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How to Refinance a Home Equity Loan

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Taking out a home equity loan could make sense if you need cash for home improvements, repairs or other expenses. You might be wondering if you can refinance home equity loan debt to get a lower interest rate or change your payment terms. The short answer is yes, refinancing a home equity loan is possible, though there are some requirements you’ll need to meet to qualify.

Talking to your financial advisor can help you decide if home equity loan refinancing makes sense.

Understanding Home Equity Loan Refinancing

Home equity loans allow you to tap into your equity value for cash. A home equity loan is a type of second mortgage that you repay with interest, in addition to your primary mortgage loan. Home equity loans typically have fixed interest rates and repayment terms can extend up to 30 years.

Refinancing a home equity loan means taking out a new loan to pay off the old one. You’d then make payments to the new loan at the terms set by the lender. And you’d still be responsible for making payments to your primary mortgage as well.

Reasons for Refinancing Home Equity Loan

There are several scenarios when refinancing a home equity loan or any type of mortgage could make sense:

  • Changing your rate. First, you might refinance if it would allow you to get a lower interest rate. Reducing your interest rate could save you money on the loan and it may result in a lower monthly payment as well.
  • Getting different loan terms. For example, say that your original home equity loan has a 20-year term, but you’d like to extend it. You could refinance it into a 30-year loan instead. You can also do the reverse and refinance a longer loan for a shorter term, though that can mean a higher monthly payment.
  • Switching loan types. If you have a variable rate home equity loan you might refinance to a fixed rate. Doing so could give you some predictability where your payments are concerned since you don’t have to worry about interest rate fluctuations affecting what you pay.
  • Taking out more equity. If your equity has increased since you took out a home equity loan, you might refinance it to draw out more cash. Just keep in mind that doing so means you’ll have a larger mortgage debt to repay.

Advantages of Home Equity Loan Refinancing

Refinancing a home equity loan can offer some benefits to homeowners. Here are the main pros to know about home equity loan refinancing.

  • Refinancing a home equity loan could save you money if you’re able to get a lower interest rate.
  • You might be able to lower your monthly payment, either by reducing the interest rate or changing the loan terms.
  • Choosing a shorter repayment term could help you pay off a home equity loan faster, freeing up money for other financial goals.

It’s helpful to understand what you hope to get out of refinancing home equity loan debt before making a move. That can also help you decide what kind of loan terms make the most sense.

Disadvantages of Home Equity Loan Refinancing

While there are some good reasons to refinance home equity loan balances, there are a few cons to know.

  • Refinancing may save you money on interest but you’re essentially just shuffling debt around.
  • Your lender may expect you to pay closing costs on the refinance loan and there may be a prepayment penalty if you decide to pay it off early.
  • Qualifying for home equity loan refinancing might be difficult if you don’t have sufficient equity or meet the lender’s minimum credit score and income requirements.

It’s important to note that refinancing into a longer loan term may not save much money, even if you’re getting a lower interest rate. The longer you pay on the loan, the more you’re paying in interest overall.

Using an online mortgage refinancing calculator can help you estimate your savings with different loan terms.

How to Refinance a Home Equity Loan

If you’d like to refinance your home equity loan, a good first step is calculating how much equity you have in the property to determine how much you might be able to borrow. Lenders will look at your loan-to-value (LTV) ratio, which is the loan amount divided by the property value. Generally speaking, a good LTV for mortgage refinancing is 80% or less.

Once you’ve done that, you can move on to the next phase which includes:

  • Shopping around to find the right lender to work with.
  • Applying for a refinance loan and submitting the required documentation
  • Completing the appraisal if the lender requires one.
  • Reviewing the loan disclosures to make sure you understand them.
  • Closing on the loan and paying any costs due.

When comparing lenders, it’s helpful to look at the minimum requirements to qualify for a home equity loan refinance, including LTV and credit score requirements. It’s also a good idea to check the costs. For example, will you need to pay closing costs out of pocket or are they rolled into the loan? Will you be charged a prepayment penalty if you pay the refinance loan off early?

