How to Lower your Interest Rates

Interest rate is defined as the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. Sometimes interest rates are so high that the amount you pay mostly covers the interest payments. Please know that you can work with your creditors and reduce their rates.

Before you begin the process, you need to have a sincere desire to be debt-free, and you should be doing everything you can to make as many payments as possible. Remember, that you owe this money, and you are looking to negotiate what you owe.

The premise of the negotiation is that financial institutions are willing to take a lower payment in lieu of sending the balance to a collection agency. The sale of your balance to a collection agency usually results in a 50% loss for the institutions. So, they are ready to work with you, if you show them that you are willing to work with them.

Step 1:

Pull a credit report and look at all the debt that is shown on it. If there is anything on it that you do not owe, contact Mayanah Financial Coaching immediately.

Step 2:

Gather all your credit card/store card statements and understand the minimum payment, balance amount and interest rates. 

Step 3:

Make a budget and have an idea of how much you can pay every month.

Now, it’s time to call the financial institution and have your month payment/interest rates reduced. Your attitude is very important as you are going to press on until you get what you want. You will most assuredly not take NO for an answer during the first time. However, you need to be cool, calm and collected. Raising your voice or sounding agitated will only backfire on you.

Remember that you owe the money and the financial institution wants your money desperately. You are trying to negotiate with a big bank. You may think it is intimidating, but actually it is not. 

The conversation should look like these for two separate scenarios:

Scenario 1: Trying to reduce interest rates and monthly payment.

You: I was looking over my credit card statement and noticed that I am paying more than other credit card companies. Is there any way you can reduce it?

Company: I am sorry we cannot do it any better. You know, we do not set the rates – it is done at the corporate level.

You: Ok. I am considering a balance transfer as I have received a 0% interest card. I know it will reduce my payment a lot. I hate to switch from you. But, it looks like I have no other option…Is this the best you can do?

Company: We would love to continue having you as a client. I think we can reduce a little bit.

After they give their offer – follow up with:

You: That is not enough and nowhere close to 0%. May I talk to your manager?

(Repeat the whole thing again. Worst case scenario is to pull some Customer Service VP number from the internet and call them. Chances are you will never get them. But, it will get forwarded to the right group within the company)

Scenario 2: Trying to reduce balance amount

You: I was looking over my credit card statement and noticed that I still have a huge balance left. I am going through a rough patch and am planning on skipping the payment. Is there any way we can reduce the balance and put me in a different plan?

Company: I am sorry we cannot do it. You know that you owe this money and delinquency will destroy your credit score. 

You: Well, I know that. But, that is not a choice at this stage. If I become delinquent, then it will go to a collection agency where the balance will be reduced by 50%.  So, I may be able to negotiate with the collection agency. 

Company: Let me see what we can do.

After they give their offer – follow up with:

You: That is not enough as it will still make my payment difficult. May I talk to your manager?

(Repeat the whole thing again. Again, worst case scenario is to pull some Customer Service VP number from the internet and call them. Chances are you will never get them. But, it will get forwarded to the right group within the company)

At any point, feel free to contact Mayanah Financial Coaching. We are here to help you!!!

Balance Transfer - Pros, Cons and Recommended Terms

If you are an ordinary citizen, we are confident that you receive at least 2 letters per week offering you a 0% balance transfer for a certain number of months. We all wonder whether it would be a good choice or if there would be a catch somewhere. Well, it can be good and bad depending on how you deal with it.

So what is a balance transfer?

A balance transfer is the transfer of balance(whole/part) in one account to another account which is usually of another financial institution. The term is most commonly used when describing a credit card balance transfer. It comes with a balance transfer fee of usually 3-5% and as an incentive, the new institution will offer you a 0% interest rate for 12-24 months depending on your debt-to-income ratio, credit score, and a variety of other factors. These institutions may or may not charge an annual fee, which we highly recommend to not opt for.

Recommended Terms:

• 0% for at least 14 months
• 3% balance transfer fee
• No annual fees
• No pre-payment penalty

Pros of a Balance Transfer:

1) Save money : By reducing high interest rates, interest accrued on the balance every month can be saved and can be applied to other debt.

2) Ability to negotiate the terms : New institutions in their attempt to get your business will be open to negotiations of credit terms like grace period and late fees charges.

3) Consolidation of credit card debt : This is beneficial if you have multiple small credit card balances with high interest rates. This is usually perfect for store credit cards.

4) Potential credit score increase : The simple transfer of debt will not cause the increase. However, lower utilization of available debt may help increase your credit score.

