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If you’ve ever financed a car or taken out a mortgage, you’ve likely heard the word “amortization” tossed around.

It’s a complicated word that actually has several meanings, but when it comes to loan amortization, the definition is fairly simple: it’s the process of spreading a loan into a fixed payment over time. In other words, amortization is what makes it possible for you to make a large purchase, like a home or car, with affordable payments that eventually lead to a zero balance.

The Basics of Amortization

When your loan is amortized, your regular payment actually consists of two parts (even though you only make a single payment): interest and principal. Interest is the cost of borrowing money, and is usually a percentage of the amount you borrow paid back to the lender. Principal is the actual amount of money you borrowed. Each payment funnels money to cover both interest and principal.

When you first take out a loan, a higher portion of the payment goes to interest and less to principal. This is because your loan balance is so high that the interest owed is higher than what you owe in principal. As you make payments that lower the loan balance, less interest accrues on the principal, so a larger portion of your payment goes toward principal. Eventually, you’ll pay off the loan entirely.

For instance, say you have an amortized loan payment of $1,000. In the early months of your loan—and maybe even early years—it could be that $700 of your payment goes to interest and $300 goes towards the principal. Over time, you’ll pay down the principal and less interest is owed. In the later months of your loan, even though your payment is still $1,000, you’d have $800 going towards principal and only $200 going towards interest.

Amortized loans have an amortization schedule that shows you how much of each payment goes to interest and principal, and how those ratios change over time. Or you can try an online amortization calculator to estimate payments and see how interest rates and other loan terms impact amortization.

Where Amortization is Used

Many financial products use amortized loans to make payments affordable for borrowers. This includes:

  • Mortgages: A home mortgage is a common example of an amortized loan. Your monthly payment goes towards both the interest on the loan and a portion of principal. At the beginning of the mortgage, you pay more in interest and less in principal. This is not true for an interest-only or balloon-payment mortgage, which are non-amortizing loan types.
  • Auto Loans: An auto loan is usually similar to a mortgage. Your amortized payment goes towards both interest and principal. You may hear the term “front-loaded” when discussing terms of a car loan—that simply means more of your payment will go toward interest than principal in the beginning of the loan, just like an amortized loan.
  • Personal Loans: Many—but not all—personal loans are amortized. How can you know? If you have a fixed interest rate and fixed repayment terms, your loan is likely amortized. If you have questions, ask your lender.
  • Student Loans: Student loans are generally amortized because they often have fixed interest rates and repayment terms.


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What Loans Are Not Amortized?

Not all loans are amortized. Interest-only or balloon-payment mortgages are non-amortized loans. Revolving lines of credit, like credit cards and home equity lines of credit (HELOCs) are not amortized loans.

When you charge money on a credit card, you’re essentially taking a “loan.” But credit cards typically only require a minimum monthly payment that goes solely towards interest and may not reduce the principal balance of the card at all. The remaining balance carries over to the next month, and accrues more interest, which contributes to rapidly rising balances.

Is Amortization Worth It?

The truth of amortization is that you’ll pay a lot in interest. In the case of a 30-year home mortgage, you could end up paying double or more of the loan principal once you factor in interest. But, for many people, an amortized loan with a long repayment period is the only way to make a large purchase like a home affordable.

Ways to Maximize an Amortized Loan

If you want the predictability of an amortized loan, but don’t want to pay as much in interest, there are a few options:

  • Make additional payments: Sending extra payments directly to the loan principal reduces the balance faster. The lower the loan balance, the less you’ll pay in interest. The key is to make sure that extra payments are applied directly to the principal —talk to your lender for details.
  • Round up monthly payments: Try rounding up your monthly payment to the nearest hundred or thousand dollars. The extra paid should go directly to your principal, but confirm with your lender. See how added monthly payments impact your loan with this early payoff calculator.
  • Refinance into a shorter term: If interest rates drop, you may benefit from refinancing your loan into a shorter term. Paying a mortgage off in 20 years instead of 30, for instance, makes a huge difference in interest paid overall. For example, with a $250,000, 30-year home loan with 20% down payment and 5% interest, you’d pay an estimated $186,511 in interest over the lifetime of a loan. With a 20-year term and all else the same, the interest drops to $116,778. That’s $70,000 in savings.
  • Try bi-weekly payments: Instead of making one payment a month, try paying half the amount every other week. These bi-weekly payments mean you essentially make one extra payment a year. This works especially well if you get paid bi-weekly.


A note of caution: Make sure there aren’t prepayment penalties for paying your amortized loan off too early. If you have non-amortized loans, such as credit card debt, it’s likely more beneficial for you to focus on paying down those balances first instead.

Understanding how loan amortization works can help you make more informed borrowing decisions and empower you with the knowledge to make strategic financial moves.

Income and expenses are two of the most fundamental aspects of a budget.

Income

To have a budget, you need income. Income is any money that you receive. The most common type of income is earnings from a job, but other forms of income include interest (such as from a savings account) and investment earnings. Depending on the kind of income, you may earn it at regular intervals (weekly, biweekly, monthly, etc.) or sporadically, such as when you make a sale or earn a commission.

Expenses

Expenses are all the things you spend money on, from the frivolous (an extra treat after a long day) to the required (housing and utility payments).

It may be helpful to think of your expenses as falling into two categories: needs and wants. Needs are the things you require to live and work in relative comfort. This includes things like…

  • Food
  • Housing
  • Electricity
  • Heat/AC
  • Transportation Costs
  • Clothing

Wants are the things you may not need to survive, but that make your life more enjoyable. This includes expenses related to vacations, hobbies, and entertainment, but also the more expensive or extravagant versions of your needs. You need food, but want to go to fancy or expensive restaurants. Similarly, you need clothes, but you don’t need the newest, trendiest clothes. It’s important to be honest when considering what expense is a need and what is a want, so you can effectively manage your expenses. You might also consider tracking what cash comes in and goes out with an income and expense tracker to ensure you’re staying on top of your budgeting goals.

Balancing Income and Expenses

For a sustainable budget, your income needs to stay above your expenses. If not, you’ll have to borrow money or dip into savings to make ends meet. After covering your expenses, your extra income will ideally be saved for future goals and an emergency fund. In accounting terms, the balance between your income and expenses is often referred to as your cash flow. If you have a positive cash flow, your income is higher than your expenses. If you have a negative cash flow, your expenses are higher than your income.

