Wednesday, April 30, 2014

Is There a Secret Millionaire in Your Neighborhood?

There are two kinds of millionaires. The first group is the obvious millionaires. These are the folks who drive flashy cars, live in big houses, and send their kids to private schools. They are lawyers, CEOs, and politicians. They have money--and everyone knows it.

The other group is less obvious. They are small business owners, plumbers, contractors, and other people who practice a trade. They live in ordinary neighborhoods, drive sensible cars, and own modest homes. They may not come from significant wealth, but they will leave a great deal to their children. They have had some luck, but they've also made good and well-planned decisions.

 They're an emerging class of "secret millionaires." There are people living in your community who have this kind of money. They got to where they are by following a path that Thomas Stanley and William Danko describe in their book, "The Millionaire Next Door."

There are a handful of behaviors practiced by 80% of people who have a million dollars or more in personal wealth. Before we look at the behaviors, you should know that it doesn't matter what industry you're in. The correlation between being a millionaire and occupation is completely random. More than what you do for a living, the manner in which you live your life will determine your financial outcome.

There are three behaviors that are most strongly associated with the lives of these "secret millionaires." They work for themselves, they live frugally, and they invest carefully. Following these steps can improve your chances of becoming one of these wealthy folks.

Working for yourself

The earnings of 65% of small businesses are greater than the wages of an employee who's doing similar work, Stanley and Danko found. There are simple economic reasons for this. Your employer makes money from your labor because they assume risk. You have a guaranteed salary paid to you every month. If the company you work for doesn't make much money, you still get paid. The owner of the company does not have that guarantee.

The millionaires in this group also profit from the ability to put more work into their businesses. While you might get promoted if you put in more hours at the office, there's an upper limit to what you can earn. Not so for the business owner. They can pour as many hours into finding new clients and doing more work as they choose. They reap the rewards of working for themselves in a way that people who work for others don't.

The most common fields of work for millionaires are service, retail, and manufacturing. Skilled services like hair dressing, electronics repair, and consulting are common choices for them. Retail store owners usually become wealthy because they own a small chain of stores. Manufacturing millionaires are usually early adopters of more efficient means of production.

Living frugally

The easiest way to identify a secret millionaire is by the kind of car they drive. Look for people driving late-model efficient sedans that are clean. The average person holds onto a car for just over seven years. The secret millionaire holds on to them as long as possible: 10 years on average. To do so, they practice regular maintenance. A $60 oil change every three months gives them three more years free of a $475 monthly car payment. They also tend not to overspend on cars because they realize and understand that vehicles lose value over time while investment instruments gain value.

This car-buying behavior is a hallmark of the purchasing decisions that secret millionaires make. They make every major decision with an eye toward the future. They also tend to live in modest houses that offer them only the space they need. They move less because they orient their living arrangement toward stability.

In short, secret millionaires live below their means. This is not to say their wealth is solely a result of their good decision-making. Anyone, including those on the path to making millions, can suffer from injury, accident, or other misfortune. What makes secret millionaires unique is the position they put themselves in to deal with these incidents should they occur. By living frugally, they can save and invest.

Investing carefully

These secret millionaires have one financial position in common: They all own stock. Most of them buy shares of large companies which pay regular dividends. The secret millionaire tends to reinvest these to increase the shares of stock they own. They also keep adding to their savings. They take advantage of compounding returns. $10,000 invested for 30 years at 8% turns into $100,000. In 50 years, that same $10,000 is $500,000. Secret millionaires are in the habit of paying the future before the present. They keep saving to build their personal wealth.

They also invest in their businesses. One of the benefits of working for yourself is that you can invest your own money into your job and see returns. Setting aside some of the profits from a small business enterprise offers them the chance to invest and earn more profit down the road.

They also tend to invest in their communities. Most of these secret millionaires continue to be frugal while setting up estates that are more than enough to take care of their children. This frugality gives them the ability to donate large quantities of money to charities of their choice.

