Confidence Wealth & Insurance Solutions No Comments

Pay Down Debt or Save for Retirement?

You can use a variety of strategies to pay off debt, many of which can cut not only the amount of time it will take to pay off the debt but also the total interest paid. But like many people, you may be torn between paying off debt and the need to save for retirement.

Both are important; both can help give you a more secure future. If you’re not sure you can afford to tackle both at the same time, which should you choose?

There’s no one answer that’s right for everyone, but here are some of the factors you should consider when making your decision.

Rate of investment return versus interest rate on debt

Probably the most common way to decide whether to pay off debt or to make investments is to consider whether you could earn a higher after-tax rate of return by investing than the after-tax interest rate you pay on the debt.

For example, say you have a credit card with a $10,000 balance on which you pay nondeductible interest of 18%. By getting rid of those interest payments, you’re effectively getting an 18% return on your money.


That means your money would generally need to earn an after-tax return greater than 18% to make investing a smarter choice than paying off debt. That’s a pretty tough challenge even for professional investors.


And bear in mind that investment returns are anything but guaranteed. In general, the higher the rate of return, the greater the risk.

If you make investments rather than pay off debt and your investments incur losses, you may still have debts to pay, but you won’t have had the benefit of any gains. By contrast, the return that comes from eliminating high-interest-rate debt is a sure thing.

An employer’s match may change the equation

If your employer matches a portion of your workplace retirement account contributions, that can make the debt versus savings decision more difficult.

Let’s say your company matches 50% of your contributions up to 6% of your salary. That means that you’re earning a 50% return on that portion of your retirement account contributions.

If surpassing an 18% return from paying off debt is a challenge, getting a 50% return on your money simply through investing is even tougher. The old saying about a bird in the hand being worth two in the bush applies here.


Assuming you conform to your plan’s requirements and your company meets its plan obligations, you know in advance what your return from the match will be; very few investments can offer the same degree of certainty.


That’s why many financial experts argue that saving at least enough to get any employer match for your contributions may make more sense than focusing on debt.

And don’t forget the tax benefits of contributions to a workplace savings plan. By contributing pretax dollars to your plan account, you’re deferring anywhere from 10% to 39.6% in taxes, depending on your federal tax rate. You’re able to put money that would ordinarily go toward taxes to work immediately.

Your choice doesn’t have to be all or nothing

The decision about whether to save for retirement or pay off debt can sometimes be affected by the type of debt you have.

For example, if you itemize deductions, the interest you pay on a mortgage is generally deductible on your federal tax return. Let’s say you’re paying 6% on your mortgage and 18% on your credit card debt, and your employer matches 50% of your retirement account contributions.

You might consider directing some of your available resources to paying off the credit card debt and some toward your retirement account in order to get the full company match, and continuing to pay the tax-deductible mortgage interest.

There’s another good reason to explore ways to address both goals. Time is your best ally when saving for retirement.


If you say to yourself, “I’ll wait to start saving until my debts are completely paid off,” you run the risk that you’ll never get to that point, because your good intentions about paying off your debt may falter at some point. Putting off saving also reduces the number of years you have left to save for retirement.


It might also be easier to address both goals if you can cut your interest payments by refinancing that debt. For example, you might be able to consolidate multiple credit card payments by rolling them over to a new credit card or a debt consolidation loan that has a lower interest rate.

Bear in mind that even if you decide to focus on retirement savings, you should make sure that you’re able to make at least the monthly minimum payments owed on your debt.

Failure to make those minimum payments can result in penalties and increased interest rates; those will only make your debt situation worse.

Other considerations

When deciding whether to pay down debt or to save for retirement, make sure you take into account the following factors:

  • Having retirement plan contributions automatically deducted from your paycheck eliminates the temptation to spend that money on things that might make your debt dilemma even worse.If you decide to prioritize paying down debt, make sure you put in place a mechanism that automatically directs money toward the debt–for example, having money deducted automatically from your checking account–so you won’t be tempted to skip or reduce payments.
  • Do you have an emergency fund or other resources that you can tap in case you lose your job or have a medical emergency? Remember that if your workplace savings plan allows loans, contributing to the plan not only means you’re helping to provide for a more secure retirement but also building savings that could potentially be used as a last resort in an emergency.Some employer-sponsored retirement plans also allow hardship withdrawals in certain situations–for example, payments necessary to prevent an eviction from or foreclosure of your principal residence–if you have no other resources to tap. (However, remember that the amount of any hardship withdrawal becomes taxable income, and if you aren’t at least age 59½, you also may owe a 10% premature distribution tax on that money.)
  • If you do need to borrow from your plan, make sure you compare the cost of using that money with other financing options, such as loans from banks, credit unions, friends, or family. Although interest rates on plan loans may be favorable, the amount you can borrow is limited, and you generally must repay the loan within five years.In addition, some plans require you to repay the loan immediately if you leave your job. Your retirement earnings will also suffer as a result of removing funds from a tax-deferred investment.
  • If you focus on retirement savings rather than paying down debt, make sure you’re invested so that your return has a chance of exceeding the interest you owe on that debt.While your investments should be appropriate for your risk tolerance, if you invest too conservatively, the rate of return may not be high enough to offset the interest rate you’ll continue to pay

Regardless of your choice, perhaps the most important decision you can make is to take action and get started now.

The sooner you decide on a plan for both your debt and your need for retirement savings, the sooner you’ll start to make progress toward achieving both goals.

 

 

Important Disclosure

 

All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

Confidence Wealth & Insurance Solutions No Comments

Planning for Marriage: Financial Tips for Women

Planning for marriage should involve more than just picking out invitations and deciding whether you should serve chicken or fish at the reception. More importantly, you’ll want to take a look at how marriage will impact your financial situation.

And while there are a number of issues you’ll need to think about, careful planning can increase the likelihood that you’ll have financial success as you enter this new chapter in your life.

Consider a prenuptial agreement

If either you or your future spouse has or may inherit substantial assets, or if either of you has children from previous marriages, you may want to consider a prenuptial agreement.

A prenuptial agreement is a binding contract between future spouses that defines the rights, duties, and obligations of the parties during marriage and in the event of legal separation, annulment, divorce, or death.

A prenuptial agreement typically addresses the following areas:

  • Assets and liabilities–What assets will each of you bring into the marriage? What liabilities do each of you have (e.g., credit card/mortgage debt)?
  • Contributions of each partner–Will there be particular consideration given for special contributions that either of you make (e.g., one spouse limiting his or her career)?
  • Divorce–If you and your future spouse divorce, will there be alimony or a lump-sum payment? How will you divide assets purchased from joint funds?
  • Estate planning–Who gets what at the death of either spouse?