In terms of documentation, the lender may ask for the same things that were required to get your first mortgage loan. The list can include tax returns, W-2s, bank statements and investment account statements. The more documentation you have to demonstrate your ability to pay, the better.

If the lender gives you the option to roll closing costs into the refinance loan, consider the pros and cons before agreeing. On the one hand, you won’t have to pay any money out of pocket to complete the refinance process. However, you’re still going to pay those closing costs over time and with interest since they’re included in the loan.

The Bottom Line

Refinancing a home equity loan is something you might consider if you’re ready to make changes to your existing loan or want to draw more equity out of your home. Estimating the costs and the potential long-term savings is a good starting point. And of course, keep in mind that your new payments need to fit your budget, so you don’t run the risk of falling behind.

Mortgage Tips

  • When you’re not sure whether refinancing a home equity loan is ideal, talking to your financial advisor can help. Your advisor can help you evaluate the pros and cons of refinancing and what kind of terms might work best. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Your bank might offer home equity loan refinancing options, but you may consider working with an online lender instead. An online lender may be able to offer lower interest rates for a home equity loan refinance, charge fewer fees or close on the loan in a shorter time frame. You may also be able to get pre-approved for a home equity refinance loan online, without affecting your credit scores. Keep in mind, however, that a hard credit check might be required if you decide to go ahead with submitting a full loan application.

Photo credit: ©iStock.com/actual_size, ©iStock.com/bymuratdeniz, ©iStock.com/Wasan Tita

Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.

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While there are a few different types of life insurance policies available, they fit into one of two umbrellas: term life and permanent life. Term life insurance is almost always cheaper than permanent life, as it provides coverage for a pre-established amount of time and lacks a cash value component. However, term life policies can be fitting for a variety of circumstances if the death benefit is only needed for a set number of years. Knowing how term policies work can empower you to make an informed decision when shopping for new coverage. Bankrate’s insurance editorial team breaks down term life insurance to help you better understand if this policy type is right for you.

Key takeaways

  • Term life insurance only stays in effect for a predetermined number of years —usually between 10 and 30 years — unlike permanent life policies.
  • Term policies are around three times cheaper than permanent life insurance, on average, because the chance of a payout on behalf of the policyholder is less likely.
  • 99 percent of all term policies never pay a death benefit, because most term policyholders stop paying their premium, causing their policy to lapse.
  • If you want to see a return on payments towards a term life insurance policy, you may want to look into conversion riders or return-of-premium riders.

What is term life insurance?

Term life insurance is a type of life insurance policy that lasts for a predetermined number of years rather than your entire life. When purchasing a term life policy, you’ll choose a policy term, most commonly between 10 and 30 years.

To help understand how term life insurance works, imagine you purchase a 10-year term life insurance policy. During that decade, you would pay your monthly or annual premium on time. If you were to pass away within that 10-year period, your beneficiaries would receive the policy’s death benefit.

If the insured does not pass away within the policy term and the coverage expires, the policy would end and the beneficiaries would not receive a death benefit when the insured passes away. However, there are exceptions to this scenario. Many of the best life insurance companies offer specialized riders, like conversion and return-of-premium riders, that tweak the way term life insurance policies work. If you are purchasing term life insurance, you may want to speak with your agent about what riders are available for your specific policy.

Typically cheaper than permanent life insurance No cash value component or investment potential to build wealth
Conversion and return-of-premium riders may add flexibility and peace of mind Only covers a specified time period
Gives families the ability to cover significant financial liabilities that will eventually expire after a set period of time, such as mortgages and tuition Sunk cost if you outlive the policy

Advantages of term life insurance policies

When choosing life insurance, it’s important to know how term and whole life insurance policies compare. Term life insurance has a couple of key advantages that make it an attractive option for those who need a larger death benefit for a specific period of time. It is typically the cheapest type of life insurance, especially for younger people or new parents. The larger death benefit at a reasonable price can provide for children dependents if something happens to the parent(s) earlier than anticipated.

