Tuesday, November 24, 2015

Was There A Credit Union At The First Thanksgiving?

Was there a credit union at the first Thanksgiving?

The short answer is no, there was not. The first Thanksgiving occurred in 1621, which was 150 years before the creation of the first credit unions. In fact, the first modern financial institutions wouldn't reach the country of the Pilgrims' origin until the middle of the 17th century.  However, the Pilgrims did believe in many of the principles that would come to define the credit union movement that swept the globe in the 19th and 20th centuries. 

The Pilgrims wanted to work together as a community.

While the extent of the religious persecution endured by the Pilgrims is a matter of debate, it is clear that they were united by a sense of community and togetherness.  Convinced they couldn't maintain the values that most mattered to them if they stayed in England, they risked life and limb to cross the ocean, hoping to build better lives for their families.

That's really the basis for credit unions.  We believe that, if we work together, we'll all be better off. Destinations Credit Union is made up of members and employees that live in our community.  We work together and our kids play together.  There's a good chance that, if it's snowing on you, we're shoveling our driveways, too. 

The Pilgrims were unsatisfied with a financial system that took away their power. 

When the Pilgrims wanted to travel to the New World, it was a difficult and expensive task.  A group who wanted to leave Europe would need to find an experienced captain, which was no easy task at a time when crossing the Atlantic took months and often killed those foolhardy souls who were willing to take on the challenge.  Then that group needed to pay the crew, save enough food and supplies for the journey and pay all sorts of taxes and fees.  In order to come up with enough money to make the trip, they couldn't just get pre-approved online. There was no "online" or "pre-approved" or even a financial institution.

Instead, loan decisions were made by the King or a few incredibly wealthy individuals.  In today's context, it would be like getting a small loan to start a business but your only choice of lenders were Barack Obama or the owner of your nearest NFL team.  The Pilgrims were denied a charter for a new colony by King James I, so they had no choice but to seek out the wealthiest individual they could find.  In their case, they secured a loan from Thomas Weston to pay for the trip.

Credit unions were first formed for the same reason.  As a drought ravaged parts of Switzerland, Austria and Germany, few banks were willing to extend loans to farmers who were unlikely to be able to repay the debts.  Of course, that meant that the drought turned into a famine, as farmers who have no food to sell and no capital to buy seeds have little chance to make money, which means they had no opportunity to buy food.  The first credit unions extended loans to these farmers, saving their communities from starvation.  Suddenly, people realized that they didn't have to be powerless in the face of super-rich individuals who didn't have their best interests at heart. 

They could have used a much better loan 

We all learned in grade school that the Pilgrims carried all of their possessions with them, and the historical record confirms that the passengers on the Mayflower were very poor, even for 17th-century colonists, a particularly poverty-stricken lot.  So, how on Earth did they secure the loan to head to the New World?  It was pretty ugly.  The terms of the loan were seven years of indentured servitude.  They wouldn't make any profit or own any land for seven years, at the end of which half of the land would revert to Weston and the company to whom he sold shares in the Mayflower voyage.

At Destinations Credit Union, we don't have shareholders, we have members.  We are not driven to generate profits for the pure sake of looking good on a quarterly report or justify embarrassingly large bonuses that mega-bank executives award themselves.  The money generated by your credit union is put into lowering the interest charges on your loans, reducing fees, enhancing our technology and more. You'll never get a loan from us that you'll end up regretting. 

The Thanksgiving feast was a celebration of the credit union spirit 

Of course, Thanksgiving isn't just about Pilgrims.  We know a lot more about them than we do the native people with whom they shared dinner that November, but it was the feeling of community and well-being that brought everyone together.  While the history of the settlers and the natives would take a very dark turn later, for one night, it really looked like people choosing to help people was the basis on which the groups would work together forever.

This Thanksgiving, between the turkey and the football, we hope you'll reflect on the spirit of the day. It's a great time to think about your community and everything for which you're thankful.  We're thankful for all of you.  We exist to serve a community, and we're thankful to do good work for the people we know and love.  We're thankful that somewhere in our history, we all chose to come together and help each other, even if most of us didn't make it to these shores for several centuries after that first Thanksgiving.
Happy Thanksgiving.

