You Don’t Have to Be Debt-Free to Save for the Future

Consumer debt in the United States is near an all time high, and if you are holding any, it can be easy to justify not saving money. While a major bulk of the nearly 16 trillion dollars of debt is in the form of mortgages, student loans and credit cards consist of close to 2 trillion dollars of it (see For consumers trying to pay down the latter two forms of debt, it can be particularly difficult to find any margin to set aside for a rainy day or savings for the future. As hard as it may be, it is wise to do everything in your power to begin contributing to an emergency fund, and then a retirement savings account, even in the midst of debt repayment.

Emergency Funds

Though you have most likely heard (or read) several exhortations from financial pundits or concerned family and friends about a “rainy day fund”, pleas for you to begin and maintain an account for emergency savings are hardly ever redundant. If you have already set your mind and will to paying off your debt, you likely want to do it as soon as possible. That mentality should be commended. However, if you are using all of your liquid assets to pay your creditor back each month, just a small mishap might force you to borrow again (and thus add to your debt). In addition to the advice of storing up 3 to 6 months worth of funds to cover expenses in the event of a costly circumstance, the ease of conversion factor should also be a consideration. You may have some convertible assets like a car or diamond necklace that you consider “sell if I have to” items, but you still need to factor in how long it would (realistically) take to convert them into the cash you would need to cover an auto repair or a family member’s medical expenses, for example. Markets and market demand change quickly, and it could take you longer than you think to convert your things into cash.

Savings and checking accounts are the easiest options for these emergency savings, as most of them gain interest but don’t penalize you for withdrawing funds (unless the account has particular minimum balance requirements). A lot of savings accounts come with an ATM card or checks for easy access, but if not, an ACH fund transfer to a linked checking account is a simple workaround. Certificates of Deposit can be utilized as well, but timing is a little trickier. Most CDs come with early withdrawal penalties that would force you to give up some of your interest if necessity demanded you take money out in an emergency situation. That is, unless you could perfectly time your financial emergencies to occur during the grace period between CD terms. Bank5 Connect offers all of these products, and with some of the best interest rates available nationwide.

Retirement Savings

If you can establish a healthy emergency fund, then you will have built a great foundation upon which to focus on more long-term savings. Many consumers focus on paying off their student loan and credit card debt once they’ve established some emergency savings, but depending on the interest rates of your loan(s), it could be beneficial to maintain some level of dedication to savings. If your loans are accumulating interest at a lower rate than the returns you expect to be making on your retirement investments, then reducing loan payments in order to profit from the margin may be a wise move. That margin could ultimately help you pay off your loans more quickly in the long run. There are numerous places to look for investment options, from insurance products to mutual funds to IRAs. If you are able to open and fund a long-term retirement vehicle early on, you will have more years with which to potentially benefit from the power of compounding growth.

Finding Margin

Obviously, it would be easy to build both an emergency and retirement savings fund if you actually had some margin to spare between money coming in and expenses going out. As the economy continues its struggle to rebound from the recession, finding places to create this margin is no simple task. In addition to the above strategy of redirecting some debt repayment funds, you should also maximize the benefit of any employer’s retirement contribution matching program. For low and average income workers, taking advantage of the saver’s tax credit is another great avenue to increase the effectiveness of your saving efforts. Also, though it sounds minor, paying your bills on time (as opposed to early) will give those funds in an interest-yielding deposit account more days to accumulate interest.

Making the push to get your emergency savings account set up is a crucial first step to striking a workable balance between growing savings for the future and shedding debt in the present. Though everyone with consumer debt has a unique situation, the above tools should help you evaluate the most effective (and profitable) path to taking advantage of potential savings opportunities.

Patrick Russo writes for, a website that monitors products and rates at more than 7,500 banks and credit unions and pairs that information with comprehensive commentary, reviews, tools, and community forums to equip and guide depository banking consumers.

Buying Versus Renting: Non-financial Factors

Some economic experts, such as Tyler Cowen of George Mason University, have become bullish on U.S. GDP growth. Therefore, consumers again may be considering those big-ticket items such as buying a house. The financial information about purchasing versus buying is all around. Now famous is The New York Times calculator for weighing the two options. However, less attention has been paid to the non-financial factors to consider. This blog explores five of them, both pro and con.

Children able to be children

Landlords and other tenants usually have plenty to say when children in rentals behave like the young, not totally socialized creatures they are. The criticism can be traumatic for both the children and parents. Those who want to duck this menace would tend to purchase their own house, preferably with a large yard. Historically, for this they are willing to make tremendous sacrifices such as long commutes and working two jobs.