Many financial planners encourage people who buy term life insurance to invest the money saved from not purchasing more expensive permanent life insurance. For policies with level premiums, the cost will not increase with age for the policy’s life as it does with some other life insurance options.

Learn more: Compare life insurance quotes

Disadvantages of term life insurance policies

Term life insurance does have a few limitations to keep in mind. For example, term life insurance policies pay out a death benefit when the insured passes away, but these policies do not include a cash value account. Whole life insurance policies, on the other hand, typically include a cash value account that may accumulate limited interest and capped returns. Some permanent life insurance policyholders use their cash value accounts to build wealth, but that option does not exist with a term life policy.

Another potential downside to having a term life insurance policy is that it only remains in effect for a certain period of time. Because policyholders can outlive their policies, there’s a chance that the death benefit will never be paid out. In fact, a study done by Penn State University indicates that 99 percent of all term policies never pay out a death benefit. However, that’s because most term policyholders don’t pay their premiums and let their policies lapse, not because they outlive the policy term, according to Entrepreneur.

Learn more: Best term life insurance companies

Types of term life insurance

There are several different term life insurance options, and some offer more guarantees than others. Usually, the more guarantees the policy offers, the more expensive the policy is. Here is a breakdown of the major types of term life insurance policies:

  • Level term insurance: Both the premiums and the death benefit remain constant over the policy’s life with this form of term coverage. Level term insurance usually lasts for anywhere from 10 to 30 years.
  • Decreasing term insurance: This type of term insurance, usually used to cover a shrinking debt such as a mortgage, is typically less expensive because the death benefit slowly decreases over time.
  • Guaranteed renewable term insurance: This type of term coverage allows the policyholder to renew the policy at the end of the term without having to undergo a medical exam or prove insurability again. It is generally more expensive overall, and it is important to note that the policy premiums will still increase with each successive term. A yearly renewable term is a form of guaranteed renewable term coverage.
  • Convertible term insurance: If you purchase a conversion rider and outlive your policy term, your coverage would turn into a permanent life insurance policy. Typically, you will not have to undergo another medical exam during policy conversion. Keep in mind that your premium or death benefit amount will change based on your age at the time of conversion. For example, if you wish to continue paying around the same premium, your death benefit would decrease, whereas you’d pay more to maintain around the same death benefit.
  • Return-of-premium term insurance: Some policyholders may be worried about signing up for a term policy, outliving their term and “wasting” the premiums they paid over the course of the policy term. This specialized rider provides a partial or full refund if you outlive the policy term. However, the rider will cost you extra during the policy term.

Riders for term life insurance

A standard term life insurance policy may not cover certain events such as critical illnesses, financial protection for your loved ones after you pass, and more. A rider, also referred to as an endorsement, is an optional type of life insurance coverage that can be added to your existing policy. It can be beneficial to add a rider to cover some of the gaps in coverage in a term life insurance policy. Here are three riders that are available for term life insurance:

  • Child term rider: This is only available for term life insurance policies. A child term rider provides coverage if your child passes away before a certain age and would pay out a death benefit. Additionally, this rider enables the term policy to be converted to a permanent policy without needing a medical exam.
  • Return of premium rider: For an additional fee, this rider ensures you receive back the money you paid into the policy if you don’t pass within the policy’s term. If the policyholder passes away before then, the money would be paid to the beneficiaries listed as normal.
  • Waiver of premium rider: If you become critically ill, injured or disabled and cannot go to work, a waiver of premium enables you to pause your monthly premium until you’re able to go back to work. However, qualifying scenarios are determined by the particular insurer. Additionally, with this rider you are typically only covered up to a certain age — usually your retirement age.

How much does term life insurance cost?

Term life insurance premiums are calculated based on the age and health of applicants. Because of this, pricing for a term life insurance policy varies but is typically significantly cheaper for younger applicants. Keep in mind that age and health are the main determinants of your premium, though you may still see some variance if you get quotes from multiple life insurers.