Tuesday, November 17, 2015

How Will I Ever Retire If They Keep Moving The Finish Line?

What happens if you've made it to the day you thought you'd be retiring, but you're simply not financially ready? Perhaps you passed your "Plan B" date. Maybe even "Plan C" has come and gone. You know you've been making the right moves, but a temperamental stock market, kids who stayed home longer than expected or an unlucky series of events keeps pushing back your time frame.  So, in exasperation, you ask ... 

Question: "How will I ever retire? When will it be safe to stop working?" 

Answer:  Well, hopefully very soon.  We're going to show you some ways to put luck back on your side.  It's going to be part planning, part faith and a good deal of ingenuity, but we can get your pictured future back within sight again. 

Question:  "OK, so how do I know when I'll have enough money?" 

Answer:  The first thing you need to do is realize that enough money is possible.  It's scary to read headlines about Boomers running out of money because they lived so long, especially when they're coupled with stories about how the 4% rule isn't enough.  If you take these articles at face value, you've got to come up with 40 years of savings, assuming you'll be taking out as much as 10 percent of your nest egg every year.  Because it's difficult (if possible at all) to get to that point, it's easy to give up. 

Instead, go back to 4%.  Or, if you're being conservative, make it 5%. That's a 25% raise! That's a lot! Then, remember the lessons of your working life: Anything that happens far in the future should be weighted far less, because you never know what might happen between now and then.  You might find you don't care for fly fishing that much or you no longer need that annual trip across the country. Your neighborhood's home values could rebound.  Maybe you'll stumble onto a strong investment.  There's too much uncertainty in life to freak out about what's going to happen far away into the future. Take 5% out, per year, until you're 85.  That's plenty. Anything beyond that is too much. 

Question:  "How can I make sure I've got enough retirement income?" 

Answer:  One of the easiest ways to produce panic is realizing that money only flows one way once you stop working. You've been conditioned to treat any month in which you spend more than you earn with revulsion, shame and guilt. Now, that's going to happen every month - for the rest of your life.

A lot of retirees feel more comfortable with money coming in on a regular basis. You can accomplish this in a variety of ways.  First, try to put off Social Security as long as possible.  The higher payout will make retirement much easier. Second, try to create passive income using investment products.  In the same way that dividend-producing stocks pay out on a regular basis, you can create passive income that can be accessed any time by moving chunks of your retirement into high yield savings products like money market accounts.  That way, you can still budget the way you used to without having to sell your stocks (while hoping you guessed the right time to sell).

You can also create passive income by using your home equity to fund a business venture.  Right now, mortgage rates are low, but a lot of Boomers are missing out because they paid off their homes in order to retire.  You use a home equity line of credit to buy a rental property (which builds equity at the same time it gives you a paycheck) or start an online business built around your hobbies.  If you love to knit, sell handcrafted items on Etsy.  Do you like to fish? Start manufacturing lures with the equity in your home.  These ideas can generate a monthly income for you and also give you something else to leave to your children.  In a pinch, you can even sell the rental property or sell shares in the business for a quick cash infusion. 

Question:  What about my health?  That can be a big cost, even with Medicare. 

Answer:  One of the best places to put some money when you retire is into various forms of insurance. You probably already have life insurance, homeowners, and insurance on your other big purchases, but you also probably only have Medicare to cover the health side of your insurance portfolio.  What happens if you need something Medicare doesn't cover?  Is it worth it to go on Healthcare.gov and try to find a supplemental plan?

One way to keep your options open is to try a "do-it-yourself" Health Savings Account (HSA).  While traditional HSAs gain their benefits from your employer paying into them, you can get a lot of the same benefits simply from putting some spare cash into one of our high-yield money market accounts.  That way, you've got money put aside for a health emergency, but you're not spending on a premium you'll only need very rarely.  As an added benefit, you can access that money if you need it for things that aren't health-related if some other kind of emergency comes up.

Hopefully, you've gotten a better idea of how to tackle retirement.  You need to have faith and protect yourself at the same time.  The best way to do that is to put your money with someone you trust and give yourself access to it, just in case.  If you need any more info, want more guidance, or just need someone to talk to about taking the leap, give Destinations Credit Union a call at 410-663-2500.