Not that home ownership is without constraints. Neighbors often have their own values about how children should conduct themselves. Also, the median age in the neighborhood might be tilting upward, with older residents not welcoming children. Before buying, parents must investigate the neighborhood norms and demographics.

Feelings of belonging and security

According to the U.S. Census Bureau’s 2012 report, 65.4 percent of Americans are homeowners. Among the motivations for that are the intangibles. They range from feeling a part of the neighborhood to having ownership of something. Those in the community tend to treat homeowners with more respect and attention than they do renters. Also, having property, which the laws of capitalism protect, remains a key value in American life. For those with those needs, not owning a home could represent a diminished quality of life.

Myth of freedom

Folks like to assume that their home, if they purchase it, is their castle. The reality is that communities, concerned with keeping up property values, have a maze of rules. Those could include how many pets can inhabit one residence, if a shed can be located in the back yard, and the time period for shoveling the walk. In addition, insurance companies have their own strict terms and conditions about what will be covered. For example, certain breeds of dogs are forbidden. The irony is that renters, since the community is not invested in them, often have more personal freedom. If the landlord is just happy to get the rent on time, they may be able to get away with more than property owners.

Ability to keep up with maintenance

For everything from external repairs to snow removal, the buck stops with the house owner. Since many people are investing more time and energy in making a living, maintenance might prove to be too much of a commitment. Farming out the tasks costs. Also there is aging. Pushing a lawnmower may go from difficult to impossible.

For those in condos and co-ops, those services are provided for a fee. The problem is that the fee is not capped and the monthly charge can rise significantly. In addition, to preserve the value of the purchase, condo and co-op dwellers still could be faced with internal renovations. Renters, since they’re not focused on improving the landlord’s property, have no such nagging concern.

Limits on relocation

Home owners who lost their jobs or businesses during The Great Recession often encountered a cruel lesson. Because they could not sell or rent their home, their options for trying to earn a living were restricted. Essentially they were stuck in areas of high unemployment or limited business prospects.

Although the economy might have improved, it remains volatile. That good job might be gone tomorrow. Anchor clients might take their business elsewhere. With gas costs so high, a long commute to a comparable job or a better business location might not be possible. Pulling out of a lease, even when paying penalties and moving costs, is a lot more doable than trying to sell a house. Since fewer employers are including purchasing a house in the hiring package, from the get-go more job hunters are making it known that they are renters, therefore moving won’t be a distraction for them.

Aside from the financial considerations of buying versus renting, there are no right or wrong answers in making this decision. Also, situations change. The aging couple might inherit a windfall and be able to afford to pay, without a sweat, for the maintenance and renovations. Therefore, after renting for years they can purchase the house of their dreams.

Every Step of the Way (Infographic)

One thing you can say with complete certainty about life is that it’s completely unpredictable. You never know what’s coming or what’s around the next corner. This time next year, you could be in a totally different job, or possibly even out of one. You could wind up married or starting a family. You might be renting a one-bedroom apartment or pulling together a down payment for a house. Or let’s face facts — you could be dead.
The point is that you have no way of knowing what your situation might be down the road, so you have no way of knowing what sorts of financial options you’ll need. Thankfully, there are plenty of choices for any life stage, whether you’re out making deliveries on your paper route or shaking hands with soon-to-be former colleagues at your retirement party.

The infographic below maps out some typical life stage banking products. And since risk is always a factor to some degree, whether it’s the risk that your investment could lose money or the risk that it won’t keep pace with inflation, each product has a corresponding risk meter. Also bear in mind as you look over the list that these are simple guidelines, and not every product is “locked in” to a specific age range.
If you have any questions about the information below, please feel free to contact a Bank5 Connect representative at 1-855-552-2655.

Every Step of the Way Infographic

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Student Loan Forgiveness: Tax and Interest Consequences

Average student loan debt has reached more than $27,000, documents the Los Angeles Times. That can prevent graduates from buying those big-ticket items such as houses and new cars, which help grow the GDP. Therefore, there has been ongoing legislation to ease the burden on these debtors. Pending is the Student Loan Fairness Act. If that passes, the provisions could provide new terms and conditions for repaying this debt.