Comparing life insurance companies may be most helpful when you focus on what type of policy riders are available, how positive the customer satisfaction may be or what the insurer’s financial strength ratings are compared to other insurers.

Learn more: Affordable life insurance companies

Will I get my money back at the end of my term?

Unless you purchase a return-of-premium term life insurance policy, you will not get any money back at the end of the term. Paying premiums without receiving a death benefit is one of the potential disadvantages of purchasing term life insurance. A return-of-premium rider would increase the cost of your term life insurance, but would allow you to recoup a portion or all of your paid premiums. If you want to receive money back in the event that you outlive your policy term, you may want to discuss this option with your life insurance agent.

How much term life insurance do I need?

Deciding how much term life insurance you need hinges on your financial goals and specific situation. For instance, a parent of a young child may want to purchase a life insurance policy with a 15-year term. A term of this length could make the most sense as it could ensure that their child will be financially secure if the parent passes away while the policy is in place.

On the other hand, a childless couple with 10 years left on their mortgage may only want a term life insurance policy to be active while they are still paying off their home.

Some other factors to consider when determining your life insurance coverage needs include:

  • What is your yearly income and what are your expenses? How much room do you have in your budget for life insurance?
  • Are you the sole breadwinner? If not, does your spouse or partner make enough to cover your family’s current and future expenses if you aren’t there?
  • How many children do you have, and what are their ages? Do you plan to cover their higher education costs?
  • Are you a caretaker for any disabled family members?
  • Do you have a mortgage or other debts? If so, how many years will it take to be debt free?
  • How much financial help would your spouse need to keep your home afloat if you passed away?

It’s essential to consider your coverage needs to keep your life insurance premium within budget. If you carry too much coverage, you could find it challenging to keep up with your life insurance bill, putting yourself at risk of policy cancellation. If you don’t have enough coverage, your beneficiaries may struggle financially after your death. A life insurance calculator can help guide you on your life insurance shopping journey, as can a consultation with a certified financial planner.

Frequently asked questions

    • At the end of a term life insurance policy’s term, most plans will expire; however, policyholders may have the option to either renew the policy for a predetermined term of their choosing or convert the policy to a permanent plan, if they have elected these options at the onset of their policy. While letting the plan expire in most term policies means losing the money paid into premiums, some providers offer “return-of-premium” options that allow people to pay higher premiums in exchange for the option to have some or all premium payments returned if they outlive their term.

    • While it is possible to take out a life insurance policy on someone else, there are some stipulations. For instance, there must be insurable interest between the person purchasing the policy and the person being insured, such as business partners, spouses, parents or children. The person purchasing the policy must prove that the death of the insured person would have an adverse financial impact on them. Additionally, the insured person would also need to provide their consent, as you cannot take out a policy on someone without their knowledge or agreement.

    • Choosing a life insurance beneficiary is a personal choice. Many choose spouses, children, parents or a trust for the benefit of a family member to be their life insurance beneficiaries, but no rules dictate that these are your only options. Your life insurance beneficiary doesn’t have to be a person at all — you can choose to list a church or charity as your beneficiary if you wish. One of the most important things when selecting a life insurance beneficiary is remembering to do it. Forgetting to name a life insurance beneficiary can cause financial hardship for the person (or people) you thought would be collecting your death benefit.

Source: thesimpledollar.com

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As you begin to approach older age, a big house may not have the same appeal as it once did.

In homes with multiple levels, for example, getting around may become increasingly difficult or there just might not be the need for many rooms.

Similarly, once you retire, you may wish to shift your focus to different priorities in life; while a big home may have been ideal while raising children, something a little smaller could afford you the ability to travel and spend your hard-earned money on something other than a mortgage payment.

It’s no wonder then that downsizing can offer many possibilities to those searching for something different. The choice isn’t an easy one, however, and there are many factors to take into account any questions you need to ask before committing to a move like this.

Photo by Craig McLachlan on Unsplash

When Should You Downsize?