Monday, November 16, 2015

Passive Income And Rental Properties

Investing can feel pretty distant.  It's hard to imagine the tiny fraction of Disney or Google that you own, your savings accounts can look a lot like a bunch of numbers with no meaning and mutual funds are about as easy to conceptualize as advanced trigonometry that's taught in the original Greek. That's why a big part of building a savings plan you can stick to begins with finding one you understand.  Passive income is one such simple concept. It is a valuable addition to your wealth-building strategy because it can put cash in your hand every month while also being tied to something tangible, like real estate.

Through passive income, you can develop a variety of ways to get paid every month with little or no day-to-day effort on your part.  One of the most traditional ways to generate this kind of income is to own a rental property, because you then receive a rent check every month while only needing to occasionally call a maintenance professional or list the house for rent every couple of years.  The benefit is obvious - if the rent you charge is greater than the cost of the mortgage, insurance and incidentals, you'll earn a profit every month.  It might not be a large amount of money, but you'll build equity along the way, and you can always sell the house at some point down the road.  

If you're young and trying to figure out a retirement plan, owning a rental property can be fantastic because you'll earn a few bucks every month, which will eventually turn into a larger payday on a regular basis when you pay off the mortgage. If you plan it right, this can be right around when you retire so you have retirement income without having to sell any stocks or liquidate any accounts. Also, if you ever hit a rough patch or need to raise cash for another investment opportunity, you can sell the house.  If you're looking to get a great rate for a rental property, you can even use the equity you've got in your current house with a home equity loan, locking in a fixed rate while mortgage prices are at historic lows.


Thursday, November 12, 2015

The Government's $3 Trillion Dollar Plan

So, whatever happened to that interest rate hike?  It was supposed to happen all spring, then all summer, and now we're supposed to be fully confident that the Federal Reserve is going to raise interest rates by the end of 2015.  But so far, it hasn't.  On one hand, that's great news: You still have time to lock in a fixed-rate mortgage or take out a low, fixed-rate home equity loan to pay off those credit cards before the rates go up. By the way, if you're interested, that's only a click away.  

On the other hand, it's a little worrisome.  Raising the prime interest rate is how the Fed tells us that the economy is doing well and it's time to save money.  So, why haven't we seen an interest rate hike? The answer is more interesting than you might think, because it involves a multinational chain of events and a $3 trillion gamble with your tax dollars on an interesting new idea. It's an idea that falls somewhere between efficiently practical and boringly immoral, just as many decisions often are when they're made by folks who have spent too much time staring at spreadsheets and not enough time breathing fresh air.

To explain what's going on, we need to flash back six years.  At the height of the financial crisis, the two biggest concerns for the long-term future of the American economy were the resiliency of the big banks and the incredible number of home foreclosures.  If the banks couldn't get their balance sheets straight, they couldn't loan money, which would mean that anyone who wanted to buy a home, start a business, or go to college would suddenly find themselves without a loan to do so. Meanwhile, those on the brink of foreclosure, trying to keep their businesses afloat or finishing their education might lose everything they'd worked to acquire.  Of particular concern to the government were American homes, because our homes represent the largest part of our wealth, are essential to our well-being and buoy our retirement accounts.  Unfortunately, investment products built on inadvisable home loans were the centerpiece of the financial crisis, making the protection of our mortgages a difficult task.

The government's solution was to bail out the banks, but to do so in a way that we hadn't tried before.  Normally, the Fed puts money into the economy by buying government bonds from banks by using money it creates on a computer in its offices.  Fed managers tap on their keyboards, change a few spreadsheets, and poof, money is created.  In the aftermath of the financial crisis, however, they decided to create money by buying mortgage bonds, which made it easier for government money to flow to beleaguered homeowners, thereby protecting Wall Street and Main Street at the same time.  

