change their payment structure. In addition, confirm with your lender that each extra payment is going toward the principal and not toward your first payment next year.

Refinance your loan. Refinancing to a shorter-term loan often earns borrowers a smaller interest rate, which can offset the higher monthly payments that accompany shorter-term loans.

A shorter-term loan means you won’t have mortgage payments hanging over your head for as long as you would on a 30-year mortgage, and it also means you won’t pay nearly as much in interest over the life of the loan.

Many homeowners find a 15year mortgage forces them to be more disciplined. Homeowners who find their 30-year monthly mortgage payment is well below their means should consider a shorter-term loan, especially if their 30-year mortgage would penalize them for paying the loan off before it reaches full maturity.

Mortgage payments have a way of dominating homeowners’ thoughts. But those homeowners who want to get out from under their mortgage payments without selling their homes have a handful of options at their disposal.

MONEY MATTERS 2014 | 7

HOW TO:

Refinance at the RIGHT TIME

Interest rates are not the only factor homeowners must consider when deciding whether or not to refinance their mortgages.

Refinancing a mortgage is advantageous to homeowners for a variety of reasons. The primary reasons people refinance their mortgages are to reduce their monthly payments or free up equity to use toward home improvements or other necessities. Lenders will frequently advertise that “now” is the time to refinance, but people may want to get all of the facts before making their decisions.

A low interest rate is not reason alone to refinance. Conventional wisdom has long suggested that borrowers wait to refinance until interest rates drop 2 percent below their current rate. While a low interest rate is important, there are several other factors to consider.

Closing Costs Refinancing a home is an expensive undertaking. While it can effectively shave $100 or more off your monthly payments, there is a financial outlay during the process, which includes closing costs. A person can expect to pay anywhere from 2 to 5 percent of the loan’s value in closing costs when refinancing. Lenders used to enable some to roll the cost of the closing into the mortgage, but stringent rules have changed the way many banks now do business. If the finances are simply not there to cover the closing costs, refinancing may not be an option.

Credit rating If your credit rating is better now than it was when you initially earned your

home loan, then this might be a good time to refinance. Not only will a person benefit from a low market rate, the interest rate may be even lower because lenders look more fondly on you now than they did years ago. Lenders often base their assessments of borrower reliability and stability on those potential borrowers’ credit scores, so a strong credit score makes you look better in the eyes of lenders. Borrowers with poor credit ratings may not benefit from refinancing.

Income A person’s debt-to-income ratio is another factor in determining mortgage interest rates and approval. A positive change in income status as well as reduction in debt could make it a good time to refinance.

Adjustable Rate Mortgages Many people opted for adjustable rate mortgages when buying homes years ago.

Over time, their monthly payments may have increased considerably, making it nearly impossible to afford a home. Refinancing for a fixed-rate mortgage, regardless of the current interest rate, will likely ease some of your financial burden.

Home value A higher home value means more equity in the home. This money can be used to pay down debt or for home improvements that further improve the value of

the home and property. It is important to speak with a real estate professional to determine if home values have spiked in a particular neighborhood and to gain an accurate appraisal of the home. This will help determine if refinancing is frugal.

Interest rates Lower interest rates often motivate homeowners to refinance, as a lower interest rate can save homeowners a substantial amount of money over the course of their loans. However, refinancing too soon (within 4 years of the original home loan) may put homeowners in a negative light. Lenders may see borrowers who refinance too soon or too frequently as risky borrowers who cannot successfully manage their money.

Prepayment penalties Certain mortgages have prepayment penalties built in. Should a person pay off the mortgage too early, usually within two to five years, 2 to 4 percent of the home’s loan value must be paid out. Refinancing counts as paying off one loan and opening up another. Penalties could deter a person from refinancing too soon.

Determining the best time to refinance your home mortgage takes effort on the part of the borrower and information about market trends. By doing one’s homework and being aware of certain factors, a person can save money by refinancing a home loan.

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HOW TO:

Weigh the Pros & Cons of

REVERSE MORTGAGES Reverse mortgages enable seniors to retire comfortably in their own homes, but it has some drawbacks.

Chances are you have come across an advertisement for a reverse mortgage and have probably wondered what this type of mortgage is all about. Geared toward seniors, reverse mortgages are growing in popularity and inspiring the curiosity of older homeowners.

A reverse mortgage is a loan offered to people over the age of 62 that enables borrowers to convert part of the equity in their homes into cash or create a rainy day fund.