Discuss your financial history

Marriage is the union of two separate individuals … and their finances. While talking about money can be a stressful topic for many couples, you’ll want to sit down and discuss your financial history and your future spouse’s financial history before you merge your money.

Start out by taking stock of each of your respective financial situations. You should each make a list of your individual assets (e.g., investments, real estate) and any liabilities (e.g., student loans, credit card debt) you may have.

This is also the time to address items such as how much each of you earns and if either of you has additional sources of income (e.g., interest, dividends).

Agree on a system for budgeting/maintaining bank accounts

Right now, you are probably accustomed to managing your finances in a way that is comfortable for you and you alone. Once you are married, you and your spouse will have to agree on a system for budgeting your money and paying your bills together as a couple.

Either of you can agree to be in charge of managing the budget, or you can take turns keeping records and paying the bills.

If both of you are going to be involved in the budgeting process, make sure that you develop a record-keeping system that both of you understand and agree upon.


In addition, you’ll want to keep your records in a joint filing system so that both of you can easily locate important documents.


Once you agree on a budgeting system, you’ll be able to establish a budget. Begin by listing all of your income and expenses over a certain time period (for example, monthly).

Sources of income can include things such as salaries and wages, interest, and dividends. Expenses can be divided into two categories: fixed (e.g., housing, utilities, food) and discretionary (e.g., entertainment, vacations).

Be sure to include occasional expenses (e.g., car maintenance) as well. To help you and your future spouse stay on track with your budget:

  • Try to make budgeting part of your daily routine
  • Build occasional rewards into your budget (e.g., going to the movies)
  • Examine your budget regularly and adjust/make changes as needed

This might also be a good time to decide whether you and your future spouse will combine your bank accounts or keep them separate.

While maintaining a joint account does have its advantages (e.g., easier record keeping and lower maintenance fees), it is sometimes more difficult to keep track of the flow of money when two individuals have access to a single account.

If you do decide to combine your accounts, each spouse should be responsible for updating the checkbook ledger when he/she writes a check or withdraws funds.

If you decide to keep separate accounts, consider opening a joint checking account to pay for household expenses.

Map out your financial future together

An important part of financial planning as a couple is to map out your financial future together. Where do you see yourself next year? What about five years from now? Do you want to buy a home together?

If you decide to start a family, would one of you stay at home while the other focuses more on his or her career?

Together you should make a list of short-term financial goals (e.g., paying off wedding debt, saving for graduate school) and long-term financial goals (e.g., retirement).

Once you have decided on your financial goals, you can prioritize them by determining which ones are most important to each of you. After you’ve identified which goals are a priority, you can set your sights on working to achieve them together.

Resolve any outstanding credit/debt issues

Since having good credit is an important part of any sound financial plan, you’ll want to identify any potential credit/debt problems either you or your future spouse may have and try to resolve them now rather than later.

You should each order copies of your credit reports and review them together. You are entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months (go to www.annualcreditreport.com for more information).

For the most part, you are not responsible for your future spouse’s past credit problems, but they can prevent you from getting credit together as a couple after you are married.

Even if you’ve always had spotless credit, you may be turned down for credit cards or loans that you apply for together if your future spouse has a bad track record with creditors.

As a result, if you find that either one of you does have credit issues, you might want to consider keeping your credit separate until you or your future spouse’s credit record improves.

Consider integrating employee and retirement benefits

If you and your future spouse have separate health insurance coverage, you’ll want to do a cost/benefit analysis of each plan to see if you should continue to keep your health coverage separate.

If your future spouse’s health plan has a higher deductible and/or co-payment or fewer benefits than those offered by
your plan, he or she may want to join your health plan instead. You’ll also want to compare the premium for one family plan against the cost of two single plans.

In addition, if both you and your future spouse participate in an employer-sponsored retirement plan, you should be aware of each plan’s characteristics.

Plans may differ as to matching contributions, investment options, and loan provisions. Review each plan together carefully and determine which plan provides the better benefits.

If you can afford to, you should each participate to the maximum in your own plan.

Assess your insurance coverage needs

While you might not have felt the need for life and disability insurance when you were single, once you are married you may find that you and your future spouse are financially dependent on each other.

If you don’t have life or disability insurance, you will want to have policies in place in order to make sure that your future spouse’s financial needs will be taken care of if you should die prematurely or become disabled.

If you already have life and disability insurance, you should reevaluate the adequacy of your existing coverage and be sure to update any beneficiary designations as well.

You should also take a look at your auto insurance coverage. Check your policy limits and consider pooling your auto insurance policies with one company (your insurance company may give you a discount if you insure more than one car with them). As for renters/homeowners insurance, you’ll want to make sure your personal property and possessions are adequately covered.

Important Disclosure
Confidence Wealth & Insurance Solutions No Comments

Teaching Your College-Age Child about Money

When your child first started school, you doled out the change for milk and a snack on a daily basis. But now that your kindergartner has grown up, it’s time for you to make sure that your child has enough financial knowledge to manage money at college.

Lesson 1: Budgeting 101

Perhaps your child already understands the basics of budgeting from having to handle an allowance or wages from a part-time job during high school.

But now that your child is in college, he or she may need to draft a “real world” budget, especially if he or she lives off-campus and is responsible for paying for rent and utilities. Here are some ways you can help your child plan and stick to a realistic budget:

  • Help your child figure out what income there will be (money from home, financial aid, a part-time job) and when it will be coming in (at the beginning of each semester, once a month, or every week).
  • Make sure your child understands the difference between needs and wants. For instance, when considering expenses, point out that buying groceries is a need and eating out is a want. Your child should understand how important it is to cover the needs first.
  • Determine together how you and your child will split responsibility for expenses. For instance, you may decide that you’ll pay for your child’s trips home, but that your child will need to pay for art supplies or other miscellaneous expenses.
  • Warn your child not to spend too much too soon, particularly when money that has to last all semester arrives at the beginning of a term. Too many evenings out in September eating surf and turf could lead to a December of too many evenings in eating cold cereal.
  • Acknowledge that college isn’t all about studying, but explain that splurging this week will mean scrimping next week. While you should include entertainment expenses in the budget, encourage your child to stick closely to the limit you agree upon.
  • Show your child how to track expenses by saving receipts and keeping an expense log. Knowing where the money is going will help your child stay on track. Reallocation of resources may sometimes be necessary, but help your child understand that spending more in one area means spending less in another.
  • Encourage your child to plan ahead for big expenses (the annual auto insurance bill or the trip over spring break) by instead setting aside money for them on a regular basis.
  • Caution your child to monitor spending patterns to avoid excessive spending, and ask him or her to come to you for advice at the first sign of financial trouble.