While it may not work for everyone, the 50/30/20 rule can be a helpful place to start when considering a healthy budget. With this, your expenses take up 80% of your income, with 50% going toward needs and 30% going toward wants. The remaining 20% goes into savings. If that isn’t an option right now, there are a few changes you can make to bring your income and expenses closer to that goal (or at least closer to something sustainable), as outlined below.

Decrease your expenses

Cutting your expenses is generally the easiest way to get some control over an out-of-control budget. You’ll need to take a hard look at your spending and consider the areas where you can cut. Fixed expenses like debt or rent payments are much harder to change. But variable expenses, like your food or entertainment bill, are easier.

Increase your income

Increasing your income is another way to create a buffer between your income and expenses. One way to do this is to get a part-time or gig-economy-style job such as delivering food, driving for ride-share companies, or working late night shifts. Of course, this requires more of your time. Another option is to look for a new job that pays more and gives you room in your budget. That may require gaining new skills by taking classes or gaining certificates. Unfortunately, those things often cost money. But, if you can make the added expense work in your budget for a short time, it can pay off in the long term.

Managing your income and expenses is a lifelong process. As they change, your budget will need to change as well. It’s important to reevaluate it periodically to ensure that you’ve accommodated for any life changes.

Attending college is an excellent opportunity that comes with a hefty price tag. Beyond tuition, students face costs like textbooks, housing, and daily essentials. Let’s go over some of the most common college costs so that you or your student can be prepared when the time comes..


Starting Out

Heading to college brings a new set of everyday costs that students must consider. From daily meals to transportation, the routine expenses can quickly add up. Depending on your living situation, meal plans or grocery bills become a regular part of the budget. At the same time, transportation costs for commuting or exploring the city can impact your monthly expenses, and there will be costs that are due once or twice a year. Managing these costs is crucial for maintaining financial stability and getting the most out of your college experience.

Typical costs include a lot of different things—Not all students will need to pay all of these expenses, but here's a general estimate of what some things could cost:

  • Tuition fees: $10,000-$50,000 per academic year
  • Textbooks and course materials: $500-$1,000 per semester
  • Accommodation or housing: $5,000-$15,000 per year
  • Meal plans or grocery expenses: $2,000-$5,000 per year
  • Transportation: $500-$2,000 per year
  • Laptop or computer equipment: $800-$2,000 (one-time expense)
  • Basic furniture and household items: $500-$1,000 (one-time expense)
  • Utilities: $50-$200 per month
  • Cell phone and communication expenses: $30-$100 per month
  • Health insurance and medical expenses: $1,000-$3,000 per year
  • Extracurricular activity fees: $100-$500 per year
  • Clothing and personal supplies: $500-$1,000 per year
  • Emergency fund for unexpected expenses: Recommended $1,000-$3,000

The figures are general estimates, and costs vary widely between colleges and regions.

Before heading off to college, take stock of what you already have—chances are, you already possess some essential items. Everyday items like clothing and basic furniture might already be in your possession. By identifying these items early on, you can minimize unnecessary expenses and better allocate your budget toward your needs.


Remember that miscellaneous expenses like laundry, toiletries, and small household items contribute to daily financial demands. While seemingly minor, these costs can accumulate quickly, so be mindful of these everyday expenditures.


Making a Budget

Be prepared: The speed at which money can vanish might surprise you if you're venturing into independent living for the first time. Suddenly taking on various responsibilities and expenses can be daunting. Crafting a budget is a smart move to ensure mindful spending. This Coach can help you budget based on your needs, wants, and savings. Click here


Reducing Costs

Reducing college costs is a big concern for many students. Scholarships, grants, and work-study programs can significantly alleviate the financial burden of tuition and related expenses. Scholarships and grants are types of financial aid awarded to students, often based on academic or other achievements, that do not need to be repaid. Work-study is a federally and sometimes state-funded program in the U.S. that helps students earn financial funding through a part-time work program while attending college. You can also consider attending community college for general education requirements before transferring to a four-year institution, offering a cost-effective approach to earning a degree.

Another way to reduce costs is living off-campus or sharing accommodations with roommates. You can divide expenses such as rent, utilities, and groceries. To ensure everyone can contribute fairly, it's important to communicate openly and be aware of budget constraints. By keeping things clear and straightforward, you can all stay on the same page and save money together.

Whether you’re teaching finances to your kids, your grandkids, or those of a loved one, it’s absolutely essential to teach children how to manage the money they have and invest for the future.

Spending

An understanding of spending, including the ability to budget for and track it, is perhaps the most essential money skill you can teach to a child. Children need to recognize that purchases cost money and that money is in limited supply—they can’t just buy everything they want. They must plan ahead so that they can afford everything they need, and this is why a budget is a necessity. It’s important to acknowledge that budgeting always involves making adjustments. They shouldn’t expect to get it right the first time.

Spending Activities

Spending Simulation: For younger kids, you can simulate the experience of spending to teach them about tradeoffs. Give your child some money (maybe $5) and set up a small, at-home store. The store could include one item that will cost the whole $5, a few between $2 and $3, and multiple small things for $1 or less. These items can be small toys, treats, or even “coupons” for extra time playing games or a movie night. The point isn’t what they're buying, but that the child recognizes that they can’t get everything—they’ll have to prioritize what they want most. Repeat the store every so often, perhaps with money they earn instead, to see how their understanding grows.

Expense Tracking: For older kids, help them track all of their spending for a week or month. They can do it on a piece of paper, a spreadsheet, or even an app. At the end of the tracking period, have them evaluate all of their choices. Did they spend more than they expected? Less? What would they like to change? Help them create a target for the next period and suggest ways they can improve. Repeat the process to see what changes. You may even offer a reward if your child is able to meet a goal you agree on.

Saving

It’s important for children to understand that saving is the secret to getting what they want. In order to do that, they need to recognize the difference between dumping money into an abstract savings fund and saving with a purpose. When it comes to the actual act of saving, teach that creating (and sticking to) goals is key. They may choose to save a regular percentage of their income or a certain amount each month. As an incentive to focus on saving, consider making a matching contribution by adding 50 cents for every dollar your child saves.

