Five Steps To Financial Readiness

Some of the work I've done over the past few years has involved working with the military. Along with providing individual consultations, I've also had the opportunity to conduct briefings (i.e. presentations) to groups of Servicemembers.

I usually wasn't asked to discuss something specific like "budgeting" or "debt", so over the years I developed a briefing that covered a variety of topics in order to cover as much ground as possible. This is a short version of my "Five Steps To Financial Readiness" briefing.

Step 1: Determine Your Current Situation

The best way to determine your current financial situation is to complete a personal balance sheet that lists your assets and liabilities. You can find sample templates online, but the easiest thing to do is to take a sheet of paper, draw a line down the middle, and list everything you own on the left and any debts you have on the right. Think of a balance sheet as a "financial report card" and complete one regularly to track your progress.

Step 2: Deal With Debt

Ignoring any debt you have on your balance sheet will won't make it go away and will almost always make it worse. The website www.PowerPay.org is a free resource you can use to come up with a personalized debt repayment plan.

Step 3: Start A Cash Reserve

You should set a goal of saving at least $1,000 in an emergency reserve even if you're working on paying off high-interest debt. If you don't have bad debt to pay down, then set a goal of saving between three and six months of living expenses. You can go to www.BankRate.com to find a fee-free high interest savings account to use as your reserve. 

Step 4: Review Your Credit Report And Score

Almost everyone looks at your credit report and score these days, so it's important to review your reports for signs of identity theft and make a plan to improve your score if it's low. You can get free copies of your credit reports at www.AnnualCreditReport.com and get suggestions for improving your score for free at www.CreditKarma.com. Go to www.FTC.gov if you've been a victim of identity theft.

Step 5: Plan For Future Goals

Once you've covered the basics you should start planning for financial goals like college expenses for your children, purchasing a home, and retirement. Websites like www.BankRate.com and www.SmartMoney.com have great articles about planning. If you want personalized advice, you can go to www.NAPFA.org or www.GarrettPlanningNetwork.com to find a fee-only financial advisor that never receives sales commissions from his or her recommendations.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.

Car Buying Tips

My wife's Pathfinder turned 15 this year. Although it still started up every morning - and we've LOVED not having car payments on it for a decade - we decided it was time to replace it. I just hope that replacing her car after only 1.5 decades won't blow Simone's frugal street cred!

Here are a few car buying tips in case you find yourself in the market for a car:

Tip 1: Know the type of car you need.

Cars depreciate in value so start your search by determining the type of car that’s likely to fit your lifestyle over the entire time you’ll own it. For example, if you’re planning on starting a family soon, it doesn’t make financial sense to buy a two-seater sports car.

Tip 2: Know your credit score.

Your credit score will determine whether you’re able to get a loan as well as how low your interest rate will be, so review it ahead of time. You can get free copies of your reports at www.annualcreditreport.com. I prefer to purchase my score score directly from one or more of the credit bureaus, but you could also get a free score from www.creditkarma.com.

Tip 3: Get financing before shopping.

Being approved for a loan before you start your car shopping puts you in a much better bargaining position. You can shop for loans from a local bank or credit union or use an online service like www.myautoloan.com or www.up2drive.com. Credit unions generally offer better rates than banks.

Tip 4: Know how a car dealer makes money.

A car dealer can make money from (1) the price you pay for the car, (2) the amount they give you for your trade in, (3) the financing they arrange for you, and (4) add-ons like extended warranties, environmental packages, and fees. Being aware of all of the ways a car dealer can make money on the transaction can help you avoid paying too much.

Tip 5: Focus on the total price.

A low monthly payment doesn’t matter much if the interest rate is too high and the payments last too long. Pay attention to how much you’re paying overall – not just monthly – and try not to buy a car you can’t pay off in three to four years.

Tip 6: Consider buying used.

Most of the depreciation in value occurs during the first few years, so consider buying used, especially if you don’t keep your cars for long. If you prefer buying new cars, then it's best to plan on driving them for years, and years, and years, and years, and....

Tip 7: Do your homework.

As with most things in life, the more you know about buying a car, the better off you'll be. Use sites like Kelley Blue Book (www.kbb.com) and Edmunds (www.edmunds.com) to research car reviews and pricing. Another great website about car buying is www.carbuyingtips.com.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com

Questions to Ask Before Marriage

Since disagreements about money often lead to marital problems, be sure to discuss finances with your fiancée before saying "I do".