You should also help your child understand that a budget should remain flexible; as financial goals change, a budget must change to accommodate them. Still, your child’s ultimate goal is to make sure that what goes out is always less than what comes in.

Lesson 2: Opening a bank account

For the sake of convenience, your child may want to open a checking account near the college; doing so may also reduce transaction fees (e.g. automated teller machine (ATM) fees). Ideally, a checking account should require no minimum balance and allow unlimited free checking; short of that, look for an account with these features:

  • A simple fee structure
  • ATM or debit card access to the account
  • Online or telephone access to account information
  • Overdraft protection

To avoid bouncing checks, it’s essential to keep accurate records, especially of ATM or debit card usage. Show your child how to balance a checkbook on a regular (monthly) basis. Most checking account statements provide instructions on how to do this.

Encourage your child to open a savings account too, especially if he or she has a part-time job during the school year or summer. Your child should save any income that doesn’t have to be put towards college expenses. After all, there is life after college, and while it may seem inconceivable to a college freshman, he or she may one day want to buy a new car or a home.

Lesson 3: Getting credit

If your child is age 21 or older, he or she may be able to independently obtain a credit card. But if your child is younger, the credit card company will require you, or another adult, to cosign the credit card application, unless your child can prove that he or she has the financial resources to repay the credit card debt.

A credit card can provide security in a financial emergency and, if used properly, can help your child build a good credit history.But the temptation to use a credit card can be seductive, and it’s not uncommon for students to find themselves over their heads in debt before they’ve declared their majors.

Unfortunately, a poor credit history can make it difficult for your child to rent an apartment, get a car loan, or even find a job for years after earning a degree. And if you’ve cosigned your child’s credit card application, you’ll be on the hook for your child’s unpaid credit card debt, and your own credit history could suffer.

Here are some tips to help your child learn to use credit responsibly:

  • Advise your child to get a credit card with a low credit limit to keep credit card balances down.
  • Explain to your child that a credit card isn’t an income supplement; what gets charged is what’s owed (and then some, given the high interest rates). If your child continually has trouble meeting expenses, he or she should review and revise the budget instead of pulling out the plastic.
  • Teach your child to review each credit card bill and make the payment by the due date. Otherwise, late fees may be charged, the interest rate may go up if the account falls 60 days past due, and your child’s credit history (or yours, if you’ve cosigned) may be damaged.
  • If your child can’t pay the bill in full each month, encourage him or her to pay as much as possible. An undergraduate student making only the minimum payments due each month on a credit card could finish a post-doctorate program before paying off the balance.
  • Make sure your child notifies the card issuer of any address changes so that he or she will continue to receive statements.
  • Tell your child that when it comes to creditors, students don’t get summers off! Your child will need to continue to make payments every month, and if there’s a credit card balance carried over from the school year, your child may want to use summer earnings to pay it off in order to start the next school year with a clean slate.

Finally, remind your child that life after college often involves student loan payments and maybe even car or mortgage payments. The less debt your child graduates with, the better off he or she will be. When it comes to the plastic variety, extra credit is the last thing a college student wants to accumulate!

Important Disclosure
Confidence Wealth & Insurance Solutions No Comments

Divorce and Debt

What is debt and how is it classified for divorce purposes?

Like property, debt is classified as marital or separate. In general, both spouses are responsible for any debts incurred during the marriage. It doesn’t matter which party actually spent the money.

When the property is divided at the time of divorce, it’s often the case that the person who gets the asset also gets the responsibility for paying any indebtedness secured by that asset. Even if your spouse agrees to take over the debt, joint obligors on a loan will remain jointly responsible. That is, the creditors can seek payment from either of you.

There are basically four types of debt:

  • Secured debt
  • Unsecured debt
  • Tax debt
  • Divorce expense debt

Secured debt

Secured debt gives the lienholder or lender a right to repossess the property in the event of your default on the loan. Some examples of secured debt include mortgages on your real estate, car loans, and boat loans.

If a loan stands in the joint names of you and your spouse, you’ll need to make it very clear in your separation agreement who will be responsible for making payments on the loan.

Otherwise, if one spouse fails to make timely payments, the creditor can pursue the other spouse or (eventually) seek repossession.

Unsecured debt

Unsecured debt does not give the lender the right to repossess any specific property, although there are other remedies at law. Typical examples of unsecured debt include credit cards, personal bank loans or lines of credit, and loans from family and friends.

Tax debt

If you sign a joint return with your spouse, you’re each liable for the tax debt. For three years after the due date for filing your return, the IRS can perform a random audit of your joint tax return (although the period may be longer than three years in cases of fraud or failure to file).

To avoid potential tax problems in the future, your divorce agreement should spell out what happens if any additional interest, penalties, or taxes are imposed for any prior tax year.

Not with standing any such agreement, you should be aware of the so-called innocent spouse rules, which provide certain protections to a taxpayer whose spouse understated the tax due on a joint return. A number of rules and conditions apply.

Divorce expense debt

Divorce can be expensive, and sometimes a spouse will seek a court order to make the other party subsidize attorney’s fees for both sides. This might happen, for instance, when only one spouse works. Since the homemaker-spouse may have no income to pay for a divorce attorney, a judge might order the working spouse to pay.

Sometimes both parties work or have sufficient funds with which to retain attorneys. In these cases, you’ll need to spell out who pays for what.

For instance, if both parties want the family business, the family home, or a pension to be appraised, you’ll have to apportion the costs. The same holds true if you both decide to transfer title to an asset after a divorce.

Debts can also be incurred during the separation period. If luxuries are purchased during this period, courts are likely to assign the debt solely to the party who ran up the debt. In general, debts incurred after the separation date and before the divorce is final are the responsibility of the spouse who incurred them.

One exception is family necessities (i.e., food, clothing, shelter, and medical care). These necessities can be paid by the other spouse if the incurring-spouse can’t afford to pay.

What are the rules regarding joint credit card debt?

Either signer on a joint credit card can be held responsible for 100 percent of the debt, not just one-half of the debt.


Example(s): Hal and Jane are seeking a divorce. During their marriage, Hal handled the finances and Jane stayed home with the children. During the discovery period of their divorce, Jane learned that Hal ran up over $30,000 on their joint credit cards to pay for his expensive suits, dinners for friends, recreational pursuits, and the like. Since they live in a community property state, all assets and debts will be divided down the middle.