Saving Activities

Create a Savings Goal: Help your child set a saving goal. Children's goals vary a ton based on their age, but might include toys, sports equipment, electronic devices, special clothes, or other big-ticket items. Let them discover for themselves that not all goals are worth the time and effort it takes to reach them. Once they’ve set a goal, create a clear way for them to track their progress. The more visible, the better. For example, a jar in the living room or a paper chain that you cut pieces off of for each milestone. This will remind them of their goal and give you both the chance to celebrate progress.

Open a Savings Account: Take a trip to your bank or credit union and help your child open their first savings account. You can even ask an expert at the financial institution to explain how interest works and why it’s wise to store your money in an account. Encourage your child to ask other questions about how financial institutions work. You may even choose to contribute a little to help get their fund started. But remember, the child needs to learn how important it is to regularly add money to the account. Interest won’t be enough on its own to reach their goals.

Investing

Investing is a powerful financial tool that everyone should understand. The sooner you start teaching your kids the basics, the better! Help your children understand that the goal is to buy when things are inexpensive and sell when they’re worth more. Investing is often done by buying stocks (very small parts of a company). The stocks are worth more when the company is doing well and less when the company is struggling. Since you own part of the company, you may also get payments when that company earns a lot of money. As the child gets older, you can touch on more complex aspects of investing.

Investing Activities

Track the Stock Market: Have your child pick a few brands that they like such as their favorite cereal, sports equipment, soft drink, or gaming company. Once they’ve picked two or three, go to the company websites or a general financial site and show them how to track the stocks. You can also point out news articles about the company and have them predict how that will affect their stocks. For example, if a sports drink company decides to stop producing a popular flavor, you can discuss how that may lead to a drop in their stocks. Track how the stocks change to see if your child’s guesses were right or wrong.

Start Investing: Get your child actively involved in investing by “selling” some of your shares to them. For example, if you're planning to buy 200 shares of a particular company and you have two children, buy 202. Sell the extra shares to each child either at the price you paid or a discounted price if it’s too high. You can keep track of the children's shares in a separate register so they can follow what happens and earn some money if the stocks do well. (Be willing to buy the shares back if they prove disappointing.)

Keep Teaching

These topics and activities are meant to help your child form a foundation of financial literacy. Once your child begins to master these topics, expand to others. You could teach about the 3 jar method, the 50/30/20 rule, and more! What’s most important is that you keep an open conversation with your child about money and the importance of managing it carefully.

Opening Accounts for Children

Most financial institutions offer a few accounts built specifically for minors. The most common options are:

  • Joint Bank Account: An account that you and your child own together. If you opt for a checking account, your child can get access to a debit card. This is a great way to get your child used to using a bank account for everyday purchases. If you decide on a savings account, your child can gain experience with saving and earning interest. Be aware that the child may be able to overdraft the account or incur fees.
  • Custodial Account: An account owned by the child but run by a parent or guardian. The guardian may withdraw money as needed for the child, but the child cannot access the account without them until they are 18 or 21, depending on the state. This account is a bit more complicated and comes with some strict rules. It’s usually best for long-term savings.
  • IRA: An IRA is a great way to teach your teens about saving for retirement while building a solid foundation for their future. The only requirement is that your child has earned income. Because that income will likely be relatively small, the best option will probably be a Roth IRA (the child pays taxes on their income now and doesn’t have to pay taxes when they withdraw at retirement). The contribution limit in 2024 is 100% of their earnings up to the max of $7,000.

If you’d like to help get these accounts started, you can give each child up to $18,000 in 2024 without incurring gift taxes. If your spouse, partner, friends, or other relatives want to contribute, they do the same. Learn more about what will be required to open your child’s first account.


















While it may be uncomfortable to think about, it’s important to consider what would happen to your loved ones if you were to unexpectedly pass away. Will they be left struggling to make up for your income, scrambling to pay for your end-of-life costs, or paying for remaining medical debts? Life insurance is a way to keep them financially protected.


How Does Life Insurance Work?

Life insurance works similarly to any other kind of insurance. You choose a policy that has a certain amount of coverage (called the benefit) that is paid out when you die. You then make the required premium payments to the insurance company. Various factors including your age, health, and lifestyle impact how much your premium costs. Payments can be made monthly, quarterly, annually, and many options in between, depending on what you prefer and what the insurance company offers.

The life insurance benefit can be paid in a lump sum, as regular payments over a set period of time (called an annuity), or deposited in an interest-bearing retained asset account that your loved ones can withdraw from as needed.


Beneficiaries

A life insurance beneficiary is a person or entity that receives all or part of the payout from your policy when you die. Most often, people choose a spouse, child, friend, or family member as their beneficiary, but you can also leave money to a charity, trust, estate, or other legal entity (such as a business).

Under most policies, you can designate as many beneficiaries as you want, you just need to ensure that you account for 100% of the benefit. Laying everything out in your policy can help avoid arguments over how to divide the money after you pass. But it also leaves less room to accommodate for changes in circumstances, since you’ll need to submit any changes to your life insurance policyholder. And, if you designated someone as an “irrevocable” beneficiary, you need their permission before making any changes to what they will receive.


Following the Rules

There are a few rules surrounding beneficiary designations. Some states require that a spouse receive at least part of a life insurance benefit. That means that even if you don’t name them as a beneficiary, they may still receive part of the money. You also cannot name a child under 18 as a beneficiary. If you do, a court-appointed custodian will oversee the money until they reach adulthood. To avoid this, you may choose to put the money for underage children into trusts or designate a trusted adult to divide the money.

Anyone or anything that you want to receive a payout as part of the claim is a primary beneficiary. If you choose to have only one beneficiary, it’s wise to designate contingent beneficiaries as well. This provides a safety net in the event of unexpected scenarios. If your primary beneficiary cannot claim the benefit (for example, they also pass away), a contingent beneficiary then receives the benefit. If you had no contingent beneficiaries, the money would likely go to your estate. It would then take longer for the benefit to become available and make it subject to taxes, which it usually wouldn’t be.


Term Vs Whole or Permanent Life Insurance

There are two types of life insurance: term and permanent. Term life insurance is what provides coverage for only a certain period of time (or term). That means your beneficiaries only receive the benefit payout if you die during that time. It’s common for term life insurance policies to last 10-30 years, though you may be able to specify coverage to what you would prefer. If you’re getting your life insurance through work, it’s likely a term policy.