“Increasingly, senior homeowners are discovering that the reverse mortgage can be an affordable tool for planning purposes,” said Jerry Gilmour, senior reverse mortgage loan officer with Willamette Valley Bank. “Although there are no restrictions on how the money is used, few seniors are borrowing money just to spend it. Most either pay off an old mortgage they can no longer afford or they set aside funds for a specific future need.”

The loan is dubbed “reverse mortgage” because instead of the homeowner paying money to a lender as is customary with a traditional mortgage, repayment is deferred until the borrower(s) no longer occupy the home. In some cases, Gilmour said, the lender may even make payments to the homeowner. To keep the loan in good standing, the homeowner must occupy the home as a principal residence, keep the taxes paid, and keep the house insured and maintained, however a house payment is optional.

When a person takes out a reverse mortgage, he or she may borrow a portion of the market value on the home.

The percentage of the home value that can be borrowed depends on the age of the youngest borrower and applies to homes valued at $625,500 or less.

The reverse mortgage must pay off any outstanding home loan and the balance of the funds the homeowner is eligible for can be taken in cash (subject

to certain limitations) or allocated to a monthly income, a line of credit for future use or any combination the homeowner chooses.

PROS A reverse mortgage enables seniors to live in their homes for the rest of their lives without fear of mortgage payments.

“Even though there are no monthly payments required, the lender will base the loan approval on the homeowner’s ability to pay taxes, insurance, maintenance and utilities,” Gilmour said. “The standards for qualification are much less strict than for a standard mortgage, however credit and income are considered for he safety of the bank as well as the homeowner.”

In addition, the homeowner may opt to make a payment, in any amount and at any time, to preserve the home’s equity.

“If the homeowner elects to allocate the loan proceeds to a line of credit, the amount of available credit will increase over time and interest does not begin to accrue on that portion of the loan until the money is actually used,” Gilmour said. “If a monthly income is desired, that income will continue for as long as the homeowner lives in the home and keeps the loan in good standing.”

As long as the borrower continues to maintain residence in the home, the loan is in good standing and the homeowner will continue to benefit. This money can be used for any purpose and is tax-free.

Borrowers can opt to modernize their homes or make safety improvements.

The funds can also be put toward medical expenses or travel or to help family with their own financial needs.

Because the government insures the reverse mortgage program, borrowers need not worry about receiving their payments. Should a lender fail to make a payment, the borrower is eligible for that

money and a late fee as well.

Another benefit of reverse mortgages is they protect homeowners against falling home prices. If the value of the home drops after the loan is negotiated, it will not affect the benefits of the loan as long as the loan remains in good standing.

CONS One down side to reverse mortgages is that the loans have higher up-front fees than other types of financing.

“Recent changes to the reverse mortgage program offer a substantial reduction of the mortgage insurance fees, provided the homeowner is able to limit the upfront cash advance to 60 percent of the eligible loan amount taken within the first year,” Gilmour said.

Unlike a traditional mortgage, where the balance gets lower and lower over time, with a reverse mortgage, no payments are being made on the loan. This means the loan balance simply gets larger over time depending on how much money is drawn from the home’s equity.

At the end of the loan, when the homeowner moves from the property or the premises is vacated upon the borrower’s death, the value of the estate decreases based on the pay-off value of the reverse mortgage loan. Heirs will pay off the

mortgage by selling the home and will only inherit the remaining money after the reverse mortgage lender has the loan satisfied. This means men and women will be leaving less money for their heirs, but those heirs will not be personally liable if the home sells for less than the value of the mortgage.

The mortgage lender has to claim a loss and request reimbursement from the Federal Housing Administration.

Something many seniors may not be aware of with regard to reverse mortgages is that these loans can affect eligibility for some need-based programs. Although Social Security and Medicare are not affected, Medicaid and other government assistance programs can be affected if a senior has a surplus of funds from a reverse mortgage that are not spent during the month.

A reverse mortgage is a long-term solution. People who are looking for a short-term fix will find that this type of loan probably doesn’t meet their needs.

Many seniors often find reverse mortgages confusing. Seniors may unwittingly agree to a loan without fully understanding the scope of the reverse mortgage. It is advisable to seek counseling on reverse mortgages before applying for one.

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Before trying your hand in real estate investment, it’s important to first consider all the costs associated with both the home and your investment complete team.

Real Estate Investing

for Beginners On the heels of a recession that saw home values drop, many would-be investors have shied away from buying investment properties. But real estate has historically remained a sound investment, boasting a long-term appreciation rate that makes it a worthwhile investment for those who can withstand temporary setbacks in housing prices and hold on to their properties over the long haul.