Cons of a Balance Transfer:

1) Balance transfer fees : All transfers come with at least 3% of fees which will be added to your balance.

2) 0% rate is short-lived : The 0% rate is not for ever and after the stipulated period it goes up to 20-25%. Hence the transferred amount must be paid off on time.

3) Add to your debt : If you are not disciplined, chances are you will add to your debt due to the available credit.

4) Potential credit score decrease : Though occasional balance transfers will help, too many will backfire as it increases the number of hard inquiries and frequent opening of new credit.

To summarize, just like any other financial tool, balance transferring has its own pros and cons. If you exercise it correctly, you would stand to benefit from it. We recommend the services of a financial coach to analyze your situation and provide you with the right recommendations.

7 Financial Mistakes that is Hurting you Big Time - #3 is the Most Common

Let's get this straight - We all make mistakes and that is human. However, what differentiates a successful person from others, is their ability to learn from mistakes and avoid them in the future. It is more prudent to learn from the mistakes of others. So, here are 7 financial mistakes, and the ways to to avoid them.

1) Not Knowing Where All Your Money Is Going.

If you are an ordinary family in America, you are busy. You have all the right intentions, but you have no time to sit and figure out where the money is going. It can be for activities like kids sports, or necessities like grocery. In addition, without your knowledge, your standard of living went up over time, and now you find yourself paying more for everything from milk to vacations. 

Having a written zero dollar budget is critical for your financial success. Once a budget is created, then you can track using any of the available apps. You can compare various apps in the market at Budget App Comparison. 

2) Not Having An Emergency Fund

There are several money market accounts available in the market place, and here is Nerd Wallet's Top List. An Emergency Fund is a financial safety net to catch you when life knocks you off track. Yes, life can throw you off track. It can be in the form of car repairs, washer/dryer malfunctioning, or a health concern. We recommend having 3-6 months of expenses saved in a money market account, which gives you a better interest rate than a normal savings account. This helps you to have quick access to funds, and will prevent you from signing up for a high interest credit card debt, or borrowing money from family.

3) Accumulating Depreciating Assets

A depreciating asset is defined as any asset that has a limited effective life, and can reasonably be expected to decline in value over the time it is used. They include items such as computers, electric tools, furniture and motor vehicles. The most common among this category are cars and trucks. 

According to Thomas Stanley, the author of 'The Millionaire Mind', an average millionaire buys used cars where the depreciation has already been accounted for, and pays for it with cash. According to Cars.com, the average new car price in 2017 after incentives is $31,400. The general concern about buying used cars is the increase in repair costs. However, US News study shows that the depreciation you have to appropriate for a new car is way more than the repairs that need to be done on a used one. Our recommendation is to minimize  the purchase of depreciating assets, and instead invest that money. Yes, Opportunity Cost is REAL.

4) Thinking Of Retirement As Something In The Distant Future

Okay, I get it. Retirement is not about sitting on the beach and playing golf. It is about doing what you like when you want because you could afford to do it. Chris Hogan says that retrirement is not an age, but a financial number. With that definition, you can retire in your 50s, 40s or even 30s. However, it won't happen overnight.

Compound interest is real and Albert Einstein said that it is the 8th wonder of the world. So it shouldn't be a pipe dream. It should be a real event you plan for in your future. And it's never too early to start saving and investing. In fact, the longer you put off beginning to save for retirement, the less you may have at retirement. If you have a employer sponsored program, go for it. However, be aware of common mistakes.

5) Not Having Enough Financial Knowledge

As per Investopedia, "Financial literacy is the education and understanding of various financial areas. This topic focuses on the ability to manage personal finance matters in an efficient manner, and it includes the knowledge of making appropriate decisions about personal finance such as investing, insurance, real estate, paying for college, budgeting, retirement and tax planning." Alan Greenspan says that number one problem in today's economy as well as generation is a lack of financial literacy.

The expectation is not that you become an expert, but that you have sufficient basic knowledge to ask intelligent questions of your financial advisor or coach. We recommend attending one of the Financial seminars or workshops. 

6) Not Having An Accountability Partner

Life is hard and demanding. All of us have good intentions. But, life happens and we always take the path of least resistance. For financial success, one quality that is above everything, even knowledge, is accountability. It is as simple as having someone check on how we are doing financially.

We highly recommend that you have an accountability partner. You can learn more about the different types of accountability and how to select one. It is ideal that the person you select have personal and professional experience along with the right certifications and educational background. The financial world is challenging to maneuver and the jargon can be overwhelming. You need to have somebody with the heart of a teacher who can walk you through the financial concepts, and then hold you accountable.