The biggest benefit of term life insurance is that the premiums are usually much lower than permanent life insurance. The main drawback to term life insurance is, of course, the limit in coverage. You’ll need to get a new policy once the existing policy ends. Because older people are more expensive to insure than younger ones, insurance premiums increase as you age. So once your term ends, your premiums will go up no matter what. Click here

Permanent life insurance (also called whole life insurance), as the name would imply, lasts for an entire lifetime. That means your beneficiaries receive the benefit no matter when you die, and you won’t ever have to shop for a new policy again. That assurance comes with a hefty price tag, as premiums for permanent life insurance are usually much more expensive than term life insurance. Buying permanent life insurance when you’re young may help you lock in a more affordable rate, though this is unlikely to outweigh the higher overall price of permanent life insurance.

Another type of permanent life insurance is what is called universal life insurance. A universal life policy offers a bit more flexibility than the average whole life insurance plan but doesn't always come with a fixed interest rate. This often means participants have to pay premiums and fulfill other specific requirements of their policy to stay covered.

No matter what type of permanent life insurance policy you look into getting, most all of them come with the benefit of accumulating a cash value. This money grows the longer you have the policy and can be used to pay for premiums, taken out before you die (though it may subtract from the available death benefit), or borrowed as a loan. A loan from your life insurance cash value usually has a much lower interest rate than a credit card or personal loan.


Supplemental, Voluntary, or Optional Life Insurance

Supplemental life insurance is what you'd get in addition to a primary policy. A supplemental life policy fills any gaps that may exist in your basic group life insurance plan and is generally employee-paid. This policy provides assistance with unexpected medical situations and also has cash benefits for anything from medical and household expenses to aid with pet and child care.

Navigating the world of life insurance can be complex, but understanding the various policies available will provide you with the knowledge you'll need to make the right choice for your circumstance. Whether you're considering term life, whole life, universal life insurance, supplementary, or any other plan, each policy offers unique benefits and considerations to suit different financial goals and family needs.

Health insurance, a.k.a. medical insurance, plans come in a lot of shapes and sizes. And though there are a lot of options to sift through, it’s important to understand the basics.

What Is Health Insurance?

Health Insurance is a contractual agreement stating that an insurer of your choice will pay some or all of your future health care costs in return for a monthly insurance fee called a premium. Keep in mind that health, vision, and dental are generally all different and aren’t always grouped together into one insurance plan. For example it’s possible for an employer to offer health insurance and dental insurance, but not vision.

Here’s why: Though employers aren’t technically required to offer health, vision, or dental insurance to their employees, the Affordable Cares Act or ACA—a law that provides consumers with tax credits that lower medical costs for low-income households—imposes fines on specific employers that don’t offer health insurance. Dental and Vision, however, aren’t included under ACA. Therefore, dental and vision coverage is not required for adults. Vision may be required for any plan participants and insured family members under the age of 19.

Short-Term vs. Long-Term Coverage

How long you’ll need insurance plays a huge part in deciding what plan works for you. Short term insurance is often called travel insurance or gap insurance because it’s designed to cover medical and travel experiences for no more than one year.

Long term insurance plans are annually renewable and meant for you to stay on the same plan for a longer period of time. This plan is less flexible than short-term plans so you can choose from policies with different waiting periods and policy maximums—the max amount an insurance will pay towards qualified medical expenses—and deductible or the amount you’ll pay before insurance kicks in. Long term insurance plans also include benefits like preventative care and a higher policy maximum.

How Does Health Insurance Work?

The important thing to understand about any insurance is what providers are and aren’t included in the plan. Here are some types of healthcare provider arrangements:

  • Exclusive providers - The cost of care is only covered if the insured goes to providers associated with the plan they’re enrolled in.
  • Mixture of providers - Those insured can choose any provider they want to be treated by but there is a cost incentive to use a particular subset of providers. For example, Mary wants to keep seeing her current provider but it just so happens he’s categorized as an out-of-network provider. Meaning she will either have to pay more or do more paperwork to submit a claim each time she sees her current provider.
  • Any providers - Plan participants are allowed to go to any provider they choose without a cost incentive to use a particular subset of providers.
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Health Insurance Marketplace

The health insurance marketplace is a service that helps people explore and shop for different health insurance plans as well as enroll in them. Employers can also use the marketplace to choose a health insurance plan for their employees using the Small Business Options Program (SHOP) Marketplace. Just remember, when applying, that you’ll need to provide income and household information to see what you qualify for.

Terminology and Definitions


  • Coinsurance - The amount an individual pays for medical care after the insurance pays their part—usually represented by a percentage.
  • Copayment - A fixed amount that you owe for a service after you’ve paid the deductible.
  • Deductible - The amount you owe for medical costs before your insurance starts paying.
  • Policy Maximum - The max amount an insurance will pay towards qualified medical expenses.
  • Flexible Spending Accounts (FSA) - An account that you put pre-tax money into that can later be used to cover out-of-pocket health care costs.
  • Fully Insured Plan - A group plan for employees that is paid for by an employer through a commercial insurer.
  • Maximum Out-Of-Pocket Expense - The most that you’re required to pay toward medical costs including in deductibles, copayments, and coinsurance. Once this limit is reached, your health plan will cover 100% of the qualified expenses.
  • Premium -The amount you pay (either monthly or yearly) in exchange for insurance coverage.
  • Reinsurance - Insurance for insurance companies.
  • Self-insured Plan - An employer takes on most or all of the costs associated with a benefit plan and offers it to their employees.


Though health insurance is no longer required at a federal level, it’s still possible that someone who doesn’t have it will face a tax penalty when tax season rolls around. This alone is a good enough reason to get insured. Don’t forget about the peace of mind and financial security that goes along with making sure your health is protected no matter the cost.

Transitioning to retirement takes planning and preparation. But if you're wise, you can set yourself up for success.

Whether you have a pension or a retirement fund that you've been contributing to during you career, you might need your first retirement payment the month after you receive you last paycheck. This means you'll need to make arrangements in advance.

On the other hand, you may not need the money right away. Your goal, then, is figuring out the best way to take advantage of tax-deferred growth in a retirement account. What are retirement funds?


The Critical Factors

When making key choices for your retirement, the things that you should consider include your age and health, if and how you need to provide for your family, and what other sources of income you'll have. Or, if it’s your employer’s financial health you’re concerned about, you may decide to take your money out of the plan and invest it elsewhere.