But investors are often nervous as they look for their first properties. Uncertainty about housing prices aside, investing in real estate also is risky, and first-time investors need to be comfortable with such risk in order to make the most of their investments. The following are a few things potential real estate investors should consider as they decide if investing in real estate is right for them.

The Team According to Lynne Connelley, Broker, CRS, with Coldwell Banker Morris Real Estate in Bend, it’s important you have a solid team in place prior to investing. The team should include a knowledgeable broker who understands capitalization rates, property values, when interest rates are best served by buying vacation home versus a long-term rental, and how to determine if hiring a property manager would be in your best interests.

“Your broker can recommend an experienced property manager who will protect your investment and account for all moneys,” Connelley said. “Your team includes an experienced mortgage broker who will find for you the loan best suited to your situation. Will you do repairs yourself or hire a contractor? Your broker can recommend excellent trades persons for repairs.”

10 | MONEY MATTERS 2014

Investing in a good team will no doubt cut into potential profits down the road, but a trusted team can also work together to ensure your investment is solid in a long-term sense.

Time Real estate is often a time-consuming investment. Tenants pay good money to live in attractive rental properties, and those tenants will have a host of needs that must be met.

Investors must be sure they have the time to address their tenants’ concerns, especially investors with no plans to hire property management firms. Potential investors who already have full plates at work and at home may not be able to devote the time necessary to make the most of their real estate investments, and therefore might be better off finding another way to invest their money.

Time also must be considered when considering profits. Real estate is not the type of investment that turns a profit overnight. Even investors who are looking to invest in an upand-coming neighborhood must be prepared to hold onto their properties for at least a few years, if not much longer, to maximize their investments. Though real estate is a sound investment, it is not a get rich quick type of investment, so investors looking to make a quick buck should consider alternatives before buying investment properties.

“I am not a believer in ‘flipping’ property, which is buying it, fixing it and reselling it,” Connelley said. “I believe in buying right and holding that property long term. You do not make money when you sell a property; you make money when you buy it. So buy it right.”

These Home Improvements may actually

Home improvements are typically made to improve the functionality and look of a home, but renovations also can increase the value of a home. Certain changes to a home can make it more attractive to prospective buyers, while other renovations may make a home less appealing. For example, a complete overhaul of an outdated kitchen is often a smart financial move, while installing a pool or hot tub may not be worth the cost to homeowners. Separating the good from the bad renovations makes smart financial sense, and homeowners looking to improve their homes’ resale values may want to avoid the following projects.

Lower Home Value

rooms: Painting over unappealing colors is a project many homeowners can handle. However, some may be discouraged by a home that has too many bright colors or textures on the walls and trims. Buyers often want homes that are move-in ready, meaning they can get settled in before undertaking large projects. A living room painted in purple or zebra print may not fit the design scheme of many buyers. Dark colors do not easily disappear, and taping off and painting trimwork or changing it entirely can be equally time-consuming. Stick with neutral colors when selling a home,

even if this means giving rooms a new coat of paint before putting your house on the market.

Outdoor hot tubs and indoor spa tubs: Many people find soaking in a bubbling brew of hot water quite inviting. But buyers often do not want to inherit a used hot tub. Although hot tubs are cleaned and maintained with sanitizing chemicals, some people may view them as unsanitary. Removing a hot tub can be labor-intensive. And much like a pool, a hot tub may not be appealing to buyers with young children.

Bedroom and garage conversions: Changing a room’s traditional function often turns off buyers. For example, turning a garage into a home gym might seem like a great idea for you, but it may not be so appealing to prospective buyers. Buyers can certainly reconvert the space, but they would consider the costs of such a conversion when making their offers on the home.

Removing closets: Closet space is often high on buyers’ priority lists.

Turning closet space into an office or removing a closet to make a room bigger may be fine for those who are staying put. But these modifications can be a turn-off to prospective buyers.

Too many features: In an effort to “keep up with the Joneses,” some homeowners will over-improve their home to the point that it outshines all others on the street. There is a case for having nice things, but homeowners may struggle to sell a home that is disproportionate to other homes in the area. Practice moderation when making improvements to attract more buyers.

These suggestions are merely guidelines and should not replace the advice of a reputable real estate agent when marketing a home. Housing features and what buyers are interested in vary across the country. Some items may be desireable in specific areas but undesireable elsewhere. Making informed choices before renovating can help homeowners recoup the largest share of their investments.

Stylized colors on trims and

Size

Costs

First-time real estate investors might be wise to choose a smaller property for their initial investment. Larger properties can be overwhelming to manage, and investors often rely on property management firms to tend to these properties. Such firms charge more to manage bigger properties, which can eat into investors’ finances. Veteran investors can handle such overhead costs, but first-timers might find themselves caught off guard upon realizing the gravity of their financial commitment.