7) Not Tracking Your Networth On A Regular Basis 

Net worth is probably the single most important measure of personal wealth, and that is why knowing one's net worth is very critical. But, how do we know ours? In simple terms, it is what we owe minus what we own. What it provides is an overview of our strengths, weaknesses, and areas of improvement. For example, if we have debt, it gives a perspective on how debt is destroying our future financial success. On the other hand, if we are not getting enough return on our investment, it helps us to work on that aspect.

Tracking networth also helps us to see the improvements we are making on a weekly/monthly basis. There are several tools available in the market to track your networth.

Accountability - Unavoidable Trait for Personal Financial Success

Michelle came to us one day and she was well over her budget for the month. As usual eating out was her bank breaker. We asked clarifying questions and realized that she eats lunch at 10:30 am and so by 5:00 PM she was starving. She had no time nor energy to cook and so she took the easy route of eating out, which resulted in the imbalance of her monthly budget.

All of us have good intentions. But, life happens and we always take the path of least resistance. For financial success, one quality that is above everything, even knowledge is accountability. Now, there are two types of accountability.

1) Personal Accountability: 

This is when you figure out that you have a problem, analyzes the situation, develops solutions and sticks to the plan irrespective of circumstances. There are several people who have succeeded in life because of self-motivation and personal accountability. If you belong to this category, we want to congratulate you and encourage you to keep up the good works.  Please note that the critical aspect is self-reflection (which is not beating yourself up for your failure), and constant readjustment of action items. Writing down the goals and objectives before the beginning of the month, and journaling throughout the month will help you attain your goals.

2) Accountability Partner/Coach:

Now, if you do not belong to the above category, you need help. You need an accountability partner or a coach. So who exactly is an accountability or financial coach?

He/She is somebody you can trust to mentor you in your financial decision points, help you develop attainable goals, and keep you accountable toward attaining those goals. They should be able to understand your life situation, your income to expense ratio, and has the same vision and value system that you possess. They should lovingly correct you, and at the same time motivate you when you are feeling depressed or overwhelmed.

It is ideal for the person that you select to have personal and professional experience along with the right certifications and educational background. The financial world is challenging to maneuver and the jargon can be overwhelming. You need to have somebody with the heart of teacher who can walk you through the financial concepts, and then hold you accountable.

Hope you find your coach as soon as possible and that you will be well on your way to becoming financially successful.

Saving for College - What Are Your Options

Student debt has reached an astounding 1.3T, and many young graduates are struggling to make a living as a result. Parents and society at large are now coming to grips with this fact and they are contemplating on how to help their children graduate from college without debt. The good news is that there are several ways to help you get started saving now, potentially saving your child (and you) from student loans down the road. However, the channel through which you save is a function of your residency, the age of your child, and a variety of other factors. Here are the options, and we encourage you to work with a financial professional like Mayanah to make the right choice. 

·            529 plans

·            State Funded Prepaid Plans

·            Coverdell Education Savings Accounts

·            Savings accounts, CDs and savings bonds

·            Roth and Traditional IRAs

·            Trust Accounts

The first step is to identify how much it costs to go to college.  The College Board reports that the average annual cost of tuition and fees can range from just over $9,000 annually for in-state residents at public universities, to more than $31,000 per year at private colleges. However, you need to bake in inflation, and relative increase in fees before you can identify an approximate amount.

One option is to use a College Savings Calculator.

529 savings plans

529 savings plan, which is the most education-specific savings plan, is a provision within IRS tax code to utilize tax-free savings for qualified educational expenses like tuition, books, and limited boarding. The new tax plan extends the use of 529 to schools, though we see no added advantage to a majority of people. Non-qualified expenses will incur taxes and a 10% penalty. Please note that the amount invested in 529 plan is after tax dollars, and carry the same risk/return as investing in mutual funds or ETFs. Hence, caution needs to be exercised while selecting the funds.

Some states offer state tax credits and provide matching funds to encourage college savings. However, states like Texas where state tax doesn't exist, this is not an option. Each state has its own 529 plans, and you can choose any state's plan and use it to pay for college in any state. The 529 plan is very advantageous for parents with very young children. But, what if your child is a few years away from going to college? Well, state-funded prepaid plans are for you.