Secret millionaires aren't luckier, smarter, or better born than the rest of us. A combination of good timing, hard work and modest living enabled them to amass their fortunes. The richest person in your neighborhood isn't the one with the nicest car or the biggest house. It may, however, be the hardest worker, the one who values financial security above the trappings of wealth.

Destinations Credit Union

Monday, April 28, 2014

10 Myths About Credit Unions

How much do you know about credit unions? Test yourself on these 10 myths-how many did you believe until today?

Myth #1: You must meet strict eligibility requirements.

Fact: While credit unions do require that members meet certain requirements to satisfy a common bond, many of these are broad and few of them truly limit membership.

Myth #2: Getting to the ATM is difficult because my branch isn't nearby.

Fact: With up to 65,000 ATMsavailable through various networks, availability is not an issue.

Myth #3: Changing my banking from a traditional bank to a credit union will be a hassle.

Fact: Credit unions offer the same services as banks, including automatic bill payments and direct deposit. Most services will transition easily and go uninterrupted.  A"Switch Kit" can make the transition easy.

Myth #4: With all the fancy advertising, banks must have more money than credit unions.

Fact: While this may be true, it's because credit unions are not-for-profit organizations. Rather than spend money on advertising and marketing, credit unions rely on the community for marketing. The money saved is rolled back into services for members or distributed back to members as dividends.

Myth #5: Credit unions don't offer reward programs.

Fact: Many credit unions do offer reward programs on credit and debit cards. For those that don't, take a look at the fees that are associated with the various accounts. At a credit union, you'll save on fees. Do your bank rewards outweigh the fees you're paying on each account?

Myth #6: Credit unions aren't very tech-savvy.

Fact: Credit unions don't promote mobile options as aggressively as banks, but that doesn't mean they don't offer them. According to a study by CFI Group, bank customers rated their satisfaction at 86 out of 100 in online and mobile banking versus 90 out of 100 among credit union members.

Myth #7: Credit unions are just like banks.

Fact: Credit unions are not just like banks. Members own a piece of the organization and own a vote in determining how the credit union is managed. Credit unions also return all earnings back to members with their low fees and great dividend rates.

Myth #8: Credit unions have an unfair advantage over banks because they don't pay taxes.

Fact: Actually, credit unions DO pay taxes. As a not-for-profit, member-owned financial cooperative, there are some taxes that credit unions don't pay. Those "unfair advantages," of course, are passed on to members.

Myth #9: Credit unions are not regulated.

Fact: Credit unions are held to the same laws and regulations as banks. In fact, credit unions face more restrictions on the investments and loans they make.  Destinations Credit Union is regulated by both the State of Maryland and the National Credit Union Administration.

Myth #10: Credit unions are good places to save money, but that's about it.

Fact: Credit unions offer consumer loans, debit and credit card services, online banking and bill pay, checking accounts, retirement investments, mortgages, car loans, and more. They are a great place to take care of all your banking needs.

Destinations Credit Union

Friday, April 25, 2014

Financial Advice for Graduates

The air is warming, the flowers are blooming, and the grass is turning green. Spring is in the air, and the joyous shouts of children playing will soon mingle with the drone of boring speakers reading names during commencements all across the country. Spring means many things, and for students across the nation, it's time to graduate.

By definition, graduation is a state of transition and students no longer are students in the typical sense. It's easy to make mistakes during this transition, and they can create serious problems later in life. Here are some of the common questions students face while in this transition and how to deal with them.

I've just graduated. What should my first financial priority be?

            There are a lot of options for those first few paychecks. Some experts will tell you to invest in a retirement fund or to focus on paying your debts. You may have different ideas, too, like saving for a car, a wedding, or a house.

            The number one cause of financial struggle is sudden and unexpected expenses. The easiest way to avoid these problems is to build an emergency fund. If you have a sudden windfall from graduation presents or tax refunds, use it to start a short-term savings account. This fund should be in an interest-bearing account such as a money-market or deposit account.

            Making these investments should be your first priority. Make minimum payments on your other debts and keep saving until you have at least one month's living expenses. This savings is how you avoid getting into more debt. Avoiding new debt is the biggest step toward getting out from under old debt and moving toward financial security.

Is more education worthwhile?