Thus, Jane will be responsible for paying $15,000 of the debt (from a judge’s perspective). However, if Hal fails to keep up with his monthly payments (or, if he decides not to pay any of his $15,000), the credit card companies can go after Jane for the full $30,000 because the divorce settlement is not binding on creditors.


During divorce proceedings, several issues can arise regarding credit cards, such as removing a spouse as an authorized signer, and understanding the obligations of joint credit card owners versus single card owners with two authorized signers.

Will my former spouse’s bankruptcy affect me?

Maybe. It will depend on the type of bankruptcy your former spouse chooses to file under (Chapter 7 or 13) and the type of debt owed.

Debts such as alimony and/or child support payments (e.g., domestic support obligations) that are incurred as a result of a divorce decree/separation agreement, are protected from bankruptcy discharge (although a debtor’s bankruptcy can be the basis for the future reduction of these types of debts).

On the other hand, debts owed as a result of a property settlement may be dischargeable under Chapter 13 bankruptcy. It is important to note that the ways in which bankruptcy and divorce affect one another are complex. As a result, you may want to consult a bankruptcy or divorce attorney for more information.

How do you divide debt at divorce?

Basically, you have five options in allocating your marital debts:

  • You and your spouse can sell joint property to raise the cash to pay off your marital debts.
  • You can agree to pay most of the debts. In return, you can request a greater share of the marital property or a corresponding increase in alimony.
  • Your spouse can agree to pay the bulk of the debts. In exchange, your spouse may get a greater share of the marital property or increase in alimony.
  • You and your spouse divide the property and debt equally; that is, each of you gets one-half of the property and each of you agrees to pay one-half of the debt
  • If you’re a homemaker with children, your spouse might be ordered to pay the bulk of the debt, pay alimony, and perhaps allow you to keep the house and a portion of other significant assets, such as your spouse’s pension.

Because of the threat of bankruptcy and/or damage to your credit report, it might be wise to sell joint assets to pay off debt, or to assume responsibility for the debts yourself.

How can I repair my credit after a divorce?

Credit problems generally stay on your record for seven years, while bankruptcies can remain for up to 10. There are some steps you can take to repair credit damaged during a divorce:

1. Obtain a copy of your credit report and look for errors. Sometimes, your credit history may be confused with someone else who has a similar name.

2. Meet with a consumer credit counseling representative. A representative can provide you with tools to negotiate with your creditors. He or she can also give you some useful suggestions for paying your bills.

3. Open a secured credit arrangement with your bank. If you deposit a specific sum of cash with a bank (such as $500), the bank will sometimes provide you with a secured credit card. Making timely payments will help to repair your credit over time.

What questions (relative to debt) should you consider before entering into a divorce settlement agreement?

Before sitting down with an attorney, think about which debts were contracted prior to marriage (separate debt) and which debts were contracted during the marriage (marital debt). With respect to marital debt, consider the following questions:

  • If I wish to keep a particular marital asset, will I have sufficient income to keep up with the loan payments?
  • Should I liquidate other assets to retire the debt completely (or partially)?
  • If my spouse proposes a property settlement agreement, is there any likelihood that he or she would subsequently declare bankruptcy?
  • Can I collateralize property settlement notes from my spouse so that bankruptcy will not eliminate his or her obligation to me?
  • If, pursuant to our divorce agreement, my ex-spouse assumed responsibility for all credit card debt, what are my legal remedies if he defaults? How can the divorce agreement be enforced?

 

Important Disclosure
Confidence Wealth & Insurance Solutions No Comments

Test Your Knowledge of Financial Basics

How well do you understand personal finance? The following brief quiz can help you gauge your knowledge of a few basics. In the answer section, you’ll find details to help you learn more.

Questions

1. How much should you set aside in liquid, low-risk savings in case of emergencies?

a. One to three months worth of expenses
b. Three to six months worth of expenses
c. Six to 12 months worth of expenses
d. It depends

2. Diversification can eliminate risk from your portfolio.

a. True
b. False

3. Which of the following is a key benefit of a 401(k) plan?

a. You can withdraw money at any time for needs such as the purchase of a new car.
b. The plan allows you to avoid paying taxes on a portion of your compensation.
c. You may be eligible for an employer match, which is essentially getting free money.
d. None of the above

4. Some, but not all, of the money in a bank or credit union account is protected.

a. True
b. False

5. Which of the following is typically the best way to pursue your long-term goals?

a. Investing as conservatively as possible to minimize the chance of loss
b. Investing equal amounts in stocks, bonds, and cash investments
c. Investing 100% of your money in stocks
d. Not enough information to decide

6. In debt speak, what does APR stand for?

a. Actual percentage rate
b. Annual personal rate
c. Annual percentage rate
d. Actual personal return

7. Mutual funds are the safest types of investments.

a. True
b. False

8. I have plenty of time to save for retirement. I don’t have to concern myself with that right now.

a. True
b. False

9. What is/are the benefit(s) of a Roth IRA?

a. A Roth IRA can provide tax-free income in retirement.
b. Investors can take a tax deduction for their Roth IRA contributions.
c. Investors can make tax-free withdrawals after a five-year holding period for any reason.
d. All of the above

10. What is considered a good credit score?

a. 85 or above
b. 500 or above
c. B or above
d. 700 or above

Answers

1. d. Although it’s conventional wisdom to set aside three to six months worth of living expenses in a liquid savings vehicle, such as a bank savings account or money market account, the answer really depends on your own situation.

If your (and your spouse’s) job is fairly secure and you have other assets, you may need as little as three months worth of expenses in emergency savings. On the other hand, if you’re a business owner in a volatile industry, you may need as much as a year’s worth or more to carry you through uncertain times.

2. b — False. Diversification is a sound investment strategy that helps you manage risk by spreading your investment dollars among different types of securities and asset classes, but it cannot eliminate risk entirely, and it cannot guarantee a profit. You still run the risk of losing money.

3. c. Many employer-sponsored 401(k) plans offer a matching program, which is akin to receiving free money to invest. If your plan offers a match, you should try to contribute at least enough to take full advantage of it.

Some matching programs impose a vesting schedule, which means you will earn the right to the matching contributions and any earnings on those dollars over a period of time.

If you selected b as your answer, you’ll note this is a bit of a trick question. Although income taxes are deferred on contributions to traditional 401(k)s, they are not eliminated entirely.