Pension Plans

When you retire from an organization that provides a traditional pension, you generally have two income choices: a pension annuity or a lump sum distribution.

With an annuity, you receive income each month for the rest of your life or your life and the life of another person (usually, but not necessarily, your spouse). At the time you retire, your employer calculates the amount you’ll receive based on a number of factors including your age, your final salary, and the number of years you’ve worked for the organization. Income taxes are withheld from each check.

If you choose a lump sum, your employer calculates the amount you’ll receive and transfers the money to an account you designate. If it’s a cash account, income taxes are withheld whether or not you plan to move the money into an IRA. If you roll over the amount directly to a tax-deferred IRA, income taxes are not due until you withdraw from that account.

Defined Contribution Plans

If you’re part of a defined contribution plan, such as a 401(k), 403(b), 457, or thrift savings plan (TSP), you have several choices for handling your plan assets. They always include the following:

  1. Leaving your money in the plan, where you may be able to convert it to a pension annuity or take systematic withdrawals.
  2. Rolling over to an IRA.
  3. Taking a lump sum.

Unlike a defined benefit pension, which pays your retirement income out of your employer’s pension fund, retirement income from a defined contribution plan comes from assets held in your name. What you receive depends on how much was invested, how long it was invested, and how the investments performed. Generally the assets that have accumulated are sold at the time you choose an income option and the value becomes the principal that’s used to purchase an annuity contract, transferred to an IRA, or paid out as a lump sum.


A Timing Issue

Before you can begin taking income or roll over your assets, your account has to be valued to determine what it is worth. Every plan values accounts on a regular schedule, but no plan does a separate valuation for account holders who want to move their money or begin distributions. In addition, a 401(k) or similar plan has the right to hold your money for up to 60 days after valuation. Not every plan does, but that could be the case. Retirement Calculator

Seeking Advice

You’re likely to be more confident about making pension decisions if you work with an experienced professional who can answer your questions and help you analyze different routes to your goals. Since many of these choices are irrevocable, you’ll want to weigh the alternatives carefully.

Your employer may have specialists on staff who know the ins and outs of your plan and how other employees have handled the decisions you’re facing. You might ask your other professional advisers for a referral. But don’t feel you have to rush into working with someone. Check their professional credentials and resolve to your own satisfaction that the advice you’re being given is both knowledgeable and impartial.



















Thinking about buying a place to call home? Then it’s time to think through the home buying process. It can be tempting to start by cruising through your dream neighborhood or checking out house plans, but the most realistic place to start is with the costs.


Down Payments

The cost of buying a home depends largely on where you live and what you’re buying. No matter your budget, you’ll need to keep certain costs in mind that apply to any purchase. First, you’ll need cash for a down payment, usually a percentage of the total cost of the home. First-time home buyers may be able to put as little as 3-5% down in cash—on a $300,000 home, 3% is $9,000, so that’s still a good chunk of change. Some programs require less of a down payment—ask your lender what is available for you.

Traditionally, buyers are encouraged to put down 20% to avoid paying for private mortgage insurance, or PMI. PMI is a protection for the lender against you defaulting on the loan. If you put down 20% or more, you won’t need mortgage insurance. Otherwise, plan on that additional cost, which could be as much as a few hundred dollars a month on top of your regular mortgage payment.


Mortgage & Fees

Speaking of your mortgage payment, you’ll want to get preapproved for a mortgage so you know what you can afford. Preapproval is not a guarantee that you’ll qualify for a mortgage, but it’s as close as you can get. A lender looks at your income, assets, and credit score, then gives you an idea of the types of loans you qualify for, how much you can borrow, and potential interest rates.

Your mortgage payment depends on the principal amount borrowed, the interest rate for borrowing the money, and the term or length of the mortgage. Check out the Mortgage Affordability Calculator.

Typically, lenders want your mortgage payment (including PMI, property taxes, and homeowners’ insurance) to stay below 28% of your gross monthly income (that’s the amount before taxes are taken out). For example, if your gross pay is $50,000 a year, or roughly $4,100 a month, that gives you a max payment of $1,148 a month. As part of this process, lenders assess your other debts, like car and credit card payments.

Just because you qualify for a specific payment doesn’t mean it’s a wise idea for you. Your mortgage lender has no idea how much you spend on other bills and costs, like groceries, savings, and vacations. It’s up to you to decide how much of a margin you need to keep in your budget to feel financially secure. As a first-time buyer, especially, it may be a good idea to look for a home on the lower end of what you can afford.

When You Don’t Get Approved

Somewhere around 10% of all mortgage loan applications are denied, with a slightly higher rate for Federal Housing Administration (FHA) loan applicants. If you’re turned down for a loan or during the pre-approval process, take the time to find out why. Make sure they are working off of current information—you could have an error on your credit report that is impacting your credit score. If you do find issues on your credit report, contact the credit bureau to report them.

If the denial isn’t because of an error, now is the time to take steps toward securing a mortgage in the future. Keep the following best practices for good credit in mind.

  • Build your credit history
  • Keep your debt-to-income ratio down
  • Make credit payments on time
  • Report inaccuracies right away
  • Keep accounts open
  • Diversify the types of credit accounts
  • Minimize new credit lines and inquiries


Under the Fair Housing Law, lenders cannot turn you down because of your age, race, gender, marital status, or religion. If you think you’ve been discriminated against, file a complaint with the U.S. Department of Housing and Urban Development. You can also report the violation to the appropriate government agency provided by the lender, or check with your State Attorney General’s office to see if the creditor violated state laws.


Real Estate Agent Fees

Many homebuyers—especially first-time ones—use a real estate agent to purchase a home. Real estate agents know the market and price trends, know which neighborhoods and features are most desirable, and can help you with price and contract negotiations.

These services come with a cost, though. Real estate agents are typically paid a commission of 5-6% of the purchase price. On a $250,000 property, that’s $12,500 split 50/50 between the buyer’s agent and seller’s agent. Good news though: if you’re buying a home, typically the seller pays the real estate commissions.