A good rule of thumb for first-time investors is to stick to smaller properties, only moving on to larger buildings once they are fully comfortable with all that comes with investing in real estate.

The cost of a real estate investment goes beyond the purchase price of the home. In addition to the mortgage on the property, investors must pay the taxes and insurance on the property, as well as any costs associated with maintaining and managing the property. Certain tax breaks are available to real estate investors depending on where they live.

For example, in the United States, taxes on the profits when a property is sold may be deferred if those profits are immediately rolled into another property (such a deferment is only available to those investors who arrange this exchange prior to selling the initial property).

Potential investors need to consider all of these costs, and might want to hire a real estate lawyer to help them make the most of their investments and any profits they yield.

But even hiring an attorney is an additional cost investors must consider before investing.

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Top 8% of Coldwell Banker agents Internationally MONEY MATTERS 2014 | 11

THINGS TO KNOW

about

Credit Scores

Here are some things even consumers with strong credit may not know about this three-digit score.

Many consumers are aware of the importance of having a good credit history. A strong credit history means consumers have a high credit score, which can help them secure home and auto loans with reasonable interest rates. But while consumers may know the significance of a good credit score, they might not know about the credit score itself. The following are a few things even consumers with strong credit histories may not know about that three-digit figure that can have such a substantial impact on their lives.

few points of one another, that’s not always the case.

Adults planning to apply for loans should find out all three of their scores before beginning the loan application process. If one score is considerably lower than the other two, examine each of the three reports thoroughly to determine if there are any discrepancies. Even credit reporting agencies make errors, but those mistakes can prove quite costly to less careful consumers.

You have multiple credit scores.

Just because you have a great credit score today does not mean that score will be just as stellar tomorrow. That’s because credit scores are constantly in flux.

When determining your credit score, credit bureaus consider a host of factors, including what’s known as a credit-utilization ratio. This compares the amount of debt an individual is carrying to his or her total available credit. If your credit score last month was excellent but you have spent much of the past month piling up charges, then that score has probably lowered, even if

The success of Web sites offering free credit scores, and those sites’ popular television ad campaigns, opened many consumers’ eyes to the reality that they have multiple credit scores. That’s because each of the three credit bureaus has its own way of determining an individual’s credit score. Experian, Equifax and TransUnion each has their own proprietary scoring model. As a result, consumers typically have three credit scores. Though these scores are often within a

Your score is constantly changing.

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you haven’t missed a payment. A low credit-utilization ratio is ideal, so piling up charges will hurt your score unless you are immediately paying those charges off.

Carrying balances and/or missing payments can quickly turn a great score into one that raises a red flag with prospective lenders.

Credit scores sometimes benefit from debt.

Many consumers are aware there’s such a thing as good debt and bad debt. Credit card debt is typically considered bad debt, as credit cards often charge much higher interest rates than lending institutions that give consumers chances to build good debt. Installment loans, which include mortgages and auto loans, give consumers the opportunity to demonstrate they can make steady payments over a prolonged period of time, and each timely payment can boost a consumer’s credit score. However, men and women should be aware that missing installment loan payments can have a very detrimental impact on their credit scores.

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The Benefits of

Financial Planning

Having a personal financial plan is paramount if your goal is to move toward a secure and confident future.

Financial planning is often mistakenly assumed to be a concern for the wealthy. That assumption essentially promotes the idea that people without much money need not worry about what to do with their finances.

However, financial planning can benefit people at all income levels, even helping those at lower income levels move into higher brackets if they plan successfully.

Though having an idea of how to spend and grow your money is an idea many people would likely embrace, a significantly large number of people do not have a financial plan.

In its 2012 Household Financial Planning Survey, the Certified Financial Planner Board of Standards found that just 31 percent of financial decision makers in families had created a financial plan. Some survey respondents did so on their own, while others

used the services of a financial planner. Though some might be intimidated or even scared to institute their own financial plans, it can be done. And it should be done, said Linda Zivney, registered principal with Zivney Financial Group. ““Financial Planning is the key to financial success. In life, we pass through several phases, each with different financial requirements,” she said. “For example, the financial needs of a young married couple are not the same as those of a retired couple.

That is why continuous, long-term planning is essential.”

For those who are especially hesitant to develop their own financial plans, financial planners can help you define your goals and make those goals a reality. The benefits of financial planning are numerous, helping men and women build better financial futures.