You will have to pay taxes on those contributions, and any earnings on them, when you take a distribution from the plan. In addition, distributions taken prior to age 59½ may be subject to a 10% penalty tax. Some exceptions apply.

4. a — True. Deposits in federally insured banks and credit unions are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Share Insurance Fund (NCUSIF), respectively, up to $250,000 per depositor, per ownership category (e.g., single account, joint account, retirement account, trust account), per institution.

Neither the FDIC nor the NCUSIF protects against losses in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, nor do they insure items held in safe-deposit boxes or investments in Treasury bills.

5. d. To adequately pursue your long-term goals, you might consult with a financial professional before choosing a strategy. He or she will take into consideration your goals, risk tolerance, and time horizon, among other factors, to put together a strategy that’s appropriate for your needs.

6. c. APR stands for annual percentage rate. This is the rate that credit card, mortgage, and other loan issuers use to show borrowers approximately how much they are paying each year to borrow funds, taking into account all fees and costs.

The APR differs from a loan’s stated interest rate, which is typcially lower than the APR because it does not take into account fees and other costs. Borrowers can compare the APRs on different loans to help make smart financial decisions.

However, when it comes to mortgages, borrowers should use caution when comparing the APRs of fixed-rate loans and adjustable-rate loans, because APRs do not represent the maximum interest rate the loan may charge.

7. b — False. Mutual funds combine the money of many different investors in a portfolio of securities that’s invested in pursuit of a stated objective. Because of this “diversification,” mutual funds are typically a good way to help manage risk. However, the level of risk inherent in any mutual fund depends on the types of securities it holds.

You should always choose a mutual fund carefully to make sure its objective aligns with your own investment goals. Read the fund’s prospectus carefully, as it contains important information about risks, fees, and expenses, as well as details about specific holdings.

8. b — False. Although retirement may be decades away, investing for retirement now is a smart move. That’s because even small amounts–say just $50 per month–can add up through the power of compounding, which is what happens when your returns eventually earn returns themselves. This means your money goes to work for you!

9. a. The primary benefit of a Roth IRA is that it provides tax-free income in retirement. Contributions are subject to income limits and are never tax deductible. Withdrawals may be made after a holding period of five years, provided they are “qualified.”

A qualified withdrawal is one made after the account holder dies, becomes disabled, or reaches age 59½, or one in which the account holder withdraws up to $10,000 (lifetime limit) for a first-time home purchase.

10. d. Because different organizations calculate credit scores based on varying factors, there is no single agreed-upon definition of what constitutes a “good” score. Generally, though, a score of 700 or above would likely reflect favorably on someone applying for credit.

 

Important Disclosure
Confidence Wealth & Insurance Solutions No Comments

Women: Living in the Sandwich Generation

At a time when your career is reaching a peak and you are looking ahead to your own retirement, you may find yourself in the position of having to help your children with college expenses or the financial challenges of young adulthood while at the same time looking after the needs of your aging parents.

Squeezed in the middle, you’re in the “sandwich generation”–a group loosely defined as people in their 40s to 60s who are “sandwiched” between caring for children and aging parents.

The fact is, women are the ones who most often step into the caregiving role.* As more women have children later in life and more parents live longer lives, the ranks of the sandwich generation are likely to grow in the years ahead.

If you find yourself sandwiched between caregiving demands, here are some strategies to navigate this life phase.

Setting priorities

The day-to-day demands of caring for both an aging parent and children can put a tremendous strain–both emotional and financial–on the primary caregiver.

This is especially true when adult siblings or family members don’t agree on the best course of action for elder care, don’t pitch in to do their share, or don’t contribute enough financially to the cost of that care.


The first thing to do is get yourself in the proper mindset. This life phase could last one or two years, or it could last many more. In any case, try to treat this stage as a marathon and pace yourself; you don’t want to start sprinting right out of the gate and burn out too soon.


Encourage open communication with your family to figure out ways to share the financial, emotional, and time burdens. Hold regular meetings to discuss issues, set priorities, and delegate tasks.

Women are often conditioned to believe they have to “do it all,” but there is no reason why adult siblings (if you have any) can’t share at least some of the workload.

It’s important for caregivers to get their own financial house in order. Ironically, at the very time you need to do this, the demands of caregiving may cause you to lose income because you have to step back at work–through reduced hours, unpaid time off, or turning down a promotion. Here are some tips to get your finances on track:

  • Establish a budget and stick to it
  • Keep your debt under control. Consumer debt (i.e., car payments, credit cards) should account for no more than 20% of your take-home pay.
  • Invest in your own future by putting as much as you can into your retirement plan, and avoid raiding it to pay for your parent’s care or your child’s college education.
  • Don’t quit your job before exploring other arrangements. If you need more time at home than vacation or personal days can provide, ask your employer if you can telecommute, flex your hours, reduce your hours temporarily, or take unpaid leave.Another option is to enroll your parent in an adult day-care program or hire a home health aide to fill the gaps. Some employers offer elder-care resource locators or other caregiving support as an employee benefit, so make sure to check.Permanently leaving your job should be a last resort–time out of the workforce will reduce not only your earnings but possibly your Social Security benefit at retirement as well.

Caring for your parents

Talk to your parents about their financial resources. Do they have retirement income? Long-term care insurance? Do they own their home? Learn the whereabouts of all their documents and accounts, as well as the financial professionals and friends they rely on for advice and support.

Much depends on whether your parent is living with you or out of town. If your parent lives a distance away, you’ll have to monitor his or her welfare from afar–a challenging task.


Though caregiving can be a major stress on anyone, distance can magnify it–daily phone calls or video chats might not be enough, and traveling to your parent’s home can be expensive and difficult to manage with your work and family responsibilities.


If your parent’s needs are great enough, you may want to consider hiring a geriatric care manager, who can help oversee your parent’s care and direct you to the right community resources, and/or a home health aide, who can check in on your parent during the week.

Here are some things you should do:

  • Take inventory of your parent’s assets and consolidate his or her financial accounts.
  • Get a current list of the medicines your parent takes and the doctors he or she sees.
  • Have your parent establish a durable power of attorney and health-care directive, which gives you legal authority to handle financial and health-care decisions if your parent becomes incapacitated. And make sure your parent has a will.
  • Consider consulting a tax professional to see if you might be entitled to potential tax benefits as a result of your caregiving; for example, you might be able to claim your parent as a dependent.
  • If your parent’s needs are great enough, you might need to go a step further and explore assisted-living options or nursing homes.

Eventually, you might decide that your parent needs to move in with you.