            There's a growing public controversy about whether college or graduate school is worthwhile. The question is much more complicated and depends upon the kind of education and its cost. Statistics about lifetime earnings aren't reliable. They tend to survey only people who are employed and rely upon self-reported incomes. Instead, do research about the outlook in your field and the education most people have in that field.

            Making this decision should be about the costs versus the expected rewards. Opportunities like community college and trade school have low costs and significant likely rewards. Other opportunities need more careful scrutiny. In any event, don't view these opportunities as a way to escape the job market. Getting a job, even volunteer work or an internship, will help build a resume and get you closer to your financial destination.

            When thinking about the costs and benefits, you need to think about more than the financial cost. There's the money you will pay for tuition and living expenses, which you will likely have to finance with debt. There's also the opportunity cost. Even working a low-wage job will earn you some money, which is more than making nothing while attending school.

Should I focus on eliminating debt or saving for retirement?

            The answer to this question depends upon what your short-term goals are and what kind of debts you have. If you're planning to buy a house or car, or start a small business, you need to lower your debt use percentage. This will get you a better credit score and ensure that you can get cheaper access to credit for these activities. If you plan to go to work and don't mind putting off home-buying, then the paying off debt and investing are equal. This being the case, you need to think about the kind of debts you hold.

            For subsidized student loans, the interest rates are no higher than 4%. You can likely earn a higher rate of return than that with an IRA or other long-term investment. For private loans, the interest rate will vary based upon when you took out the loan and the kind of loan. These may be closer to an 8% interest rate, which would be close to the return on an IRA. If you have credit card debt, the interest rate is in the 20% range. Paying down this debt is far more important to building long-term financial security.

            Remember, in making this decision, that retirement savings is more about time in the market than principle. Starting your investment early is the best thing you can do to provide for your financial security. You may need to strike a balance between paying for your past and saving for your future.

What's the biggest mistake to avoid?

            The biggest danger facing new graduates is "lifestyle inflation." Every product that's advertised becomes the solution to all life's troubles. A 60' television would make your evenings more enjoyable, which is how you justify spending $1,000 on it. It does provide a measure of happiness for a few weeks, but you get used to it in a short period of time. Then, a new reclining couch or a sports car becomes the answer. Spending experts call this the "hedonistic treadmill." It most often happens right after getting a new job that brings a bigger paycheck.

            The best way to avoid it is to make a budget and include some room for luxury expenses. You can spend it every month on dinners out, concerts, or other items. You can also save it in a short-term savings instrument for a bigger splurge. Building space into your budget for this kind of spending can help keep you from feeling "entitled" to expensive luxuries and overspending.

Destinations Credit Union

Monday, April 21, 2014

5 Tips For Buying Your Next Car

If you have great credit, getting a car loan at a great rate is no problem.  In tight credit markets, some buyers with less than stellar credit may have trouble getting a loan at a reasonable rate.  There are lots of ways to finance your car, even without the best credit, but be careful — these may cost you a lot of money in the long run.

Check your Credit Union’s rates first!  No matter what your credit score, chances are we can offer you a better rate because we are not-for-profit and owned by you, our members.

Do your research

You will most likely pay more for your vehicle if you go into a dealer not armed with information about the vehicle you are interested in purchasing.  Make sure you do the research and know how much you should be paying for your new or used vehicle.  The internet has made it easy to get this information — just go to the AutoSmart section of our website to get started.

Get Pre-Approved

Apply for your loan to see exactly how much you can afford before you go shopping for your car.  You’ll know exactly what your credit score is and what rate you qualify for through this process.  You can then make your best cash deal. Apply online and simply leave the make and model information blank or write in “pre-approval.”

If you already have your financing in place, beware of a dealer scam involving getting you to fill out a credit application, even though you are not applying for credit.  They claim it is required by the “Patriot Act,” but it is not. This is an attempt to run your credit to try and get you into the dealer financing.