There’s no right or wrong time to downsize but you’ll find that most often it happens before the age of 65 or around the age of retirement.

Apart from the physical work that downsizing takes, it can also be a rather stressful and emotional time for homeowners, especially if they’re leaving the home they raised children in and established so many memories.

Because of this, it’s best to commit to the process while you are still capable and the toll won’t take too much out of you; if you’re already unable to move around your home as freely as you once did, you’re at a disadvantage.

Even those in fine health may see the benefit of downsizing, however. If you don’t have the need for such a large space or simply want to save money, downsizing might be more economical or practical. This guide goes into a bit more detail about the economic benefits of downsizing.

Take Your Time

Another reason downsizing before the age of 65 is ideal for many is because it gives you the ability to take your time.

Instead of feeling like you’re being backed into a move you aren’t ready to make, starting the process early can help ease the transition.

This starts with finding out your home’s worth and calculating the profit you can expect to make from a sale. Taking your time allows you to evaluate the market and, with the help of an estate agent, sell for a good price.

Relocating

Photo by Wilfried Santer on Unsplash

The same way a real estate agent can help you sell your home, they can also help you relocate and find a new one that meets your every need.

In some cases, this may just be a smaller house or apartment in the same area you live in now but for some, they’ll find the opportunity to research and visit retirement developments that cater to retired residents. In any case, it’s important to consider why you’re downsizing in the first place; there are many possibilities for those looking for something smaller and more affordable with fewer stairs to climb.

Paring Down

Another bonus of starting the process of downsizing early is that you’re afforded the extra time to go through your belongings and pare them down properly. It’s the perfect opportunity to evaluate your assets and to purge belongings that won’t be essential in your new place.

For example, start your packing and paring down in rooms that you know you won’t likely have once you move. Get rid of duplicates and things you won’t need by determining whether you can sell or store them.

In many cases, things you no longer need can be passed down to children or relatives. Similarly, making a note of the things you absolutely can’t do without will help you determine just what kind of square footage you’ll need in a new home.

Whether you’re downsizing for practical or economic reasons, there are many advantages to starting the process early and going through the proper channels to ensure a transition that is as smooth as possible.

While only time and support from friends and family can help ease the stress and emotions that come with saying goodbye to a home you’ve lived in an loved for decades, a real estate agent can help with everything else. With their help, you’ll be able to find something new that suits your budget and every need, where you’ll be sure to make even more great memories for years to come.

More resources:

Why There’s Never Been A Bigger Need for Senior Housing Options
Why Hire a Professional Interior Designer? Here are 6 Top ReasonsHow Much Do Modern Prefab Homes Cost?
Here’s Why You Shouldn’t Buy a House in a Neighborhood with an HOA

Source: fancypantshomes.com

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Should I save for retirement or use my extra income to pay off debt? That is a question that many Americans are currently faced with. There is no question that debt has become a huge problem for most people in this country. In fact, I believe that the best way to financial freedom is to eliminate all debt!

However, most Americans have also neglected their retirement savings as well. According to a recent article by Market Watch:

The gap between what Americans need for retirement and the amount they have saved is a staggering $6.6 trillion. The $6.6 trillion retirement income deficit amounts to about $90,000 per household if you count all 72 million households ages 32 to 64, though that figure includes even those who have enough saved for retirement, said Anthony Webb, a research economist at Boston College’s Center for Retirement Research.

This means that many of us will be in serious financial trouble once the time for retirement comes around. The only way to correct this is to start saving today, or forgo retirement and work until you are physically unable.

So then the question becomes…which is more important? If you are in debt and behind in your retirement savings, where do you stick your cash? Do you hold off on contributing to retirement accounts until you are completely debt free? Should you instead max out your retirement accounts and take much longer to get out of debt? Is there a logical, orderly way to combine both?

Pay Off Debt Before Saving For Retirement

There are two very strong arguments for why you should completely get out of debt before contributing to your retirement accounts.