State-Funded Prepaid Plans

Since 529 plan is a function of how the stock market is performing, there is a risk of losing money if your child is closer to going to college. For those in this category, you can enroll in state-funded prepaid plans, and you lock in future increase in price with today's fees. It's no surprise that college tuition rises an average of 5% annually, according to the College Board. So, in essence you are getting approximately 5% return on your savings.  For example, you might pay for eight semesters in today’s dollars, and that will allow you eight semesters in the future, even if the costs at that time are higher.

We highly recommend state-funded plans to also avoid many scams involved in this area. One resource is Texas Promise Funds. So in essence, here are the pros and cons for both 529 and prepaid plans.

Pros:

·         Tax-free growth. However, it can only be used for qualified educational expenses.

·         High contribution rates, generally with no household income limits or age restrictions. 

·         Beneficiary flexibility. The account can be designated, and changed in the future, for the benefit of any individual’s education expenses — even your own.

·         If the parent is the account holder, it is considered a parental asset, with little impact on financial aid awards.

Cons:

·         Since the 529 is dedicated strictly to educational expenses, if your child decides not to go to college, or qualifies for something close to a full ride with scholarships, the money may be unavailable for other purposes. 

·     State-Funded Prepaid Funds are restricted to specific colleges, and especially within the state. So, if your child decides to go to an out-of-state college, then the savings cannot be used.

·     Stock market exposure can impact returns in a down market, particularly if the down market is close to, or at time when you plan to tap the funds. 

Coverdell Educational Savings Account

Education Savings Accounts, or ESAs, is like a 529 plan, but with contribution limitations. Qualified withdrawals are tax-free and, and you can buy a wide variety of investments. But contributions are limited to $2,000 per year, and only until the beneficiary turns 18. And there are income limitations as well.

Although potentially meager in their growth potential, ESAs do offer more flexibility than 529 plans. Qualified expenses in Coverdell accounts can include educational expenses throughout the life of your child, from K-12 all the way through grad school.

Pros:

·         Can be used from K-12 through grad school.

·         High variety of available investments and tax-free growth for qualified expenses.

Cons:

·         Maximum contribution is $2000 per calendar year.

·        The beneficiary changes are not as straightforward as with a 529 account, and can vary by custodian.

Savings Accounts, CDs and Savings Bonds

Even though these are regular options, attractiveness is closer to zero. The return of investment we get through these channels do not keep up with inflation, nor the rise of college expenses. We highly discourage you to stay away from these options.

Pros: 

·         Investment flexibility

Cons:

·            Few, if any, tax benefits and low returns, many times well below the rate of inflation.

Roth and Traditional IRAs

Traditionally IRAs were considered as a retirement vehicle. However, recently, it has also been proven good for educational expenses. You also have the ability to invest in a virtually unrestricted array of stocks, bonds, mutual funds and exchange-traded funds of your choosing, with or without the aid of an investment advisor. Withdrawals from a Roth are allowed penalty free for qualified education expenses, though they will generally be included as income in determining financial aid eligibility. If you are investing in Traditional IRA, you can take a loan against the IRA for college expenses. However, tapping your account for qualified education expenses can permanently hinder your ability to stay on track for your retirement savings goal.

Pros:

·         If your child scores a bunch of scholarships and doesn’t require a lot of financial help, your retirement savings are allowed to stay invested.

Cons:

·    Contribution amounts are limited to annual maximums, and there are income restrictions as well for Roth IRAs.

Trust Accounts

There are 2 trust funds called UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act). These are traditional accounts where assets are transferred to child’s account, and invested on his behalf until he reaches the “age of trust termination,” as defined by the state in which they live, usually between 18 and 21. However, as soon as they become adults, beneficiaries can do whatever they wish with the proceeds. And because the assets come under the student’s control, the value of the account will likely affect financial aid qualification.

Pros:

·            Flexibility to use the account for more than just college expenses.

·            Some tax advantages to the donor.

Cons:

·         Misuse of funds .

·         Beneficiary can’t be changed.

What is the best option?

 Well, there is no one answer. Usually it is a combination of options that have been explained here, and would be dependent also on the age, and aptitude of the student, as well as the state of residency. However, one thing is for sure. You need to start early. It is always beneficial to consult with a financial coach before you start your savings journey, or to assess where you stand with respect to your goals.

Family Budgeting Software Comparison

Family Budget - How we hate that word! The initial thought that comes to us is one of RESTRICTION. But, those of us who have been using budgets for many years can vouch that it actually provides freedom to spend money without guilt, and know that we will be perfectly fine at the end of the month. However, the question we get asked often is if a software should be used to budget and if so, which one among the hundreds of available apps in the store. So here are our recommendations:

Should you use a software?