In that case, here are some suggestions to make that transition:

  • Talk with your parent in advance about both of your expectations and concerns.
  • If possible, set up a separate room and phone for your parent for some space and privacy.
  • Research local programs to see what resources are offered for seniors; for example, the senior center may offer social gatherings or adult day care that can give you a much needed break.
  • Ask and expect adult siblings to help out. Siblings who may live far away and can’t help out physically on a regular basis, for example, can make a financial contribution that can help you hire assistance. They can also research assisted-living or nursing home options. Don’t try to do everything yourself.
  • Keep the lines of communication open, which can go a long way to the smooth running of your multigenerational family.

Meeting the needs of your children

Your children may be feeling the effect of your situation more than you think, especially if they are teenagers.

At a time when they still need your patience and attention, you may be preoccupied with your parent’s care, meeting your work deadlines, and juggling your financial obligations.

Here are some things to keep in mind as you try to balance your family’s needs:

  • Explain what changes may come about as you begin caring for your parent. Talk honestly about the pros and cons of having a grandparent in the house, and be sympathetic and supportive of your children (and your spouse) as they try to adjust. Ask them to take responsibility for certain chores, but don’t expect them to be the main caregivers.
  • Discuss college plans. Encourage realistic expectations about the college they may be able to attend. Your kids may have to settle for less than they wanted, or at least get a job to help meet costs.
  • Teach your kids how to spend wisely and set financial priorities
  • Try to build in some special time with your children doing an activity they enjoy.
  • If you have “boomerang children” who’ve returned home, make sure to share your expectations with them, too. Expect help with chores (above and beyond their own laundry and meal prep), occasional simple caregiving, and a financial contribution to monthly household expenses.

Considering your needs

This stage of your life could last many years, or just a few. Try to pace yourself so you can make it for the long haul.

As much as you can, try to get adequate sleep, eat nutritiously, and exercise–all things that will increase your ability to cope. Don’t feel guilty about taking time for yourself when you need it, whether it’s a couple of hours holed up with a book or out to the movies, or a longer weekend getaway.

The day-to-day demands of caring for an aging parent and children can put a tremendous strain–both emotional and financial–on the primary caregiver. Be sure to set priorities and encourage open communication with your entire family to figure out ways to share the burdens.


According to the Alzheimer’s Association report, 2016 Alzheimer’s Disease Facts and Figures, approximately two-thirds of caregivers are women.


When you put your own needs first occasionally and look after yourself, you’ll be in a better position to care for those around you.

*Alzheimer’s Association report, 2016 Alzheimer’s Disease Facts and Figures

 

Important Disclosure

Confidence Wealth & Insurance Solutions No Comments

Money Confidence Podcast Episode 9: The Blunt Truth About Financial Compatibility Before Marriage

Personal Money Trainer, author and speaker, Crystal Oculee, empowers women to get money confident with tips, advice, stories and special guest interviews. From the basics of budgeting to getting to the bottom of retirement vehicles – you’ll get insightful information you can turn into major savings and smart investments!

LISTEN  ON ITUNES: https://itunes.apple.com/us/podcast/episode-9-blunt-truth-about-financial-compatibility/id1208123298?i=1000384439560

IN THIS EPISODE, YOU’LL LEARN:

  • Ways To Have The “Money Talk” With Your Significant Other (Without It Turning Into A Fight)
  • One Common Mistake Couples Make
  • Why Having The Money Dialogue Can Avoid Other Painful “Talks” In The Future
  • Reasons Why You Shouldn’t Avoid Talking About Money
  • How To Identify Financial Red Flags Before Marriage
  • Financial Questions To Ask Your Partner In Any Stage Of Your Relationship
  • Bonus: The Budget Game (A Fun Way To Start The Dialogue)

Don’t Stop Here – Check Out These FREE Tools!  

LINKS AND RESOURCES MENTIONED IN THIS EPISODE:

Money Issues That Concern Married Couples
http://www.pljincome.com/money-issues-that-concern-married-couples/

Top 5 Financial FAQ for Married Women
http://www.pljincome.com/top-5-faq-married-women/

Merging Your Money When You Marry
http://www.pljincome.com/merging-money-marry/

What To Do When a Saver Marries a Spender
http://www.pljincome.com/what-to-do-when-a-saver-marries-a-spender/

 

Get to Know Crystal – and Email Her With Questions! (She might answer it on the podcast.)

AskCrystal@PLJincome.com

http://www.pljincome.com/crystal-oculee/

 

If you like our Money Confidence Podcast, be sure to leave a review on iTunes!

Confidence Wealth & Insurance Solutions No Comments

I get so many credit card reward offers. How do I know which one to choose?

Credit card reward programs are more popular than ever. In order to keep up with such high demand in a competitive market, credit card companies are coming up with new and more enticing offers every day. How do you know which one to choose?


Are you the type of credit card user who likes to travel and/or frequent a particular hotel or airline?


If so, then a travel rewards credit card might be the right option for you. Typically, a travel rewards card allows you to earn points (sometimes referred to as miles, depending on the card) for every purchase you make on the card.

Typically, cards offer a reward that is equal to 1% of your purchase, which means that for every $100 you spend, you will earn 1 point or mile. Some credit card companies offer even greater incentives, such as double points for specific types of purchases or bonus points when you open up an account.

Before signing up, however, be sure to read the fine print. Many travel rewards cards have specific rules that apply to point redemption and may charge a hefty annual fee.


Don’t want the hassle that sometimes goes along with redeeming points on a travel rewards card?


Consider a cash back rewards card. While not as thrilling as racking up points to take a trip to some far-off, exotic destination, cash back rewards cards may be better for individuals who aren’t frequent travelers and who tend to use credit cards for everyday purchases.

Most cash back rewards cards offer a flat cash reward on general purchases. Others offer higher rewards for different spending categories (e.g., dining or entertainment purchases). Consider your credit card spending habits to determine which cash back rewards card would be appropriate for you.

Finally, it’s important to remember that rewards cards work best when you pay off your account balance each month. Be sure to charge only what you can afford to pay off and avoid spending over your budget just to earn more rewards.

Otherwise, the unpaid balance you carry forward will create finance charges that may cancel out the value of any rewards you accumulate.

 

Important Disclosure
Confidence Wealth & Insurance Solutions No Comments

Will vs Trust: Is One Better Than the Other?

When it comes to planning your estate, you might be wondering whether you should use a will or a trust (or both).

Understanding the similarities and the differences between these two important documents may help you decide which strategy is better for you.