Guaranteed Rate Of Return

If you concentrate on getting out of debt, then you guarantee yourself a rate of return on your money that is equal to the rate of interest on your debt. For instance, if you are currently paying 20% each year on your credit card debt, then by paying it off, you guarantee yourself a 20% annual rate of return! That sounds like a great investment to me!

The same is true for any other type of debt for which you pay interest. Even though the interest rate on a house or a car is generally lower than that of a credit card, and the fact that they are amortized means that more of the interest is paid in the beginning of the loan, there is still significant savings to be had by paying them off early.

Financial Freedom

The second argument for paying off your debt before saving for retirement, is that you gain financial freedom! Being debt free means that you are now free to allocate your money any way you wish – after covering your living expenses, of course.

Fund Your Retirement Accounts Before Focusing On Debt

The Power Of Compound Interest

Simply stated, compounding interest describes what happens when interest is calculated on a principal amount of money, and then that interest is added to the principal and now interest will be calculated on this new higher amount. For instance, if you save $10,000 and it earns 10% interest over the course of a year, you have earned $1,000, meaning you now have $11,000 in your account. If we are dealing with compound interest, the next year will begin with a new principal amount of $11,000 and your 10% interest will now earn $1,100 in the second year!

Since you aren’t going to withdrawal any money out of your retirement account, each year the returns from the previous year are invested as well, so your account continues to build even if you do not add new funds [Note: The actual mechanics of investment accounts work a little differently, but the basic result is still the same].

So each year that you neglect to save for retirement, you are not only losing out on what you would have contributed for that year, but you are also missing out on the compound interest on your contribution for the next 20 to 40 years!

Tax Deferred Accounts Have An Annual Contribution Limit

If you wait until you are completely out of debt before you contribute to your retirement accounts, you will still be subject to the IRA contribution limits or the 401k contribution limits for that particular year. So even if you now have $40,000 to contribute to your retirement in 2015 because you neglected retirement savings in the previous years to get out of debt, you will still only be able to contribute $16,500 to your 401k and $5,000 to your IRA (assuming that the limits don’t change between now and then, and you are under 50)!

You May Be Missing Out On Free Money

If your employer offers a 401k employer match, then by refusing to contribute to your 401k until you get out of debt, you are passing up on free money! You could actually be turning away thousands of dollars each year because you are so focused on debt! If you make your retirement planning a priority, then you can avoid giving away money!

Save For Retirement While Getting Out Of Debt

Here is my suggestion for most people. There is no rule that says you have to go “all or nothing” when it comes to allocating your money. Put some of your money toward debt repayment, and put some toward retirement saving.

Because debt has such a negative influence on our financial freedom, happiness, and even weight, my vote is always to eliminate debt. However, because of the prospect of free money for retirement, I can’t imagine passing on my 401k contributions.

So, if you are in debt and have a chance to contribute to a 401k, do it – at least contribute enough to get the full employer match. Then put the rest of your money toward debt repayment.

Some may ask…why not contribute more? Good question. Well, do you remember that compound interest that we talked about? If you are in debt, chances are that it is working against you. You are not only charged interest on the principal amount, but also on any previously accumulated interest! That means that you must make getting out of debt a top priority – right below getting free money!

What are your thoughts? Tell us what you think about the debt vs. retirement debate in the comments!

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Source: biblemoneymatters.com

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This guest post from Sydney is part of the “reader stories” feature at Get Rich Slowly. Sydney blogs about personal finance, entrepreneurship, self improvement, travel and lots of other fun stuff on Untemplater.com. Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income.

It’s hard to believe it’s been about 20 years since my parents first separated, and it’s actually a blessing it happened when it did. No parent ever wants to put his or her child through the nastiness, heartache and sadness that comes with divorce, but having lived through my parents’ split, I can tell you that it actually can be the best option.