Right now debtors have a number of options for making their debt more manageable on a month-to-month basis. Essentially, those options fall into two categories. One is the Income-Based Repayment (IBR) program and the other is the Public Service Loan Forgiveness (PSFL) program. Both result in “loan forgiveness” after a set period. However, one – IBR – results in a tax liability for that debt forgiveness, just as happens with other kinds of debt forgiveness such as credit card debt. Those who select the IBR and the newest version of it – Pay as You Earn – should be aware of the tax consequences, both federal and state. In addition, because of the extended period for repayment from the original 10 years, overall interest paid out could total a higher amount than it would have under the standard terms and conditions.

With IBR, federal loan monthly repayments are adjusted according to the debtor’s income over a 25-year period. Therefore, only those with relatively low income would apply. Typical among applicants are those who attended law school, accumulated six-figure student loan debt, and may not have been able to get a position practicing law. For example, they might be working as journalists on in Manhattan, making significantly less than the usual entry-level compensation of $160,000 for a Manhattan law firm. The new version of IBR – Pay as You Earn – can provide an even lower monthly payment over 20 years. After that, for both, there is loan forgiveness.

With PSFL, those employed in jobs classified as public service pay monthly the designated original amount due on loans. But after 10 years the balance is forgiven, without any tax liability. Those professions typically include teaching and child care. The eligibility rules are strict, such as documentation of full-time employment and on-time payment. For that reason, those considering this option should review the terms and conditions with Federal Student Aid, an office of the U.S. Department of Education.

Unless there is new legislation, after 25 or 20 years, those who opted for versions of IBR will face a tax liability, federal and perhaps also state. After 25 years, estimates the Institute for College Access & Success, the married engineer with one child and $60,000 in student loans could have a federal tax liability of $5,801 or the equivalent of $1,417 in 2013 dollars. The amount forgiven would be $23,202.

In addition, as those know who have had any kind of debt repayment extended over a period of time longer than the original terms and conditions, the amount of interest paid could be larger. That would make the overall cost of the loan larger. If the engineer had stuck with the original 10-year repayment plan, the total payout, including interest, would have been about $82,858. Under a 25-year schedule, the amount paid in would be about $124,935. That is, the repayment equaled the principal of $60,000, plus about $63,241 in interest.

Therefore, as with all decisions about how to repay debt, those with student loans have to consider if the standard terms and conditions would be a better financial choice. Instead of opting for other options, they would bring in more income and cut back on fixed expenses so that they could pay off the loan in 10 years.

Layoffs Are Possible: How to Prepare

The New York Times front-page June 2013 headline read “Even Pessimists Feel Optimistic Over Economy.” Great news.

However, in a turbulent global economy disrupted by technology, there will still be ongoing Reductions in Force (RIFs). RIFs is the 21st century term for that brutal experience of being laid off. According to recent Labor Department data, it takes about 36.5 weeks to find a new job. This blog contains seven financial tips for how to prepare if a layoff seems in the winds. Actually, given the economic volatility, employees should always anticipate the axe.

Reduced earnings, loss of a key contract, criticism by security analysts, management upheaval, need for a turnaround, and new technologies all could generate a RIF. Another factor can be achieving cost reductions by eliminating high-salaried older workers. PBS reports that it takes those over-55, on the average, about a year to find another job.


Ride it out

When layoffs are possible, anxiety surges. Often that brings out the worst in human beings across all levels of the organization. Escaping through quitting is not an option. That is, unless one has an independent source of income. At stake are any severance payouts, unemployment benefits, and access to COBRA or medical coverage. Some of that COBRA premium might be employer-paid for a few months after the layoff. In all situations, COBRA at group rates is available for 18 months after termination.

Figure out how to save the job or find another one in the organization

There’s an expression, “They managed to ‘save’ their jobs.” RIF lists are not cast in stone. Names are added and deleted continuously. Those skilled in organizational politics or how to present how vital their function is might be able to avoid a layoff. Also, while some departments are laying off, others are hiring.

Even before the hint of a RIF, it is wise to consider being hired in functions that are bringing in revenue. Those who don’t understand how to assess the manpower needs or understand the politics of an organization have to find mentors. Some report that they learned more about how to keep a job during a possible RIF than they had in all their previous years of employment.

Search for another job

Some daydream about collecting on the good-bye package like severance and then immediately landing a comparable job. That rarely happens. The exception is those in fields in demand, such as certain specialties in healthcare and technology. It makes good financial sense to search and then accept another job while one is still employed. That constitutes looking for another job from a position of strength. Unfortunately, being jobless imposes a stigma on most workers.