Closing Costs

Before a home is truly yours, you’ll need to finalize the sale and sign the documents (many, many documents!). At this time, closing costs are due, too. These are one-time costs that you can either pay upfront or possibly roll into the mortgage. Closing costs cover all of the expenses of applying for the loan and finalizing the sale, and typically run between 2-5% of the overall purchase price. Your closing costs may include fees for services required by your mortgage lender, including:

  • Property appraisals
  • Title search
  • Title insurance
  • Origination fee
  • Underwriting fee
  • Points

Renting vs. Buying

The costs associated with buying a home can be overwhelming, but that doesn’t mean it’s the wrong choice. It’s up to you to weigh the benefits of ownership vs. renting.


Ways Renting Saves You Money


  • Don’t pay property taxes
  • Don’t pay for maintenance
  • Less cash tied up in the property
  • No risk of declining property values
  • Not tied to a geographic location



Ways Buying a Home Saves You Money


  • Deduct mortgage interest and property taxes on your federal tax return
  • Build equity as you pay down your mortgage
  • Potential profit if home value increases and you decide to sell
  • Access to equity through a home equity line of credit (HELOC) if needed for personal loans or other uses
  • Feelings of security in owning a home


There is no specific home buying timeline that works for everyone, so make sure you don’t rush the process. Consider the costs, pros, and cons before you make this life-changing decision.

While It’s comfortable to assume you’ll never have to face natural disaster, it’s much better to prepare. With so much variability, it can be hard to prepare for different types of natural disasters. Luckily, there are steps you can take to ensure your finances, home, and family can bounce back as easily as possible.


The Cost of a Natural Disaster

Natural disasters can come in many shapes and sizes, including hurricanes, earthquakes, floods, and fires. Each has its own dangers and potential costs, including property damage, medical expenses, and loss of income. Of course, there are also less tangible impacts, such as coping with the emotional and financial challenges of a natural disaster. As you consider how to prep for a natural disaster, keep these potential damages in mind as you create your emergency preparedness plan.


Financial Preparations

Get Insurance or Review Your Policies

Having insurance is one of the most important things you can do to prepare for unexpected or dangerous situations, and natural disasters are no different. If you don’t already have insurance, you should consider getting one or all of the following types. And if you do, you should review your policy to ensure you understand what’s covered and what isn’t, as well as the associated costs.

  • Home Insurance or Renter’s Insurance: Many standard home and renter’s insurance policies will cover damage from fire, lightning, wind, hail, and volcanic eruptions. It’s less common for those policies to cover mudslides, earthquakes, and floods. If you want those things covered, you may be able to add a rider for additional coverage (at an additional cost) or purchase standalone insurance. You can look up more information about flood insurance, specifically, through this page for the National Flood Insurance Program.
  • Health Insurance: Due to the potential for injury during a natural disaster, it’s vital that you have health insurance to help cover the cost should something happen.
  • Auto Insurance: Comprehensive auto insurance coverage is meant to cover things outside your control, which includes “acts of god” like natural disasters. Comprehensive coverage is generally quite a bit more expensive than standard car insurance, but can be worth it if you live in an area frequently impacted by natural disasters.
  • Life Insurance: A death caused by a natural disaster is often covered by life insurance policies, but it’s wise to double-check the specifics of your policy or the policy you’re considering. If you or a loved one is killed in a natural disaster, life insurance can help cover hefty funeral or medical bills.

Build an Emergency Fund

An emergency fund is one of the most important things you can have when it comes to being ready for a natural disaster, as you never know what you may need. Experts recommend that you have an emergency fund large enough to cover at least 3-6 months of essential expenses that’s liquid (meaning easily accessible, like a savings account, rather than an investment account that you can’t withdraw from without penalties). If you’re concerned about natural disasters, you may consider creating an emergency fund that’s even larger so that you could support your essential expenses and pay for any necessary repairs should something happen.

Worried about saving up that much money? This Coach can help you create a plan to reach your goal.

The U.S. government also recommends having some cash on hand, as ATMs or debit and credit cards may not work during an emergency. You should not keep your entire emergency fund in cash, as there’s too high of a risk of it being lost, stolen or damaged, but a few hundred to a thousand dollars in cash (depending on your family size, location, and needs) set aside in a safe location could be very helpful in a pinch.

Create an Emergency Financial First Aid Kit

A first aid kit is meant to be an easily accessible resource for anything you need in a medical emergency. A financial first aid kit is the same, but for your important financial and personal documents and resources. Should a natural disaster happen, you want to be able to access these things easily. Some of these items include…

  • Social security cards
  • Passports
  • Lease or rental agreements
  • Household contacts
  • Tax statements
  • Medical information

The government recommends having two versions of your financial first aid kit: a paper version and a digital version. A paper version can be essential if you can’t access digital files in a disaster. These could be stored in a fire and waterproof safe, a safe deposit box, or somewhere similar. Your digital version should be password protected with a strong, unique password, and stored on a flash or hard drive or a secure online storage service. Since this information could be dangerous in the wrong hands, it’s vital that the information is stored safely. You should take every precaution to ensure only you and a few trusted friends or family members can access it.

You can see the full, in depth guide to building your emergency financial first aid kit from the government, including editable checklists of what items you should include.


Other Preparations

Make a Plan

When a disaster strikes, you’ll want a plan for what to do. Take some time to read through the recommendations for specific kinds of natural disasters on Ready.gov. It provides guidance on things as small as a power outage (keep freezers and fridge doors closed to help trap in as much cold as possible, etc.) and as large as a flood or wildfire (know your evacuation zone and route, etc.).

Having a plan is key to ensuring that, should something happen, everyone knows what to do and where to go, especially if you aren’t able to communicate with other members of your family. This is often called a familiar emergency plan, but it can apply to you regardless of your living situation. Some things to consider including in your plan:

  • Where will you go if you have to evacuate your home? It’s best to choose one place within walking distance of your home and one farther away in case the entire area needs to be evacuated.
  • Who will be in charge of what task during an emergency? For example, you may decide that one person will pick up kids from school or daycare if they aren’t home and another will grab important documents and pets.
  • Where can you shelter in place? In certain emergencies, it will be safer to stay indoors. Make a plan for where in your house you’ll go and communicate it with anyone living in the home, including children or grandparents. You should also talk to children about where they can go if they are at school or daycare, and consider where you’ll go at work. The specifics will vary depending on the type of emergency–during an earthquake, you’ll want to get under a desk or table and avoid areas where things could fall on you, and during a tornado, you’ll want to go into an interior room without windows on the lowest floor, ideally a basement.
  • What are the safe places in your community? If you live in an area frequently impacted by natural disasters, your community has likely set up or designated specific safe areas for emergencies. For example, areas prone to flooding likely have designated high points that they recommend residents go to in an emergency. Check your city or county’s website to find more information. That way, should something happen, you aren’t trying to find this information while in the process of preparing to evacuate.