A financial plan forces you to define your goals.

One of the biggest advantages to financial planning is it forces men and women to define their financial goals.

An effective financial plan should consider both short- and long-term goals. If you hope to one day own a home, a financial plan can help you figure out how quickly you will own that home.

According to Stephanie Gross, branch manager with Springleaf Financial Services, one of your first goals should be to pay off debt.

“Start by paying off high interest revolving debt and move onto the balances with lower rates,” she said. “As you pay the debt off that is more money to use to accomplish you monetary goals for the future and increase your monthly disposable income.”

MONEY MATTERS 2014 | 13

A good financial plan also can help you map out a course for retirement.

Ambiguity with respect to your finances is potentially dangerous.

“The secret to financial freedom in retirement is to create an income for life,” said Cathy Mendell, president of Elevation Capital Strategies in Bend.

“Without income, there is no retirement.”

Saying you want to retire at 60 and developing a plan to make that happen are two very different things, but the latter can make it happen while the former won’t get you anywhere unless you take action. Be as specific as possible when defining your goals, and recognize that, depending on when you are making your financial plan, you might need to reassess those goals if they are not realistic.

“The primary goal of a retirement nest egg is income,” Mendell said.

“This income is what you need to spend each year to have the life that you want.”

A financial plan can help you curtail your spending.

With a financial plan in place, you’re less likely to waste your money on frivolous things. Without a plan, you’re more likely to treat money as disposable, putting your financial future in jeopardy as a result. A careful examination of your financial situation can shed light on areas where your spending is excessive. A negative cash flow, which occurs when there is more money going out than coming in, has never been a part of a successful financial plan. Correcting such a situation, which is often accomplished when people establish a financial plan that trims excessive spending, can go a long way toward securing your financial future.

A financial plan can be motivational.

Another significant and often overlooked benefit to financial planning is how such planning can act as a motivator.

Tom Meagher, branch manager and senior vice president-financial advisor with Menefee Meagher Wealth Management Group, RBC Wealth Management, says he regularly witnesses people motivated to take control of their personal finances.

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terest in planning from our clients than ever before, and the level of sophistication of our plans has increased as clients needs have changed,” he said.

A good financial plan will include certain measuring sticks, such as having debt paid off by a particular date or a certain day by which you hope to deposit a certain amount of money into your savings. These measuring sticks often motivate men and women to be more responsible with their money, and many people find living up to short-term financial goals to be very rewarding.

A financial plan makes better use of your money.

Even if you don’t have any negative spending habits, a financial plan can help you make better use of the money you do have. A closer examination of your finances can often yield a host of ways to grow your money or save it. For example, you might have multiple insurance policies, some of which offer duplicate coverage. Examining each policy and removing duplicate coverage can save you money and help you spend that money in better ways. You wouldn’t pay for the same slice of pizza twice, so why pay for the same coverage twice? But unless you make a financial plan, you are unlikely to find those areas where you’re wasting money or discover the numerous ways in which your money can be better spent.

A financial plan helps you grow your money.

Even if you are worried about investing or especially skittish when it comes to risk, you will need to find ways to grow your money, and a financial plan can help you do just that.

The concept of inflation dictates that the dollar you have today won’t be worth as much next year, meaning you will need to take steps to grow your money if you hope to have enough to get by in retirement. A financial plan can help everyone, whether they’re risk-averse or not, grow their money.

Something as simple as opening an interest-bearing account will grow your money more than if you were to put that money under the mattress. Without a financial plan that includes ways to grow your money, the money you have will only lessen in value as time goes on.

Financial Considerations for those nearing

Retirement

As retirement draws closer, men and women must start making important financial decisions to ensure their nest eggs can support the lifestyles they want to live throughout their golden years.

Retirement can simultaneously excite and distress men and women as they approach the day when they end their careers. Anticipating the freedom can be exciting, while concerns about maintaining financial independence can be stressful.

Though there are no guarantees that men and women who prioritize retirement planning will not outlive their finances, those who do arrange their priorities in such a manner are far more likely to enjoy a comfortable retirement without worrying about their finances. As men and women approach retirement age, certain steps with regard to preparing for retirement can put them in position to enjoy their golden years to the fullest.

years before you retire affords you the opportunity to make changes if you determine the retirement you can afford does not exactly match up with the retirement you want to live. After you have figured out what you can afford, compare that lifestyle to the one you hope to live. If they are one and the same, then you did a great job planning for retirement.

If they are slightly or significantly different, then look for ways to close that gap. If necessary, consult with a financial planner, who might be able to help turn your dream retirement into a reality. Closing the gap between your dream retirement and the one you can afford to live may require you to work an extra year or two, so be prepared to make that decision if need be.