Don’t plan a time-out

Losing a job doesn’t mean a vacation. Those who decided to take a break after years of working found that to be a disadvantage. They got out of sync with the metabolism of the workplace. Skills atrophied. Knowledge bases got old. And the longer one is out of work, the less attractive one can be to employers.

Downsize spending

When possible, refrain from purchasing big-ticket items like vacations, a new car, or a bigger house. Apply that money to paying off debt. The biggest drain on fixed expenses after a layoff is making the minimum payments on credit card balances.

Investigate self-employment

Although not everyone is suited for running their own business or even being a “freelancer,” that is becoming a realistic option for the jobless. Their industry, such as law, might be downsizing. There is bias against hiring those over-55. Taking another job might entail compromises such as longer hours or relocation that don’t seem worth the amount of the particular paycheck.

Self-employment provides attractive tax write-offs

For example, every mile traveled on business is tax deductible. For a job with an extreme commute, none of the mileage is. Increasingly outplacement services, hired by organizations after a RIF, are offering briefings about self-employment. Also, there is a growing body of information on the web and through professional societies.

Research affordable health insurance

COBRA may be more expensive than other options for healthcare coverage. Trade associations frequently offer good deals for members. All that requires is joining. Also, there could be lower cost health maintenance organizations.


Those experimenting with self-employment might check out what is specifically available to small businesses and “freelancers.” For example, in New York, the Freelancers Union has established its own comprehensive healthcare facility for members. In the past small businesspeople have been scammed by some vendors promising comprehensive coverage for peanuts. Check out every company with others who are self-employed and appropriate state authorities.

Although layoffs can trigger emotional upheaval, they don’t have to plunge employees into financial ruin. Preparing for them has become as much a have-to in personal finance as saving for retirement.

Retiring Overseas: Financial Matters to Consider

Before The Great Recession, some Americans approached retiring abroad as an adventure. They could, for example, start over their lives in another culture. Others had been planning for years to return to where they had been born. And some, who had been born in the U.S., wanted to experience the land of their ancestors who had immigrated here years ago. Now, the motivation is primarily financial. The aging in the U.S. are looking for a way to live comfortably on a lot less than they had expected to have accumulated by their age. Their pensions might not have been funded. Their house and 401K might have lost value. As it turns out, their only income will be the monthly check from the Social Security Administration (SSA).

According to a Federal Reserve 2012 report, the worldwide financial downturn destroyed 18 years of gains for the net worth of the median U.S. household. Travel Market Report estimates that 3.3 million U.S. Baby Boomers plan to retire overseas. The comic film “The Best Exotic Marigold Hotel” depicts financially strapped aging British retiring in India. The joke is that developed economies are “outsourcing” their elderly to emerging nations.

There are many financial advantages to becoming an expatriate. For example, as Kiplinger reports, in Medellin, Columbia, with a population of 2.4 million, a couple can live comfortably on $1,500 a month. Healthcare is so high-quality that the city has become a mecca for medical tourism. This is key since expats lose Medicare. In George Town, Malaysia, population 740,000, a couple can live well on $1,500 monthly. The quality of health care also makes it a destination for medical tourism. Dubrovnik, Croatia, population 42,615, which also has quality health care, is more expensive. A couple will need $2,700 monthly. In all of these, expats can pay for medical care, which is relatively low-cost, a la carte rather than purchasing a health plan. However, those with severe chronic medical problems usually do not consider retiring overseas, no matter how fine the care. They have their network of trusted medical providers in the U.S. and Medicare, with a supplemental policy, will pick up a significant portion of the expenses.

Those are the unambiguous details. Then, the situation gets more complex, requiring research about a nation’s unique financial rules and regulations. One major issue is property rights, which is the cornerstone of U.S. capitalism. The real estate they buy might not be protected by law. For instance, in some nations in Central America, Americans who purchase a condo or a house may actually only own shares of a corporation. If the corporation goes bankrupt, they could lose their entire investment. Related to this is ownership of foreign securities. Actually, in some nations that could be prohibited. Where it is allowed, the protections are not as solid as those provided by U.S. regulatory bodies such as the Securities & Exchange Commission.

Another financial issue is taxes. If they retain their U.S. citizenship, which most do, they are paying taxes to two nations. This is important since, with telecommunications, some expats will continue working. Here, as is obvious, expenses could pile up in having to consult with two sets of tax experts. For those who qualify, the U.S. IRS excludes around $91,500 (that can change) of earned income through the Foreign Earned Income Exclusion (FRIE). Those claiming the FRIE will not be able to contribute to their IRA.