What is a will?


A will is a legal document that lets you direct how your property will be dispersed (among other things) when you die.


It becomes effective only after your death. It also allows you to name an estate executor as the legal representative who will carry out your wishes.

In many states, your will is the only legal way you can name a guardian for your minor children. Without a will, your property will be distributed according to the intestacy laws of your state.

Keep in mind that wills and trusts are legal documents generally governed by state law, which may differ from one state to the next.

What is a trust?


A trust document establishes a legal relationship in which you, the grantor or trustor, set up the trust, which holds property managed by a trustee for the benefit of another, the beneficiary.


A revocable living trust is the type of trust most often used as part of a basic estate plan. “Revocable” means that you can make changes to the trust or even end (revoke) it at any time.

For example, you may want to remove certain property from the trust or change the beneficiaries. Or you may decide not to use the trust anymore because it no longer meets your needs.

A living trust is created while you’re living and takes effect immediately. You may transfer title or “ownership” of assets, such as a house, boat, automobile, jewelry, or investments, to the trust. You can add assets to the trust and remove assets thereafter.

How do they compare?

While both a will and a revocable living trust enable you to direct the distribution of your assets and property to your beneficiaries at your death, there are several differences between these documents.

Here are a few important ones.

  • A will generally requires probate, which is a public process that may be time-consuming and expensive. A trust may avoid the probate process.
  • In order to exclude assets from probate, you must transfer them to your revocable trust while you’re living, which may be a costly, complicated, and tedious process.
  • Unlike a will, a trust may be used to manage your financial affairs if you become incapacitated.
  • If you own real estate or hold property in more than one state, your will would have to be filed for probate in each state where you own property or assets. Generally, this is not necessary with a revocable living trust.
  • A trust can be used to manage and administer assets you leave to minor children or dependents after your death.
  • In a will, you can name a guardian for minor children or dependents, which you cannot do with a trust.

Which is appropriate for you?

The decision isn’t necessarily an “either/or” situation. Even if you decide to use a living trust, you should also create a will to name an executor, name guardians for minor children, and provide for the distribution of any property that doesn’t end up in your trust.

There are costs and expenses associated with the creation and ongoing maintenance of these legal instruments.

Whether you incorporate a trust as part of your estate plan depends on a number of factors. Does your state offer an informal probate, which may be an expedited, less expensive process available for smaller estates?

Generally, if you want your estate to pass privately, with little delay or oversight from a probate court, including a revocable living trust as part of your estate plan may be the answer.

 

Important Disclosure
Confidence Wealth & Insurance Solutions 2 Comments

Money Issues That Concern Married Couples

Marriage is an important step in anyone’s life and brings many challenges with it. One of those challenges is the management of your finances as a couple.

The money decisions that you make now as a couple can have a lasting impact on your financial future together. Careful planning of your finances can ensure that together, you achieve financial success.

1. Budgeting your money

► In general

When you were single, you managed your finances in a way that was comfortable for you and that you understood–no one had to approve or disapprove of your financial decisions.

Now that you are married, however, both you and your spouse have to agree on a system for budgeting your money and paying your bills.

► Discuss financial situations

You and your spouse must discuss your respective financial situations and expectations, and take stock of your individual assets (what you own) and liabilities (what you owe).

Revealing your financial situation is an important step when budgeting as a couple. If either of you has a financial problem, it is best to identify it now and begin solving it together.


This is the time to address questions such as what do each of you earn, and what additional sources of income do you have? What do you own? Will both of you work now that you are married?


Who will hold title to property acquired before and after the wedding? In addition, be sure to disclose all of your financial commitments. If you pay child support, let your partner know the amounts. If you have to repay student loans, discuss that as well.

► Discuss financial goals

After you discuss your financial situations, you should discuss your financial goals. You can start by each making a list of your short- and long-term financial goals.

Short-term goals are those that can take anywhere from three to five years (e.g., saving for a down payment on a home or a new car). Long-term goals are those that take more than five years to achieve (e.g., saving for a child’s college education or retirement).

When you have each determined your individual financial goals, you should review your goals together to achieve common objectives.

You can then focus your energy on those common objectives and strive to attain those goals (short- and long-term) together.

► Decide on the type of bank account(s) you will keep

Decide whether you and your spouse will have separate bank accounts or a joint account.

Advantages to consolidating your checking funds into one account include easier record-keeping, reduced maintenance fees, less paperwork when you apply for a loan, and simplified money management.

If you do choose to keep separate accounts, consider opening a joint checking account for household expenses.

Caution: When sharing a checking account, be sure to keep track of how much money is in the account at all times since both of you will be writing checks that draw from the same account.

► Prepare an annual budget

The first step in developing a financial future together as a couple is to prepare an annual budget.

The budget will be a detailed listing of all your income and expenses over the period of a year.

You may want to designate one spouse to be in charge of managing the budget, or you can take turns keeping records and paying bills.

Tip: Make sure that you develop a record-keeping system that both you and your spouse understand. Also, keep your records in a joint filing system so that you can easily locate important documents.

  • Begin with your sources of income–list salaries and wages, alimony and child support, interest, and any other form of income that you and your spouse may have.
  • List your expenses. It may be helpful to review several months’ worth of entries in each of your checkbooks to be sure that you include everything. Put all the expenses that are paid monthly into one category, and put all other expenses (every other month, quarterly, semiannually, annually) into another. Some common expenses are:
  • Savings
  • Rent or mortgage payments
  • Student loan payments
  • Groceries
  • Pet care
  • Utilities
  • Car payments
  • Credit card payments
  • Alimony/child support
  • Household items
  • Personal care/grooming
  • Major purchases
  • Insurance
  • Car repairs
  • Clothing
  • Tax payments
  • Medical expenses
  • Gifts
  • Automobile gas
  • Child day care
  • Entertainment/dining out
  • Estimate your expenses for each category. How much money do you spend on these items on a monthly basis and on an annual basis? Try to come up with a realistic amount for what you think you will spend in a year’s time. Add another category to the irregular expenses list, and call it Contingencies. This can be a catchall category for expenses that you might not anticipate or budget for. The amount to budget for contingencies should be about 5 percent of your total budget.
  • Add your sources of cash and uses of cash on an annual basis. Hopefully, you get a positive number, meaning that you are spending less than you are earning. If not, review your expense list to determine where you can cut your spending. Consider using computer spreadsheets or programs like Quicken for assistance.

► Create a cash flow system

After you have developed a budget, you should create a system for managing your monthly inflow and outflow of cash.