Assess your resources.

An honest assessment of your assets will help you determine a retirement lifestyle you can afford. Assets can include any property you own, investments, savings, and retirement accounts. Your property may be your biggest financial asset, but unless you plan to sell that property or take out a reverse mortgage, then you won’t be able to rely on that property to fund your lifestyle. When assessing resources, keep in mind that you might have to pay potentially steep taxes when attempting to access any retirement accounts, such as a 401(k).

Factor in any such taxes when assessing your retirement resources.

Make a list of your monthly expenses.

Once you have assessed your resources, make a list of your monthly bills. Mortgage payments, health care costs, taxes, and food are among the

Plan on continuing to grow your money.

essentials, while additional expenses like travel and entertainment will need to be factored in as well. When considering monthly expenses, keep in mind that some of those expenses, including mortgage payments and commuting costs, will likely disappear, while others, including healthcare costs, are likely to increase significantly. Once you have assessed

your resources and expenses, you can then begin to paint a picture of the retirement lifestyle you can afford to live.

Compare the lifestyle you want to live versus the one you can afford to live.

Just because you’re retiring does not mean your money has to stop working as well. You will still need to combat inflation during your golden years, so plan on continuing to grow your money even after you retire.

Though it’s best to reduce investment risks as you age, many retirees still need to keep a toe in the investment waters. Find a balance you’re comfortable with so your money continues to grow, but be conservative at the same time. As you grow older, continue to reduce your risk. While conventional wisdom long suggested retirees should completely eliminate risk from their portfolios, today’s retirees are living longer than ever before, so you likely can’t afford to follow the advice of yesteryear.

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Joining a CREDIT UNION How does joining a credit union differ from working with a bank?

While banks have long been the place people go to securely deposit their money, a growing number of people are exploring the benefits of credit unions.

Laws require credit unions to have a defined field of membership.

Although credit unions have certain requirements for membership, some consumers are finding it’s easier than ever to join a credit union.

Many people gain access to a credit union through their employers, who may have a previously established relationship with the credit union. But there are other ways to join a credit union. Memberships at churches, fraternal organizations, specific communities, schools, and various other organizations may make certain people eligible to open an account at a credit union.

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“People are discovering the great value of credit unions, accelerating our growth to nearly 23,000 members in Central Oregon over the past few years,” said Kyle Frick, vice president of marketing and community relations with Mid Oregon Credit Union. Mid Oregon Credit Union formed in Prineville in 1957.

Credit unions are similar to banks, but unlike banks, credit unions are not-for-profit entities. This means that any profits earned by a credit union will not be given to shareholders. Instead, credit unions pass on profits to members in the form of lower fees and better service. In some instances, credit unions may offer dividends to members.

“I think that there’s stability within credit unions,” said Mike Stanley, Central Oregon area manager of SELCO

Community Credit Union in Bend.

“Because a credit union is a memberowned, not-for-profit cooperative, our services tend to be more memberdriven. ... This means that every one of our members has a share in the credit union, giving them a voice and a chance to vote for our board, etc. Everything is focused on our members and the services we offer to them, not how much money we can make for stockholders.”

It is very likely a person can make more interest at a credit union on certain services than they might at a bank.

In addition, credit union account holders often pay lower fees on those accounts than they would if their money was in a bank.

Credit unions are often community-based. Large banks may have branches around the globe, but many credit unions have just one or two locations. This can be advantageous to those looking to do business directly with members of their community.

However, it also makes it harder to access your money without paying certain fees, such as those you might pay when withdrawing money from an ATM not affiliated with your credit union.

Many credit union account holders cite better customer service as another advantage credit unions have over banks. Because credit unions are cornerstones of some communities, their employees may have more personalized interaction with members and be willing to go above and beyond for those members and their community.

Credit unions may have more lenient overdraft charges or be able to work with customers more readily than some banks. A credit union customer may have an easier time securing a loan if they are already a member. Credit unions also are known for lower interest rates than banks, particularly on auto loans.

“OnPoint is locally owned, by our members, and we make local decisions,” said Stephen Wymer, Central

Oregon area manager with OnPoint Community Credit Union. “We don’t believe in a one-size-fits-all approach.

We’re large enough to have the banking resources our members need, but we’re small enough to know our community and our members.”

Credit unions are just as safe as banks. A person’s money is insured by the National Credit Union Administration up to a predetermined amount.

Some credit unions use private insurance but are insured nonetheless.