Estate planning, always problematic, will become much more so. Those acquiring foreign assets cannot have anything transacted through the U.S. legal system. On the other hand, trusts created in the U.S. will not be able to include foreign assets. Those determined to pass on assets to the next generation will need to consult estate-planning lawyers in both nations.

Also, there can be red-tape hassles about receiving the monthly SSA payment. Some nations prohibit the transfer of funds from the U.S. Those permitting it could delay the transaction for a month. The way around that is to maintain a U.S. bank account, with the SSA depositing the funds directly into the U.S. account. Access to the money will be through ATMs.

Clearly, there are complexities involved in planning retirement overseas. But many find those manageable. Currently, according to SSA, about 350,000 American retirees enjoy their benefits outside the U.S.

Photo credit: failing_angel / Foter / CC BY-NC-SA

Online Banking – Keeping Accounts Secure

More than 63 million Americans bank online, and 78 percent are pleased with that way of transacting their business, reports the Pew Research Center. Given that momentum and high satisfaction rate, sooner rather than later, online banking will become standard. Within all demographics, including Baby Boomers, those accustomed to paper forms of checking and saving accounts are recognizing the benefits of maintaining them totally online.

For example, online banking programs frequently provide:

  • Real time, that is 24/7, access to payments, deposits, and withdrawals
  • Money saved from not having to snail-mail bill payments
  • E-mail alerts for when checks clear and if a balance is low, preventing overdrafts and the charges for those
  • The ability to link with personal finance software such as Quicken

But both those already online and those considering the shift from paper have concerns about security. The issue is what they can do to ensure that their checking and savings accounts are safe from con artists as well as snoopers invading their privacy.

What should reassure current customers and prospects for online banking is that banks have a great deal invested in their reputations for providing online customers security for both their funds and their confidential information. Therefore, as smart businesses, banks will always be state-of-the-art in terms of cyber security technology, policies, and procedures.

Unfortunately for consumers who want to know more about the bank’s online systems, those financial institutions keep most of that confidential, only sketching out the very basics of their approach on their websites. Too much information would, as the saying goes, “tip off the bad guys.” Users know the particular website is secure by the icon of a padlock or a key. If that icon isn’t there, then they should not proceed to register as an online customer.

Essentially there are two approaches to cyber security banks may use. One is known as the direct-modem way, which processes transactions without those being transmitted over the Internet. The other is known as encryption. During encryption, an algorithm is used to distort data so that the information only arrives in its right form to the designated recipient. Either of these systems tends to be reliable.

Most of the security breaches resulting in stolen funds or unauthorized release of information occur in ways which do not involve the bank’s systems. Instead, through scams called “phishing,” customers receive e-mails with logos and other graphics that simulate those of the bank. The message frequently has a tone of urgency. The text might be worded to warn the recipient that such-and-such information is needed to allow the accounts to continue to be maintained or, ironically, to prevent a breach of security. There might be a request for specific information such as a PIN or simply a link to click. The phone number provided will connect with the con, not the authentic bank, of course.

Given the prevalence of those kinds of scams, online customers should be wary of all e-mail communications. Unless they are certain what is being transmitted is actually from the bank, they should call their bank to inquire about the e-mail. They should not call the phone number provided on the e-mail.

Security can also be breached when the customer’s computer doesn’t have adequate anti-virus protection. That can leave the system vulnerable to hackers. The bad guys could download a virus that wreaks havoc with both funds and information. Another safety measure is to take the time to download all the updates onto the computer, both from the anti-virus protection company and other software providers such as Microsoft. There are some virulent viruses that only operate on outdated software.

Other precautions include reviewing online accounts regularly to detect any unauthorized activity. Persistent monitoring might not just turn up fraud but also mistakes such the direct deposit from the employer that hadn’t been made or an overcharge by a service provider. Another tip is to change PINs or passwords often.

Online banking could not have grown so rapidly had the financial institutions’ cyber security experts not anticipated the worst-case scenarios for fraud and privacy violations. Most of the threats come from scams targeted directly at users. Therefore, it’s in their self-interest to know and follow guidance for protecting themselves in general from being conned on the Internet or being victims of identity theft.

That caution can allow them to enjoy the convenience and lower transaction costs of online banking with peace of mind. In addition, although those paper monthly statements and copies of cancelled checks will always remain options, most consumers will be relieved not to be burdened with them on a regular basis.