However, the Fed can't just create money without enduring some repercussions. Usually, it has to either remove the money from the economy over time, which can slow down an economic recovery, or watch as inflation eats away at the value of the dollar, causing people to dip into their savings and work harder for less actual pay. Neither option is fantastic.
This time, the repercussions could be even worse.  Because the Fed has tied the $3 trillion it created over the last six years to mortgage bonds, removing the money could cause a spike in mortgage rates. After all, that $3 trillion has been paying part of your mortgage for the last six years; that's a profit for your lender that's been passed on to you.  If the Fed chose to remove the $3 trillion and raise interest rates, we could see a spike in mortgage rates that all but guarantees young people will rent their homes for their whole lives.  If you were planning on selling your house in time for retirement, it could cripple the value of your home, because the same buyer who had $250,000 wouldn't have more money, but they would have to pay more to their lender.  Not fantastic.

All year, the Fed has been staring down this crisis, warning us that it would have to raise rates, all the time hoping that doing so wouldn't kill the housing market. Then, a really odd set of circumstances kept it from having to do so.  Twin financial crises in Europe and China drove international investors to the dollar. As they sought to sell other currencies, they propped up the value of the dollar, delaying the effects of inflation and buying the Fed more time.  

Now, a new plan has emerged, which is where a really interesting idea comes into play.  What if the Fed didn't take the money out? Instead, it's started paying the banks to keep savings with Washington, just like your savings account (except thousands of times larger).  The idea is that, as long as inflation is being kept under control through foreign investment, our central bank can pay about $30 billion a year in interest for financial institutions to store money. That money makes the banks want to save, which takes money out of the economy, which they pass on to some customers in the form of higher savings rates and making them want to save as well. Suddenly, the money has come out of the economy, inflation isn't a risk, and everyone along the way is getting paid for doing so, especially big banks and their shareholders.  

Reminder: that's your $30 billion per year.  Another reminder:  $30 billion was the budget request to keep Pell grants in line with inflation ... over the next 10 years.  You're paying the mega-banks 10 times what you're paying to keep college funding from shrinking.

It's a short-term solution, obviously.  Voters don't love their tax dollars being spent to reward the same banks that caused the financial crisis, and those banks, by definition, are the ones being let off the hook.  Europe and China won't buy dollars forever, particularly if it doesn't look like the Fed is raising rates (which would help foreign investors who are saving their greenbacks).  At some point, the money is coming out of the economy.  Ten years from now, the Fed says, it will all be gone.  The only question is, how fast it will come out, which means we're still waiting to hear when the prime interest rate is going up.

And that brings us back to today.  We've been told to expect a rate hike by the end of the year, and when it comes, it'll cost you more to pay off your credit cards.  If you're in a variable rate mortgage, your monthly payment will eventually go up.  The best move today is the simplest one, which is transferring over to fixed-rate loans.  Do it today, so you can save thousands of dollars.  Then, once you've locked in your rate, let your congressperson know that you don't love your tax dollars continuing to bail out the mega-banks six years later.  


Tuesday, November 10, 2015

Dealer Auto Finance Scams

So, you're buying a car.  You've made it past the tedious comparison shopping, you've finished the  detail-oriented research and you've even endured the haggling with the salesperson.  Your tongue probably tastes like that terrible coffee they use in every car dealership in America, the kids are probably getting cranky and it's pretty likely you're thinking about everything else you could have done with your weekend.  But, it's almost over.

"I just gotta go in to see the finance manager, sign some papers, and we're on our way home."  That feeling of relief washes over you, you let your guard down, and you don't even realize until too late that you're suddenly in a much higher monthly loan payment or longer term than you'd planned for.  What, in the name of Lee Iacocca, just happened?

The stereotype of car dealerships usually involves a salesman with a pencil moustache and a polyester jacket who lies through his nicotine-yellowed teeth about undercoating or telling you how the used car you were looking at has only ever been driven to church on Sundays.  That guy is easy to spot.  If the salesperson lies to you, you have some legal protections.  If you Google before you go, you'll even know most of the tricks the salesperson might roll out. What you're less protected against are the tricks that happen in the finance office. Below, we'll talk about what to look for and how to avoid dealer finance scams so you don't spend too much on your next car.  

1.)  Keep your wits about you.  Never let your guard down at the dealership.  Every person there wants to make money off of you and they're very competitive.  Even if he or she says that they don't want or receive commission on your particular sale ("I just need to hit my quota" or "One more sale puts me at my bonus, I'll take a loss on this one"), that person is almost certainly a very competitive person who's going to be comparing notes with his or her coworkers this afternoon.  