Those interested in joining a credit union can visit the Credit Union National Association Web site at www. cuna.org to find a credit union nearby.

Individuals also can talk to their employers and any other groups to which they belong to find a credit union that fits their membership criteria.

As with a bank, a person will need forms of identification and a certain sum of money to deposit to secure a credit union account.

HOW TO HANDLE A:

Temporary Loss of Income With approximately one-third of all Americans living paycheck to paycheck, it pays to know the strategies involved in handling a tempory loss of income for yourself and your family.

Millions of North Americans are struggling to make ends meet, and data suggests many adults are living paycheck to paycheck. A study released in 2012 by the Consumer Federation of America and Certified Financial Planner Board of Standards revealed roughly 38 percent of Americans stay afloat by living paycheck to paycheck. In 2010, a national survey showed that around 60 percent of Canadians would be in financial peril if their paychecks were delayed even one week.

Household liabilities, including mortgages and rents, as well as other established debt makes it impossible for some people to remain financially sound without a steady income. Should a circumstance like a medical illness, loss of job or furlough in pay delay a salary, many people would quickly find themselves in financial hot water. Despite conventional wisdom that suggests people should have enough money set aside to cover at least six months’ of expenses, many people do not even come close to this amount. So what to do if your are faced with a temporary loss of pay? Everyone’s situation is unique, but the following tips can help men and women weather the storm of financial uncertainty.

Remain calm When money suddenly stops coming in, remain calm and assess the situation. Now is the time to take out financial worksheets and bank statements. Add up the amount of money you have in the bank and any assets that can be liquidated without penalty.

Compare this to the money that is spent each month. Once you have an accurate picture of your finances, you can establish a plan.

Explore assistance programs

restored when a steady income is once again coming in.

Laid off workers may be eligible for unemployment benefits. Be sure to file for unemployment as soon as possible. While unemployment benefits won’t equal your previous earnings, the money can help pay bills until you are able to get back on track. Individuals sidelined from work by an injury may be eligible for compensation through worker’s programs or any personal insurance plans.

Talk to family members

Talk to your creditors It is best to be open and honest with creditors so that this blip on your financial history doesn’t end up causing any long-term damage to your credit.

Many creditors have contingency plans in place and will be willing to work with individuals who anticipate trouble paying their bills. You may be able to temporarily freeze accounts or waive payments for a certain period of time without penalty. If you have a store credit card, you may be able to negotiate a cash settlement to wipe out the debt. Some creditors will take as little as a few dollars a month as good-faith payments. Just don’t wait until it’s too late to negotiate with creditors.

Do not hide the situation from friends and family members. Be honest with family members about the situation, and they may offer advice or some financial help. Although loans between family and friends can be tricky, they may be your best option to stay afloat financially during a rough patch.

Make plans for the future Realize this type of situation can happen again, and commit to making future plans for emergency savings and other coping strategies. Find ways to achieve a relatively stable nest egg so that you can weather any future financial storms.

Steer clear of credit cards Many credit cards come with steep interest rates, so using credit cards to secure cash advances or make purchases is a risky proposition. Explore other options before resorting to credit cards to bail you out.

Be open to new employment Keep an open mind when searching for a new job. You may need to settle for something part-time until a full-time opportunity comes along. Think about looking outside of your normal line of work and into industries that are thriving even in tough financial times.

Find ways to cut back

Stick together

Lack of work may have already cut out some of your daily expenses, such as commuting costs. However, now is also the time to assess if any luxuries can be dispensed of to save money.

Think about cancelling expensive mobile phone plans or cable service. Cease having dinners out on the town or ordering take-out. Kids may need to make concessions on extracurricular activities that cost money. These luxuries can be

Financial uncertainty can take its toll on a family. Naturally, losing a job or having a temporary loss of pay can take its toll on morale and put added stress on relationships. But families who work together can ride out the situation successfully.

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How to Save on

Prescription drug costs can add up. But there are a number of strategies consumers can employ to reduce the out-of-pocket expenditures on medications.

PRESCRIPTION DRUG COSTS Prescription drugs can be quite expensive, and even those who have health insurance often pay more than they need to. According to a 2012 Consumer Reports “Best Drugs” poll on prescription drugs, Americans routinely take an average of four medications per day, spending nearly $800 on drug costs each year. Those who do not have health insurance may have to pay much more out of pocket.

As expensive as prescription medications can be, there are still ways to save money on prescription drug costs.

Comparison shop Believe it or not, drug prices vary depending on the time of the year and even the pharmacy. A person can shop around for the most affordable medication just like they would when buying another product. Prescription drug apps enable you to search for discounts in your neighborhood.