The first and most important step is to get started. If using a notebook is more your style, so be it. However once you have got the hang of it, we recommend that you switch to a software quickly. The family budget is never static and changes from month to month. In the long-term it will be very challenging to go back and track your progress.

Which software to use?

There are two options when it comes to software:

1) Microsoft Excel (or Apple Numbers) : If you are proficient in Excel, you can use Excel to develop your budget and track your expenses. One advantage of using Excel is that you can develop custom charts to track your progress. The biggest downside is that it can't be used by multiple people at the same time. We do not highly recommend Excel for your budgeting needs. However, if you would like a copy of an 'Excel Budget', please contact us.

2) Software applications: There are a number of software applications available in the market today. Here are four that are well accepted.

a) EveryDollar - This is the simplest and the fastest budgeting tool in the market today. The developers of this tool claim that you can build a budget in 15 minutes. Moreover, this application forces you to a Zero Dollar Budget, which is critical for your success. The added advantage is that multiple people can access the budget by sharing the username and password. The application has a basic version, which is free and an advanced version, which is $99/year. We highly recommend this tool. We recommend that you start with the free version and switch to the advanced when required. The only downside is the inability to see historical trends on a graphical format.

b) Mint - It is another free app that can be used for budgeting. The biggest advantage is that it can provide historical trends to help project expenses for the upcoming months. Mint is also flexible in changing the categories. The cons of this app are poor customer service and lack of connectivity. There have been times when accounts have actually disappeared.

c) YNAB - It is another budgeting tool, which is renowned for synchronization of accounts. It has education tools included for those who are interested in learning more. The biggest downside is that it has no free version - so it costs money to track your expenses, which is not a good idea. It was also reported that a few customers had security issues with the software, which is a big NO in the financial industry.

d) Personal Capital - We highly recommend Personal Capital for having the big picture regarding your finances. It is an excellent tool to monitor your net worth and personal holding. However, doing daily budgeting is very difficult with this tool. Please note that you will get sales call from Personal Capital once you sign up as they are interested in taking over your investments.

We hope you found this comparison useful. If you need more insight, feel free to contact us or visit our website at anytime.

Financial Coach - Who are they and how do they help?

Financial Coaches are individuals who work with clients to change behavior with respect to money. Coaches are not counselors. They do not judge you for the mistakes you made and dwell on what went wrong in the past, but, rather focus on the future. Just like most athletes, entertainers, and entrepreneurs hire coaches to improve themselves and their ventures, financial coaches can help individuals and families improve their personal financial situation through education, standard practices, guidance, and accountability. They also provide coaching on career, estate planning, insurances, mortgages and any other topics that lead to inflow or outflow of money in a household.

Here are a few ways they can help you, and also a list of what they cannot do for you.

• They help you break the paycheck to paycheck lifestyle - They educate, empower and provide accountability to stick to a proven and agreed plan for you to break the cycle. They will develop a cash flow management plan that works for your household. Remember, they work for you and your success is their success.

• They help you develop your financial number - Well, retirement is not an age anymore. It is a number. They will help you develop that number and work towards attaining the goal. They help you leave a legacy for generations.

• They help you optimize your investments - Since they do not sell any financial products, they can provide you with objective guidance, and will apprise you of the optimized path with minimized risk.

• They help you save money - They review your budgets and identify excessive/unnecessary daily expenses. They will then point out ways to save on your insurance premiums, mortgages, utilities and any other expenses.  

• They help decrease stress in your marriages - They are not marriage counselors. But, since statistics has shown that financial issues are a leading cause of increased  stress in marriages in America, their timely financial help can decrease that stress.

• They help you set up your children's college fund- They can inform you of all the available opportunities towards saving for your children's college, and provide accountability to do the same.

• They help you with career advice - They usually have a large network of recruiters and hiring managers that they can refer you to, in order to boost your career and income.

What they cannot do:

• They do not do any work for you - That is correct. They believe in teaching you how to fish rather than providing you with fish. They are not interested in short term success.

• They do not manage your investments - Remember, financial coaches cannot sell you any products, nor manage those for you. They can guide you, but you have to directly correspond with your investment manager.

• They do not make any calls for you - Again, they teach you how and what to talk to your creditors, banks, collection agencies etc. They even provide role play to boost your confidence. But, they cannot make those calls for you due to liability issues.

• They cannot perform miracles.- If your goal is to have a quick and easy fix, financial coaching is not for you. What they do is change behavior and help you attain financial success in the long term. They believe in changing your family tree forever.

There are countless success stories of those who have gone through financial coaching with us. If you need help, please contact us.