Beware of “Choose Your Payment”

Many dealers are now offering to let you choose your payment.  While this may seem like a good idea on the surface, all it really does is extend the term of your loan, costing you thousands in extra interest and leaving you with a car that is worth far less than you owe on the loan.  As an example, a $20,000 car financed at 7% APR for 5 years will run you $396 per month and you will have paid at total of $3,763 in interest by the time it is paid off.  Taking that same loan, and choosing a payment of $250, you will be paying the loan for 9 years and will have paid over $7,000 in interest! If you can only afford a payment of $250, choose a car that fits your budget, instead of choosing a payment on a more expensive car.

Low Rate Financing vs. Taking a Rebate

It is generally better to negotiate the best cash price, take the rebate, apply it to the principal balance of your loan and finance at the best possible rate outside of the dealer.  If you run the numbers, you’ll usually find you save money this way.

Purchasing GAP Insurance

If you put less than 20% down on your new vehicle, you may want to consider GAP insurance.  The minute you drive a new car off of the lot, the value depreciates significantly.  If your car is stolen or totaled in an accident, you may find you owe more on the car than the insurance is willing to pay you.  Guaranteed Asset Protection (GAP) insurance makes up the difference.  Don’t just take what the dealer offers you though!  Check around because you can usually get the policy less expensively elsewhere (such as your credit union).   

Extended Warranties

You may want an extended warranty on your vehicle, especially if you have trouble coming up with the funds to repair it on your own.  However, beware of the dealer “requiring” the warranty in order to get the loan.  Some unscrupulous dealers will tell you that in order to sell the product.  Most likely, you will pay less for a warranty if you purchase it through the Credit Union.  It’s a choice, not a requirement!   

Wednesday, April 16, 2014

College Credit

Credit Cards Can Be Your Angel (Indeed)

It's a long-held myth that credit cards are the source of all evil because they nurture the inner shopaholic and help us incur debt. However, used responsibly, credit cards can actually be very helpful.

Credit cards are convenient. They can be used practically anytime and anywhere. They come with exclusive discounts, cash dollar rewards, online booking, etc. The perks vary with the source. Some health insurance companies have even issued their own brand of credit cards, covering free health exams every year.

To me, the biggest benefit of a credit card is having the ability to pay in installments for quality items that I could not otherwise afford. I'm not saying that a credit card should be used as a free ticket to buy everything you can't afford to pay for outright. That's a sure way into debt. But everyone has something special to them that is worth the interest payments.

For me, that was a quality camera for my travels. I love to travel, and a good camera is an essential accessory. While a trip is soon over, the photographs from the voyage will last forever.   They are tangible evidence of an unforgettable time that I can share with others. I made a choice to pay a little extra in interest over time for a good quality camera to capture those experiences.

Credit cards also have benefits aside from short-term gratification. In the long term, credit cards can help build credit history and raise credit scores. Of course, that's only if you make your payments on time and DON'T charge up to the maximum limit. Having a good credit history will enable you to qualify for important loans in the future. After all, who would risk lending money to someone who never had a credit card or pattern of on-time payment behaviors in his life? In responsible hands, the credit card can serve as a symbol of growing up. A good credit history can enable you to take out a future business loan if you choose to go into business for yourself, or help you obtain a good mortgage loan on the home that you'll get to enjoy with your family.

Though credit cards have both short- and long-term benefits, they need to be handled carefully. Everyone should have a budgeting plan for their credit card payments. Mine is a little trick I call the "debit-credit card." I separate one-third of the money in my account and use that as my self-imposed credit limit. Once I've passed that limit, I don't allow myself to use the credit card anymore during that month. I also separate a portion of my income to pay for the installments.

It's true that if you use credit cards you'll end up with a significantly smaller amount of your salary every month, since you are going to need to spend some of your income on credit card payments. Still, credit cards give you a flexibility you couldn't get from cash. In case of any emergency, credit cards will be the first to help! So here's my advice: Do own a credit card. And if you're not completely certain that you can clear the balance each month, stick to the debit-credit card rule!

If you are looking for a great credit card, try a Destinations MasterCard.  In addition to the regular MasterCard, we have options for those just trying to establish credit or those who need to repair credit.  All offer low rates, no annual fees, and rewards points for every dollar spent.