Create an Emergency Kit

You should have an on hand emergency kit that can support you and your family’s most essential needs for at least 3 full days (sometimes called a 72-hour kit) in an emergency. This emergency supply kit should include things like flashlights, a battery powered radio, first aid supplies, food and water, blankets, and sanitary supplies. The government has provided a more in depth list of items to fill your kit.

The essentials of your kit should be easy to travel with–a backpack or other easily portable container is ideal. Your kit should be kept in a place that’s easy to get to in an emergency. Make sure everyone living in your house knows where your emergency kit is. Since the kit will contain perishables such as food and medication, it’s important to check the expiration dates and replaced spoiled items a few times a year. One easy way to build up your kit is to buy a premade one, or look for specialized food and water meant to have long shelf lives so that you don’t have to replace as often.

While you may not keep these items in your kit, there are plenty of other things you can have around the house to help in an emergency, such as fire extinguishers on every level of the home or ladders for upper levels in case someone needs to evacuate through a window. Consider what could happen in the case of a natural disaster and search for any items that may make it easier for you, your family, and your property to stay safe.

Planning for a natural disaster can feel uncomfortable or scary, but it’s always better to be over prepared. Your finances, property, and safety aren’t worth risking by leaving anything up to chance should something happen. By following the steps above, you can feel confident that, no matter what happens, you have an emergency preparedness plan in place.

Investing remains one of the four cornerstones of a strong financial foundation. And, learning how to do it can be both achievable and rewarding.

From the list of technical jargon to the overwhelming number of online teaching resources, investing is complicated. What’s a stock? How do I buy one? What’s a trade? What does it mean when the stock market crashes? Honestly, the list of questions goes on, and on—and on. Still, the Stock Market is a great place for people to make extra income without having to work overtime to do it, but it does come with some risks. So, let’s just take it one step at a time.

What Is The Stock Market?

The stock market is a place where shares, or a portion of company ownership, are bought, sold, and traded among the general public. The terms stock and shares can be used interchangeably, but remember that stock is a more generic term that refers to partial ownership of a variety of companies.

Defining Stocks


Public stock

Public stock is when a public corporation makes shares available for the general public to buy and there are two types:

  • Common stock gives the buyer partial ownership of a company. This means that the company and the buyer make and lose money equally. Purchasing common stock also gives the buyer the right to vote on company matters such as corporate policy and leadership.
  • Preferred stock gives the investor a fixed income, so they’ll get a certain percentage of the money a company makes each year. An example of this is if someone buys preferred stock for $40 that has a 10% yield. At the end of each year, they’ll get $4.00 in dividend income.

Private stocks

Private stocks are, well—private. This means that the general public doesn’t have access to them so ownership is limited to a small group of employees or internal company investors.

Buying and Selling Stocks

One of the most common ways for people to buy shares is for them to go through a brokerage account. People put money into a brokerage account for the purpose of investing their money themselves or letting a licensed professional invest it for them. But remember, people that want to set up a brokerage account will most likely have to put some money into it first.

Though sometimes there's little to no fee to start a brokerage account, it’s not unheard of for people to put down upward of $50 million to open one. For example, a prime brokerage account at one of the major investment houses could cost roughly $500,000 in equity investment just to open. It’s the same concept of needing to maintain a minimum in a savings account at a bank.

Investment apps like Robinhood, Stash, and TradeStation are another way for people to start investing with little to no money. Just remember, these apps like to gamify the stock market experience. This exhilarated feeling of playing a game can lead to people making riskier trades. Also, these apps will ask for sensitive information to be shared before starting an account so don’t forget to do your research—never give information to an app that has questionable integrity.

Why it's Important to Invest in the Stock Market?

The key elements to financial health are knowing how to spend, save, invest, borrow, and plan. Understanding the ins and outs of these core components will help families become and stay financially healthy. In fact, investing is one of the most effective ways to save enough money for a comfortable retirement.

Retirement funds like traditional and Roth 401(k) and IRA plans invest in the stock market. These funds create a reliable and safe pathway to create a healthy retirement fund. It’s wise to contribute as much as you can to a 401(k) or IRA and to even contribute the maximum amount, before delving into other types of investing.



















Although it’s tempting to try and run a business on your own, it’s usually a good idea to get professional help.

Hiring lawyers and accountants can help keep you out of legal and financial trouble, while public relations experts get your company in the public eye.

Technology consultants keep you aware of the solutions that will work best for your business. And having a good relationship with a particular credit union, bank, or banker is helpful as you attempt to make major financial decisions, such as arranging a line of credit or securing loans.

Keep in mind that professional advice can be expensive. In general, it’s a good idea to figure out the areas where expert help could provide the biggest boost, and hire professionals to achieve it. As you have more money at your disposal, you can hire other specialists when you need them.

You can also get business counseling at no cost from retired executives through an organization called the Service Corp of Retired Executives (SCORE), sponsored by the Small Business Administration. To find a local chapter, you can go to their website, Score.org.

A local Small Business Development Center can also help you navigate building your business. These centers offer free or low-cost training and assistance for things like business planning, accessing capital, and regulatory compliance. SBDCs are partnered with the SBA and funded in part by Congress. Find your local center by going to the America's SBDC website.

Financial Guidance

Running your own business is challenging enough without trying to handle your company’s tax planning and reporting. Most business owners would agree that hiring an accountant is a good investment.

Accountants can work with you and your financial officer or controller to keep your business financially sound. Some areas that accountants can help you with include preparing profit and loss statements, audit reports, and earnings projections. An accountant can also troubleshoot for you and help you fine-tune your budget.

Many accountants will help you organize your records for more efficiency. And if you need a loan, your accountant can help you determine what type might be appropriate for you.

Attorneys

As a business owner, you’ll probably need to work with an attorney. If you have business associates who work with an attorney, ask for their recommendations. You can also contact your local business association for referrals.

