FCFW Money Edition

Welcome to FCFW: your new go-to for the news and advice you need to live your best financial life. We pair the week's most important money headlines with smart ways you can take action.

Experts have long recommended 20% as a rule of thumb to give hopeful buyers a ballpark figure to aim for. But as home prices continue to rise, a 20% down payment is getting further out of reach for some.

So where did 20% come from?

To help keep mortgage costs down. If you put down less, lenders generally require you to pay for private mortgage insurance (PMI). Because a mortgage is a contract that tells the bank you promise to make payments on the loan. Your payment is how you can show you really mean it.

So why would I put down less than 20%?

Simply put, sometimes it’s monetarily necessary for homebuyers to go with a smaller down payment. Buying a home and getting started building equity might fit better into some folk’s long-term financial plans.

Pros & Cons

Pros of a Smaller Down Payment:

• It saves you cash for other up-front costs related to mortgage & moving.

• PMI payments aren’t forever.

Cons of a Smaller Down Payment:

• Larger monthly mortgage payments

• Possibly higher interest rates

• Longer time to build equity

How can I put less than 20% down?

Conventional mortgages generally require a credit score of at least 620 when putting down less than 20%. Many require a minimum down payment of 3%. The government also backs mortgages like FHA loans, VA loans (for those who’ve served in the military), and USDA loans (for rural homebuyers). FHA loans have a lower credit score requirement of 580 for borrowers who put at least 3.5% down. Eligible buyers can get USDA and VA loans with $0 down.

Bottom line: You have options. And you should compare loan terms at multiple lenders to find the best interest rate available to you.

How to decide what size payment is right for me?

The right size down payment is the one that makes sense for your goals and budget. Generally speaking, the bigger the down payment you can manage, the better. Not only will you save on your mortgage in the long term, but it could also help you win a bidding war (which is still pretty common in the tight housing market).

Oh, and don’t forget to look into down payment assistance programs — a common money mistake first-time homebuyers make. Many local and state governments, plus the federal gov, offer credits and other help for first-time homebuyers.

A 20% down payment isn’t always necessary to buy a home. A larger down payment comes with a lot of benefits, but less money down may be a faster track to homeownership.

FCFW on Setting Realistic Savings Goals

June, 21, 2023

The Story

If you listened to your parents, you know money doesn't grow on trees. But it can grow in the bank. That's why saving should be at the top of your financial to-do list.

That’s why I’m here.

Let’s go. Start by looking at your personal stats: how much you make, how much you spend, and how much you currently save. Keep those numbers in mind as you set your goals.

Some important ones to check off your list first: creating an emergency plan (because life is full of expensive surprises),paying off high interest debt (because it’s dragging you down) and investing for retirement (because who wants to work forever?). After that, it’s time for the fun part.

Not sure ‘fun’ and ‘savings’ belong in the same sentence.

Thinking about all the things you want to do in life IS fun. Saving is how you make those dreams your reality. Want to take a dream trip? See what flights, hotels, and activities usually cost. Trying to buy a home in five years? Research prices in your ideal area to figure out a good down payment goal.

Once you’ve decided what you want, when you want it, and what it’ll cost, do some math to come up with a monthly or weekly savings target. Because research says breaking your goal into smaller goals can make it feel less overwhelming. Example: saving $1,000 might sound like a lot, but $100 a week for 10 weeks? Probably sounds more doable. And you can bump this up over time as you start making more or regularly spending less.

Got it. What’s next?

Picking the right account. Ideally you should have a separate one for each goal. Having one big savings pot makes it too easy to use money on the “wrong” thing.

Here are some options:

• Savings and money market accounts: perfect for money you need soon-ish, like for a road trip or to decorate a nursery. The sooner you need the money, the more liquid (easily accessible) it should be. Pro tip: see if your bank offers free sub-accounts for each of your short-term goals. Oh, and shop around to compare interest rates. Online banks usually pay more than brick-and-mortar ones.

• CDs: aka certificates of deposit – basically, savings accounts that generally pay more interest IF you don’t withdraw the money for a certain amount of time. Go rogue and you could pay a penalty, like a few months’ interest.

• 401(k), IRAs and other retirement accounts: for money you’ll live on after you stop working. Don’t touch it till then. In most cases, you’ll pay penalties for withdrawing it early.

• 529: where you invest money for future education costs so the tuition (yours or someone else’s) doesn’t bankrupt you. You can make qualified withdrawals tax-free.

• Regular investment account: for goals at least a few years away. Unlike a retirement account, you can sell investments whenever you want – penalty-free. Taxes may apply. Just keep cool if your balance fluctuates. That’s normal. Over the long term, overall stock prices have always gone up. A longer investing time frame lets you ride out those short-term ups and downs.

When do I actually start saving?

Now. Take a look at your recent bank and credit card statements to spot places to trim your spending. Ideally, you’ll save 20% of your take home pay for future you. But saving anything is good. Cutting one $10 expense every week will add up to more than $500 in a year.

Set up automatic transfers to take the willpower out of saving. And think about hanging up a photo that represents your goal – a home, beach scene, whatever motivates you – to remind yourself why you’ve decided to save instead of buying more wine. For real...researchers say that helps.

Saving can help you afford the life you want. Saving successfully starts by naming your goals and making a plan to reach them.

How to ‘50/20/30’ Your Budget

June 21, 2023

Making a budget is a lot like going to the dentist: Not fun, but usually less painful than your nightmares make it seem. And the more consistent you are, the less likely you’ll have (financial) health problems later. Meet the 50/20/30 rule, a straightforward and pretty easy way to start budgeting.