It is a good idea for both you and your spouse to become involved in this process–at least at first–so that both of you have a clear understanding of the costs of running the family and household.


Cash flow systems like the one described below are simple and painless to operate.

Once they are established, you will find that making financial decisions becomes much easier because you have done your homework.

  • Separate your regular monthly expenses from irregular expenses (every other month, quarterly, semiannually, annually) by using a different bank account for each. Otherwise, you may be tempted to use money that has been earmarked for something else. You should limit the number of checking accounts that you have in order to avoid confusion.
  • Each time you get paid, deposit some money into an account for irregular expenses. The amount of money you deposit should be equal to the total amount needed for the irregular expenses, divided by the number of paychecks you each receive annually. In so doing, you will have the money for the outlay when it arises. The rest of your pay should go into your checking account, to be used for regular monthly expenses and savings.
  • One variation to this system of cash flow management is to establish one or two additional bank accounts for one or both of you for personal spending money. Allocate the budgeted amount for personal expenses (e.g., lunches, haircuts, gifts) to this account. This way, you are free to spend the money in this account in any way you like without having to worry about meeting regular monthly expenses. However, all of these bank accounts may have fees.

2. Saving and investing your money

► In general

At some point in your married life, you will almost certainly encounter some large expenditures, such as a new home, your own business, or a college education for your children.

Chances are, you won’t be able to meet these expenditures from your current income. You and your spouse must discipline yourselves to set aside a portion of your current income for saving and investing your money to ensure its steady growth or, at the very least, protect it against loss.

► Save a percentage of your earnings

When figuring out your budget, savings should be considered one of your monthly expenses. Think of savings as a fixed payment (like a car payment) that must be made every month.

If you don’t and you wait until the end of the month to save whatever you have not spent, you’ll find that nothing ever seems to go into your savings account.

A good rule of thumb is for you and your spouse to save 4 to 9 percent of your combined gross earnings while you are in your 20s and then double that savings percentage as you reach your 30s and 40s.

In some cases, a dual-income couple may be able to live off one spouse’s salary and save the other salary.


Example(s): Mary and Richard, a married couple in their 20s, earn a combined annual gross income of $60,000. Together, Mary and Richard save 5 percent of their combined gross income each year, or $3,000.

Example(s): As another example, Christine and Tom, a married couple in their 30s, earn a combined annual gross income of $80,000. Together, Christine and Tom save 10 percent of their combined gross income each year, or $8,000.


► Build an emergency cash reserve

The savings that you accumulate can serve as an emergency cash reserve. Ideally, you should have in savings an amount that is comfortable for you to fall back on in case of an emergency, such as a job loss.

A common formula used for calculating a safe emergency fund amount is to multiply your total monthly expenses by 6. When determining how much cash should be in your emergency fund, a major factor is your comfort level.

If you and your spouse feel secure with your jobs and are confident that if you lost your current jobs you would be able to find a new one fairly quickly, an emergency fund of three times your monthly expenses should be sufficient.

However, if either of you has an unpredictable income, you may want to have an emergency fund that is equal to 12 times your monthly expenses.


Example(s): Christine and Tom, a married couple in their 30s, plan to build up an emergency cash reserve. Both Christine and Tom are attorneys and feel quite secure with their present jobs. Christine and Tom have monthly expenses of $3,000 and plan to build up an emergency cash reserve that is equal to 3 times their monthly expenses, or $9,000 ($3,000 x 3).

Example(s): As another example, Mary and Richard, a married couple in their 20s, plan to build up an emergency cash reserve. Both Mary and Richard are employed as freelance writers and feel that their incomes are at times unpredictable. Mary and Richard have monthly expenses of $1,500 and plan to build up an emergency cash reserve that is equal to 12 times their monthly expenses, or $18,000 ($1,500 x 12).


► Investing your money

When you have established an emergency cash reserve, you can begin to invest your money to target your financial goals.

There are three fundamental types of investments: cash and cash alternatives, bonds, and equities. Cash and cash alternatives are relatively low-risk investments that can be readily converted into currency, such as money market accounts.

Bonds, sometimes called debt instruments, are essentially IOUs; when you invest in a bond, you’re lending money to the bond’s issuer–usually a corporation or governmental body–which pays interest on that loan.

Because bonds make regular payments of interest, they are also known as income investments. Equities, or stocks, give you a share of ownership in a company.

You have the opportunity to share in the company’s profits and potential growth, which is why they’re often viewed as growth investments. However, equities involve greater risk than either cash or income investments.

With equities, there is no guarantee you will receive any income or that your shares will ever increase in value, and you can lose your entire investment.

In addition to these three basic types of investments–also known as asset classes–there are so-called alternative investments, such as real estate, commodities, and precious metals.


No matter what your investment goal, your overall objective is to maximize returns without taking on more risk than you can bear.


You’ll need to choose investments that are consistent with your financial goals and time horizon.

A financial professional can help you construct an investment portfolio that takes these factors into account.

Click here to get more information from our affiliate company PLJ Advisors.

3. Establishing good credit

► In general

Establishing good credit is an important step in the path towards a solid financial future. A good credit history can enable you to make credit purchases for items that you might not otherwise be able to afford.

Most creditors will require a good credit history before extending credit to you. If you do not have a credit history, it is important to establish one as soon as possible. If you have a poor credit history, you should take steps toward improving it right away.

► Individual or joint credit

Married couples can either apply for credit individually or jointly. One of the benefits of applying for joint credit is that both you and your spouse’s income, expenses, and financial stability are considered when a creditor evaluates your overall financial picture.

However, applying for separate credit has its advantages. If you and your spouse ever run into financial problems (e.g., illness or job layoff), separate credit allows one spouse to risk damaging his or her credit history while preserving the other spouse’s good credit.

In addition, separate credit can also protect you and your spouse from each other. If you and your spouse cosign a loan or apply for a credit card, you are both responsible for 100 percent repayment of the debt.

In other words, if your spouse does not pay his or her share, you can get stuck with paying the whole amount. On the other hand, if your spouse takes out a loan or applies for a credit card on his or her own, generally your spouse is solely responsible for the debt.

Tip: While the general rule is that spouses are not responsible for each other’s debts, there are exceptions.

Many states will hold both spouses responsible for a debt incurred by one spouse if the debt constituted a family expense (e.g., child care or groceries).

In addition, in some community property states, both spouses may be responsible for one spouse’s debts, since both spouses have equal rights to each other’s incomes.

You may want to discuss your state’s laws with an attorney if you live in a community property state.