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Read your bill Medical coding and billing is not always accurate. Employees entering codes may put in the wrong information, inadvertently charging a person for the wrong medication. Treat your medical bills as you would any other bill and verify that the charges are correct. If you have any doubts, check the drug name with your doctor and then consult with the pharmacy to see if an error was made.

Opt for generic medications Generic versions of hundreds of brand name prescription drugs are available and typically cost a lot less money. With a generic medicine you are not paying for marketing and advertising costs. These drugs are routinely tested for efficacy and safety. There is really no reason to select a name-brand medicine over the generic alternative, even when it comes to over-the-counter

drugs. Ask your doctor on your script to check the box for the generic option.

Skip the insurance sometimes

Use a preferred pharmacy mail-order service

Consumer Reports says hundreds of commonly used generic medications can be purchased for around $10 for a threemonth supply at various major chains.

Program details vary, but consumers might be able to save a lot of money by using these programs and leaving their insurance cards in their wallets.

Certain insurance companies have negotiated discounts with mail-order pharmacies and pass on the savings to their members. Medicare and other government-sponsored plans may offer the same type of deal, and consumers can save a substantial amount of money by opting for mail-order service.

Consider big wholesalers for prescriptions You may think of Costco or Sam’s Club as your go-to place to buy 30-packs of toilet tissue, but these retailers also offer discounts on prescription drugs.

Even nonmembers are allowed to use these warehouses for their prescription drug needs. Big wholesalers could give you the best deal on your pills.

Opt for OTC In many cases, an over-the-counter medication may be just as effective as a prescription drug. Talk to your doctor about trying an OTC remedy before a prescription is written. Ibuprofen may relieve arthritis pain, and diphenhydramine could alleviate insomnia, all at a much lower cost than prescription drugs.

Prescription drug costs can add up.

But there are a number of strategies consumers can employ to reduce the out-ofpocket expenditures on medications.

How to Properly Store

PERSONAL RECORDS Certain personal and financial documents need to be kept for security and other purposes, while some documents can be discarded immediately. Documents that must be kept often include sensitive information, which means they shouldn’t be stored haphazardly. Options for maintaining important records continue to evolve, but caution still must reign supreme when storing potentially sensitive documents.

rable, fireproof safe. If you prefer to keep these items off-premises, keep them under lock and key in a bank safety deposit box.

The Federal Trade Commission estimates that nearly 10 million people have their identities stolen each year.

Identity theft occurs when criminals use another person’s personal information, such as his or her name, credit card numbers or social security number, without permission. Sensitive information can be lifted from personal effects stored in a person’s home or from items delivered to a mailbox.

Here are some ways to keep information private and out of the hands of potential thieves.

Consider digital storage.

Sort your documents.

When sorting documents, which should be done regularly, determine which include sensitive information and move them aside. Bills and other papers that do not reveal much may be stored in a regular filing system, but documents that contain sensitive information should be kept in more secure locations.

Invest in a durable, fireproof safe.

Store sensitive documents, including social security cards, marriage certificates, birth certificates, travel documents, life insurance policies, and mortgage paperwork, in a du-

Organize your documents and maintain that organization.

Be sure to carefully label all boxes or cabinets in which important documents are stored. Create a filing system that works for your needs. You may want to organize the papers by date, type of document or your own coding method. Think about crossreferencing your tangible files with a master list so you’ll know the exact location of certain documents when you need them.

How Long to Store Certain Documents: • Bank statements – One year, unless needed to support tax filings • Birth certificates – Forever • Contracts – Until updated • Credit card records – Until paid, unless needed to support tax filings • Education documents – Forever • Home records – As long as you own the property • Investment certificates – Until sold or cashed in • Life insurance records – Forever • Military service records – Forever • Tax records – Seven years from filing date • Vehicle titles – Until the vehicle is sold • Will - Until the will is updated

Various programs that work with a scanner or camera can now capture images of important paperwork and then convert these images into digital files that can be tagged and categorized. The information is then stored digitally on a computer and can be retrieved with a few clicks of the mouse. Computers that are used to store personal information should be password-protected. Never share potentially sensitive documents via email or through nonencrypted communication methods. Otherwise you risk information being stolen by hackers.

When documents are stored digitally, make sure you keep backup versions.

These can be kept on external hard drives or uploaded to secure servers.

Should anything happen to your computer, you will have the backup version of your important files.

Shred documents when the time comes.

Every file does not have to be kept forever. When discarding documents, put them through a paper shredder before recycling or putting them in the trash.

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