That’s a big promise.

We can deliver. Start by looking up your take home pay or the amount that hits your bank account on payday. Add up how much you bring in each month. That’s what you’ve got to work with. Next, make a list of your regular monthly expenses. If you need a cheat sheet, look up old bank and credit card statements.

Okay, then what?

Sort all your expenses into three categories: needs, wants, and future goals. The 50/20/30 budget says the ideal breakdown is this:

• 50% of your money goes toward basic needs

• 20% is for money you can use to pay for retirement and other big life goals

• 30% goes toward everything else

Examples, please.

Let’s start with the 50%. These are your bare-minimum expenses that keep the lights on in your life. Literally. Because utility bills are in this category. Along with things like:

• Rent or mortgage

• Basic groceries

• Insurance

• Gas and/or public transportation costs

• Phone and Internet

• Minimum debt payments

Got it. What about the goals category?

Giving this part of your budget some love might feel like a sacrifice now. But future you will be glad you did. Your 20% should include saving for emergencies, investing for retirement, and money for other life goals. Like buying a home one day or going on a dream vacation.

If you’re working on get out ASAP, respect. You can put your extra payments in this category, too. The bare minimums are already accounted for under ‘needs.’

Still waiting to find out where to budget for Netflix and chilled wine.

Here you go. You can spend the last 30% of your take-home pay on those things or whatever else you want. Concert tickets, subscription boxes for your dog. No judgments. Think of this as the upgrade category. Groceries are a need, but ordering in is a want. Replacing your winter coat is a basic need, but extra clothes shopping falls into this bucket.

What if my expenses don’t fit into these categories?

You’ve got two options. If you’re spending more than half your take-home pay on needs, one option is to cut back. Pro tip: Call up your phone or cable company and ask for the retention department. They’ve got the power to actually give you a discount if you threaten to cancel your service. The other option is to "borrow" some cash from your wants category, which is more flexible. Try to keep goals at 20%. Or at least work toward getting there.

50/20/30

The 50/20/30 rule takes the sting out of budgeting. And doesn’t make you track every single dollar. One way to keep yourself on track is by automating the 20% piece: set up transfers from checking to savings or your credit card bill on payday. Outta sight, outta debt much faster.

Do Money Saving Challenges Actually Work?

June 21,2023

New money saving challenges pop up every year and 2023 is no different while game playing tasks like budgeting and saving money can make reaching your goals fun, they seem to lose their steam after a few days or weeks. Leaving many to wonder: Do money-saving challenges actually work? And how can I actually stick to one that might work for me? Be honest. Could a money saving challenge actually work for me?

Short answer: Yes, money saving challenges work because they combine simple actions with accountability. Making the task more achievable. But they wind up being a short-term solution because "people get busy," she explains. "The buzz of the 'new year, new me' and resolutions fizzle down."

The way to make things work is to start by clearly defining your money goal. Are you trying to save up for your dream vacation to Bora Bora? Are you looking to cut down on how much you spend on going out to eat each month? Once you establish that, you can figure out a money challenge that works for you.

So what money saving challenge should I try?

Here are some popular money saving challenges you may want to consider, depending on your goals:

The 52-Week Money Challenge

Who should try it: This one’s a good option for anyone who is ready to go from living paycheck-to-paycheck to saving some cash.

How it works: Increase your savings by $1 each week. So on week one, you put $1 into your savings account. On week two, the amount goes up to $2. You keep that pattern going up until week 52. By then, you’d have a total of $1,378 saved for your money goal.

The Envelope-Saving Challenge

Who should try it: If you like cash stuffing and you have the time to be really thoughtful with your finances, you’ll have fun with this money saving challenge.

How it works: All you need is 100 envelopes, a pen, and some cash to get started. Step one: Number your envelopes 1-100 (these labels will tell you how much to put in each envelope). Step two: Every day, randomly choose a different envelope and add the amount listed on the envelope. Ex: If you pick up the one labeled 79, you’ll put $79 into it. After the 100-day mark, you’ll have about $5,000 saved up.

The No-Spend Challenge

Who should try it: Aspiring budget pros.

How it works: The no-spend challenge is pretty self-explanatory: You only spend on the absolute essentials. Like rent, groceries or utilities. Not sure what to include? Take a look at your monthly spending and list the things you need to spend on. If giving up your daily Starbucks seems daunting but also doesn't feel like an 'essential,' there's another option for you: You can add personal 'must-haves' to the list of things you can spend money on. That may include laundry service or weekly takeout. It may take you a bit longer to reach your budgeting goal, but it can still happen.

Any tips for sticking with a challenge long-term?

Your dream home isn't going to buy itself. Remembering your ‘why’ will be a solid motivator to keep you working toward your money goals.

Also, don’t beat yourself up if you fall off the wagon even if the day-to-day responsibilities get in your way, you still have a chance to make it past week four of your 52-week challenge.

Here are two final tips to make this more enjoyable: “Do the challenge with friends, family, or co-workers (like a book club) so you can have accountability.” And don’t forget to reward yourself for the quick wins, like extra dessert or a small Amazon purchase your first month in.

Money saving challenges may seem like all the rage when a new year strikes. But they won't do much if you can't actually stick to them. That's why it's so important to find a goal and a money saving challenge that works toward what you want.

@lymanjoy

100 Envelope Challenge #cashstuffing #savingchallenge #100envelopechallenge