In the early stages of your business, a lawyer can help you decide what type of structure (sole ownership, partnership, corporation, or franchise) will work best for you. As you grow, an attorney can foresee various business needs, such as zoning regulations, employment practices, and workplace safety. It’s also important to retain a lawyer if you are applying for trademarks or patents, because many legal issues arise during the application process. Finally, it’s crucial to have an employment lawyer review your employee handbook to make sure you cover all the bases, legally speaking.

It’s essential to find someone who’s experienced in business law, preferably someone who has worked with businesses like yours. You may also want to think about the size of the firm. A smaller firm may give you more personal attention, but a larger one usually offers a wider range of services.

Finally, you should find out how you’ll be charged for the legal services you need. Most lawyers charge an hourly fee, and the cost of each consultation depends on the lawyer’s billing rate. That generally depends on level of experience, the part of the country where you live, and the type of firm it is. Some lawyers charge a flat fee for a specific service, regardless of the amount of time it takes.

Specialized Consultants

Hiring an advertising or marketing specialist will help you create an image and brand for your business. A small advertising agency or independent specialist may be ideal for your small business’s needs.

You can also employ a public relations (PR) firm or add a public relations specialist to your staff to help you gain exposure that you otherwise may not be able to attain. A PR agent can write press releases, manage your social media presence, and generally educate the public on the latest happenings in your business.

Technology consultants can help keep you updated with the latest software and manage the operation of your systems. If you want to teach your employees how to maximize their productivity, cultivate working relationships with clients, and more, a soft consultant may be just the answer.

In short, while there are no guarantees, it may be worth the time and money to research and hire a professional that can help take your company to the next level."

The Small Business Administration (SBA) is a US-based institution which helps reduce risk to lenders, making it easier for small businesses like yours to get a loan.

Loans backed by the SBA ("SBA loans") provide many benefits to small businesses, including long repayment options with reasonable interest rates. They also help lenders by guaranteeing a portion of the loan. If the business can't pay it back, much of the loan can be covered by the SBA. This allows banks and credit unions to offer loans that could otherwise be considered too risky.

Because there are so many benefits to an SBA loan, there are a lot of requirements that must be met by the business (and its owners) in order to qualify for a loan. Documentation of each of these items is very important. Because loans are offered by individual lenders, your bank or credit union may also have additional requirements to qualify. Your financial institution can give you a complete list of specific requirements.

For now, here's a list of the minimum necessary documentation for any SBA loan.

To Meet the Basic Requirements for SBA Eligibility:

  • Be a for-profit business in an eligible industry.
  • Qualify as a "small business" under SBA guidelines.
  • Anyone who owns 20% or more of the business must be a U.S. citizen or legal permanent resident.

Needed Documentation

The following is a list of the basic documentation required for SBA loans:

  • For 7(a) loans and microloans, you will need SBA Form 1919 or SBA Form 912. These document your personal background. Financial institutions usually provide their own forms for 504/CDC loans.
  • Anyone in company management will need to submit a resume.
  • A business plan.
  • A statement of how long you've been in business.
  • Your personal tax returns.
  • Your business tax returns.
  • You'll give approval for your bank or credit union to check your personal credit score.
  • Your business credit score, usually reported by FICO Small Business Scoring Service (SBSS).
  • A year's worth of personal bank statements.
  • A year's worth of business bank statements.
  • A Balance Sheet for your business. (Don't have a Balance Sheet? Learn how to make one here: Bookkeeping Coach.)
  • A Profit and Loss Statement for your business. (Don't have a P&L Statement? Learn how to make one here: Bookkeeping Coach.)
  • A copy of your business debt schedule.
  • A signed personal guarantee to pay back the loan with personal assets in the event of a default.
  • Legal documents, such as franchise agreements, business licenses, proof of incorporation or organization (for Corps and LLCs), leases, and third-party contracts.
  • You may also be asked to document the collateral you are willing to offer to help secure the loan.

For 504/CDC loans, there are a few additional requirements:

  • Documentation that at least 51% of the real estate purchased is owner-occupied.
  • Documentation of successfully reaching goals of job creation or public policy.
  • An environmental impact statement.

Looking for ways to teach students about income taxes, deductions, etc.? Good news! There are tons of great resources out there to help you do just that. Let’s start by taking a look at two very important points related to teaching taxes:

  1. What are taxes? Taxes are required payments to local and federal governments—businesses and US citizens alike. Though there are many forms of taxation, federal income taxes, state income taxes, and sales tax are some of the most commonly discussed.
  2. How are taxes used? Tax revenue provides service for a variety of government programs: military, national defense, social & public security, health care, etc. In simpler terms, taxes are used to fund, improve, and maintain public infrastructure and services.

Taxes are considered one of the more difficult lessons for students to comprehend in a class setting. And it could just be the fact that the intricacies of the topic prove difficult for students to understand and grasp in a lecture-based lesson.

Here are some ways to help students experience the concept of income taxes first-hand:

Simulate a "Tax" System with a Token Economy:

Assign a pretend salary to each student based on age-appropriate classroom chores: tidying up personal or play areas, passing out assignments, acting as classroom monitor, watering class plants, etc.

Discuss the concept of taxes and explain that a portion of their "salary" needs to be set aside for taxes. As you go, help them calculate and set aside a percentage of that salary, simulating the tax deduction. The rest of the money can be used to buy small treats or rewards.

To expand on that, use that hypothetical tax money to “buy” something big for the entire classroom—e.g., decorate the classroom and throw a party at the end of the allotted time period—to indicate that taxes are used to fund and improve things for everyone.

Banzai: Advanced Budgeting Online Game:

Banzai offers financial literacy games for high school students who are learning to comprehend more in-depth money management concepts. Watch as your students navigate the complex process of earning a salary, deducting taxes, buying a house, and coping with the financial challenges of everyday life in this online interactive financial literacy course.

Take a Field Trip to a Local Government Office:

If it’s possible, visit a local government office so that students get an onsite experiential lesson that shows them how taxes support community services. You may even be able to arrange a quick chat with a representative and tour the building.

No matter how you decide to teach tax-focused financial literacy topics in your class, relying on outside resources could make all the difference when ensuring your students truly absorb the material. And when they do start to grasp the concepts you teach, you can rest assured that they’ll enter the job force prepared and understanding why a portion of their paycheck is taken, what happens with that money, as well as how to manage the rest of the income they keep.



















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