When I was a kid, I didn’t understand why my parents couldn’t get along. Neither one of them was mean or evil; they didn’t cheat on each other. They had jobs, loved me, supported my interests and activities, and they didn’t seem that different from my friends’ parents. Well, except for the arguing. It got really nasty toward the end of their marriage. There is absolutely nothing positive or healthy for a child of any age who has to live in a house with two yelling parents.

Money and debt drove my parents apart

I tried to avoid them when they were angry at each other, but it was hard not to listen to them even from down the hall with my door closed. What was the No. 1 thing they would always fight about? Money. Their finances were terrible. It wasn’t until I became an adult that I learned just how bad they were with money. Even though both my parents worked full time, they had low-paying jobs and a staggering amount of debt.

I’m convinced that my parents’ radically different views on money were main reasons they were incompatible as a couple. My mom loved to spend money that she didn’t have. She probably had about 20 different credit cards. My dad was pretty much the complete opposite. He was extremely frugal and did everything he could to save money by fixing things around the house on his own. He always found ways to reuse things, hated shopping, and could stretch a dollar in so many different ways. Every time he tried to talk to her about bills and budgeting, she’d try to brush off the ugly stuff and then they’d both end up blowing up.

Here are 10 things I want to share with you that my parents inadvertently taught me about love, work and money.

1. Don’t rush into marriage. Don’t tell them I told you, but my parents had a shotgun wedding and they started things out rushed and frazzled. They were lucky to be in love at the time, but they had no savings, and didn’t really know what they were getting themselves into. I didn’t want the same thing to happen to me, so I took my time finding and getting to know my soul mate. We openly talked about our relationship, goals and desires before deciding to settle down, and things have been incredible!

2. Talk about money while you’re dating. Being on the same page with your partner about money and financial goals is so important. I’m not saying you need to talk budgeting and financial goals in the first few months of dating someone, but if you want to take things to the next level, you owe it to yourselves to talk about money way before tying the knot. If you have drastically different thoughts on budgeting and saving, be forewarned this will bring a lot of stress and tension over time, and things could get very, very ugly.

3. Go to college and don’t expect your parents to pay 100 percent. My parents didn’t graduate from college, and this put a limit on their career paths and eligibility for promotions and raises. They were incredibly supportive of me going to college, and I was lucky to have paid for half of my tuition through financial aid and grants. Having to foot the other half of the bill myself taught me to be disciplined and work hard for good grades and internships. Paying for some or all of your schooling yourself is incredibly motivating and makes you really appreciate your education and the opportunities it presents.

4. Become financially independent. The fact that my parents didn’t have a lot of money was a big reason why I studied and worked so hard. I’m saving as much as I can and fighting hard to get paid what I’m worth. Being financially independent is an incredible feeling and gives you so many freedoms. I love the quote from Mary Schmich’s essay “Wear Sunscreen”: “Don’t expect anyone else to support you. Maybe you have a trust fund. Maybe you’ll have a wealthy spouse. But you never know when either one might run out.”

5. Avoid credit card debt. Credit card debt is bad. Just don’t do it. If you can’t afford something, just leave it in the store. I wish my mom learned this when she was young. Credit card debt has put both of my parents through hell. I shudder to think about how much money they threw away over the years in interest, fees and penalties.

6. Update your budget at least twice a year. My parents never made a budget when they were married. I, on the other hand, am crazy about budgets. I love tracking my savings and looking at my short- and long-term financial goals. The markets are always changing, so I also recommend diversifying your income streams and monitoring all of your investments regularly.

7. Don’t waste money on junk. I couldn’t even count how many car loads of clothes, books, household goods and junk I’ve donated to Goodwill over the years. A lot of it was from things my mom bought for me over the years, as well as stuff I accumulated in my 20s that I really didn’t need. I’ve adopted a moderate minimalist lifestyle now, and I’m happy not shopping. Instead, I take care of my things so they last. I have absolutely no interest in designer jeans, handbags or shoes. The money I do spend is on traveling, activities, helping my family and saving for an early retirement.