The finance office is designed to put you at ease, so you'll lower your guard. The finance office is probably in a different part of the building, with different lighting and ambience.  The offices may be appreciably nicer, with actual walls instead of cubicles, some of which may have art hanging on them.  Clearly, the person you're talking to is important, having been in such a nice office for so long.  

And that's what should scare you.  The people in the finance office are often not financial experts by trade; after all they don't need to do your taxes or invest your money.  They only have to understand one transaction.  Therefore, many dealerships will send their best salespeople to finance classes so they can have a smooth closer at the end of each transaction.  Don't let the gray hair fool you; the person in front of you is just as competitive and sharp as the one on the sales floor.  After all, to get this office, the finance officer had to be really fantastic at making sales.

2.)  Know your credit score.  There are a lot of reasons to know your credit score before you make a large purchase, including the fact that you should check your credit report for irregularities fairly often, whether or not you're buying anything.  When you buy a car, it's especially important.  Finance managers like to use customer ignorance against them, and if you don't know your up-to-date credit history, then they'll smell blood in the water.

While the most obvious example is to try to charge you more than you need to pay, you might not expect that another classic is to offer you a loan at a far lower rate than you deserve.  The idea is to offer you a rate so low you can't say no, then wait a few weeks before telling you that the financing unexpectedly fell through.  Don't worry, he or she will tell you, you can keep the car.  There's a clause in your contract that says "subject to financing," so he or she found a different lender. The good news turns sour, however, because your new rate is through the roof and you've already signed the contract and taken delivery of the vehicle.

Don't take a loan at a rate that's too good to be true.  If you're tempted by an offer in the finance office, ask how long it'll be valid. Then, take it home and show it to your lawyer, so someone you trust can tell you if it's on the up-and-up.  If you don't want to pay your attorney's rate, you can also bring it to us.  We'll take a look, let you know about any potential pitfalls, and we might even be able to beat that rate or provide a better term, saving you even more money. Remember, if they say that the deal expires today (particularly on the weekend) or that you can't take your contract with you, it's almost certainly because they don't want you to take the time to think about what you're doing.

It's never a good idea to trust someone who doesn't want you to think. Get your credit score for free once a year from annualcreditreport.com.

3.)  Walk in with an offer.  Then, walk out with an offer.  The best way to get a fantastic rate on a loan for a new or used car is to finance through Destinations Credit Union.  We aren't looking to make a profit, we're looking to support our members.  We're also trustworthy - it's why you're here in the first place, after all - so you know our great rates aren't scams.  So, come see us first and you can walk into the dealership with your loan financing already approved (or apply online and note that it is a preapproval).  You'll know how much you can spend, taking the pain out of negotiating. You'll also know what interest rate you'll get and have a pretty good assurance that your monthly payment will be manageable.  Plus, you'll only need to run your credit score once, so you don't have to worry about losing points from looking it up too often.  

Don't let the salesperson know that you've already gotten financing, though. The dealership knows how much it wants to make on the transaction, and it doesn't care if that money comes out of the trade-in, the sale, or the financing. If you know how much your trade-in is worth and you have your financing taken care of, then the only place they can make money is on the sales price.  If they know that, they'll be less flexible on the sales price.  Let them think that if they give in a little on the sales price, they'll be able to make it up in financing.  

But you also need to be able to walk away.  Just like any other part of the sale, whomever can walk away controls the deal.  If the terms of the loan the dealer offers you sound great, thank them and take them with you and let's compare notes.  We're here for you and we promise to burn the midnight oil figuring out what we can do to make the best deal you can get.  

This might all seem a little excessive.  Maybe you're good at negotiating, you've looked up all the dealer scams and dirty tricks, and you can get the loan really close to what you want.  You're only off by $50 or so, and if you just sign the papers you can take the car home tonight and be done with the whole process.  

Remember, $50 may not sound like much, but over a 60-month loan, that's $3,000 plus interest.  Who would you rather see pocket that $3,000:  the dealership or your family?  To put it another way:  if your child racked up $50 in extra data charges on your phone bill, how would you feel?  What if he or she did it every month for five years? Let's beat the finance office together.