If you want a neutral third-party to help you cover the important financial questions, look for a "fee-only" financial advisor that bills by the hour. (Click here to find one.) This will make sure you get the advice you want without sales pressure.

Here are some of the questions you should consider:

Question 1: What are our assets and liabilities?

One of the first steps you should take is to create personal balance sheets that detail what each of you owns and owes. These purpose of these balance sheets is to see where each of you stands financially and see how your combined financial situation would look.

Question 2: How will we handle existing debt?

You need to determine how you’ll handle any existing debt, especially unsecured debt like credit cards. Will you pay it off before marriage? Or after? If you bring it into the marriage, be sure to keep the other person’s name off of these obligations to avoid possible problems in the future.

Question 3: What do our credit reports look like?

Since our credit reports and scores affect everything we do, each of you should check your credit reports and scores to see where you stand. You can go to www.AnnualCreditReport.com to get your reports for free, but you will have to pay to see your FICO score.

(Note: If you see the word "free" in a website's URL, your credit report won't be free!)

Question 4: How will we handle daily spending decisions?

You don’t necessarily have to set a budget, but you do need to decide how you’ll handle daily spending decisions, especially if one or both of you tends to be a “spender” rather than a “saver”. Will you have a joint account? Separate accounts? And if you keep your accounts separate, who will be responsible for paying the bills?

Question 5: What are our financial goals?

Just as important as day-to-day financial decisions, you need to discuss your future financial goals like college expenses for children and retirement to make sure you are in agreement. It is best to put your financial goals in writing. If you don't like the idea of going through the financial planning process, at least consider jotting them down on paper.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.

Credit Scores - What You Need to Know

I co-host a regular TV spot called "Your Money Monday"*. The purpose of the segment is to provide information on various financial topics, and from time to time we answer viewer questions.

Several months ago we got a question about "credit" and "credit ratings", and here's what we covered during that segment...

Q. We’ve all heard about someone having “good” or “bad” credit, but who actually makes the decisions about a person’s credit rating?

There are three major “credit bureaus” - Equifax, Experian, and TransUnion - that collect information about you and use it to build a credit file. The information in your credit file is used to calculate your “credit score” and this score is an estimate of your “creditworthiness”

Q. A credit score will obviously affect someone’s ability to get a loan or a credit card, but do these scores affect our lives in any other way?

Credit scores have a huge impact on our lives. When applying for credit, our scores will determine the interest rates we'll pay, and a lower score will translate into a higher interest rate. So having a low score will lead to paying thousands more in interest over time.

In addition to getting credit, credit scores can impact our ability to get homeowner’s insurance, auto insurance, cell phone service, rent an apartment, or even get a job. Don't underestimate the importance of obtaining and maintaining a good credit score!

Q. What are some of the keys to obtaining a good credit rating?

Other than the obvious strategy of paying your bills on time, here are a few things to keep in mind:

Age - An older credit file will be more stable, so it’s important to keep old, good accounts on your file even if you’re not using them anymore.

Debt Utilization – Make sure you’re not using more than 10% of your available credit at any time. For example, if you have a credit card with a $10,000 limit, you never want to have a balance on it larger than $1,000. The debt utilization ratio applies to each line of credit as well as your combined credit limit.

Inquiries – Every time you apply for credit, the inquiry that shows up on your report can lower your credit rating. Inquiries can affect your score for up to 12 months. When shopping for credit, grouping your inquiries together in a short period of time - rather than spreading them out over several weeks - will lessen the impact on your score.

Q. What should someone do to learn more about their credit file and credit score?

You should check your credit report at least annually in order to make sure it’s accurate and to guard against identity theft. Under federal law, everyone is entitled to a free credit report once a year from each of the credit bureaus. You can go to www.annualcreditreport.com to get your free copy.

If you decide to purchase your credit score along with the credit report, make sure you’re purchasing a FICO score since this is what most lenders use.

*"Your Money Monday" airs each Monday during Texas Today on KCEN 9, the Waco area NBC affiliate. Email your questions to MoneyMonday@kcendt.com to have them answered on air.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.