8. Have difficult conversations. My parents had a lot of problems communicating with each other and it brought so much stress and unhappiness into their marriage. I’ve learned that relationships build on trust and deep conversations. Relationships can also grow stronger through having difficult conversations and facing the awkward, scary, uncomfortable and unpleasant things head on.

9. Don’t quit your job without a plan. There were several times that my dad quit his job on the spot without anything else lined up; that really put our family between a rock and a hard place. I learned never to quit a job without a plan in place and another job waiting. It’s easy to take our jobs and benefits for granted until we lose them, and then we desperately need income and coverage. My advice is to calculate your cost of living and make sure you have at least 12 months’ worth in savings before making any radical career or life changes.

10. Think positively and help others. Keep a positive attitude whenever you can. You’ll be surprised how much better your life will become! We don’t need a lot to be happy. Look around you and be thankful for what you do have. I’m very grateful that my parents taught me to look on the bright side of things and help others. They weren’t always happy or trouble-free themselves, but they always took care of me and reminded me that even when things are bad, there are always other people out there who need help much more than we do.

Sometimes I wonder what life would have been like if my parents didn’t have all those money problems and stayed happily together. I know one thing, the holidays and visits would have been so much easier without having to shuttle back and forth! But I think their struggles led me to become the motivated, patient and independent person I am today. It’s what we learn from our experiences that make us better!

Source: getrichslowly.org

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Don’t speak personal finance? Not to worry! Mint is celebrating World Dictionary Day with a list of must-know money terms to bring some savvy to your saving.

Quiz yourself to see how many terms you know! Have a definition of a term that’s not on our list? Need help with an tough acronym? Ask us on Twitter with the hashtag #MyMintTips.

Must-Know Money Terms

401(K)

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

IRA

An investing tool used by individuals to earn and earmark funds for retirement savings. There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs.

Traditional and Roth IRAs are established by individual taxpayers, who are allowed to contribute 100% of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. Contributions to the Traditional IRA may be tax deductible depending on the taxpayer’s income, tax filing status and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not tax-deductible. 

Net

The final amount that remains after all other amounts have been taken away. Examples: net profit, net income, net worth

1095 Forms

In 2014 the Affordable Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. For individuals who bought insurance through the health care marketplaces, the 1095-A will provide information that will help to determine whether you are able to receive an additional premium tax credit or have to pay some back. 1095-B’s and C’s are for people with private insurance or from their employer — you just need these for your records, and they’re not required to file.

APR

The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

FICO Score

A type of credit score that makes up a substantial portion of the credit report that lenders use to assess an applicant’s credit risk and whether to extend a loan. FICO is an acronym for the Fair Isaac Corporation, the creators of the FICO score. Using mathematical models, the FICO score takes into account various factors in each of these five areas to determine credit risk: payment history, current level of indebtedness, types of credit used and length of credit history, and new credit.

A person’s FICO score will range between 300 and 850. In general, a FICO score above 650 indicates that the individual has a very good credit history. People with scores below 620 will often find it substantially more difficult to obtain financing at a favorable rate.

ARM

An adjustable rate mortgage is also known as a “variable-rate mortgage” or a “floating-rate mortgage”.It’s a type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin. 

Debt to Income Ratio

A personal finance measure that compares an individual’s debt payment to his or her overall income. A debt-to-income ratio (DTI) is one way lenders (including mortgage lenders) measure an individual’s ability to manage monthly payment and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.

For example, John pays $1,000 each month for his mortgage, $500 for his car loan and $500 for the rest of his debt each month, so his total recurring monthly debt equals $2,000 ($1,000 + $500 + $500). If John’s gross monthly income is $6,000, his DTI would be $2,000 ÷ $6,000 = 0.33, or 33%.

Equity

Equity is the value of an asset less the value of all liabilities on that asset. The term’s meaning depends very much on the context. You can think of equity as one’s ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered entirely the owner’s equity because he or she can readily sell the item for cash, with no debt standing between the owner and the sale. Stocks are equity because they represent ownership in a company, though ownership of shares in a publicly traded company generally does not come with accompanying liabilities.

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