Tips for Financial Well-being

Building a Solid Foundation for Your Financial Life

Here at Mascoma Bank, we want to see you succeed in all aspects of life—perhaps especially in your financial life. Financial literacy is a crucial part of building a foundation of security and stability so you and your family can make the choices right for you. To help, we’ve collected some of our most popular topics and offered tips to help you better understand the world of saving, spending, borrowing, and investing so you can adjust your habits and enjoy the benefits of financial wisdom. And of course, if you have any questions, our doors are always open.

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Paying Your Mortgage Off Early—Is It the Right Choice for You?

When you sign the dotted line (or the many, many dotted lines) on your first mortgage, it can seem like the last payment lies way far off in the distance. This isn’t an illusion—30 years, the most popular term for a mortgage, is a long time. But there are things you can do to bring that final payment closer

Glass piggy bank with a small home inside

No one likes to be in debt, and your mortgage is probably the largest debt you’ll ever have. Paying your monthly bill on time is essential to maintaining your credit and keeping your home. You can also help yourself pay off that mortgage faster by paying extra every month. Many people are attracted to the idea of owning their own home free and clear, and just about everyone wants to pay as little interest as they have to.

However, paying your mortgage off early might not be a good idea. You might actually save more money by putting it into high-interest savings accounts or investing it.

There are a few ways to arrange your finances so that paying extra doesn’t hurt. But before learning these tips, let’s figure out if it’s a good thing to do.

  • Do you owe money on high-interest credit cards or other loans? If so, pay these debts off first. The higher your interest rate and the longer it takes to pay off the debt, the more money you’ll end up paying. Always pay off loans with higher interest rates first.
  • Do you have at least a six-month financial cushion in a savings account? You need to have money saved that you can use if something changes drastically, such as someone loses a job or is injured and can’t work. Keep this money accessible and don’t use it for anything else.
  • Does your employer offer a retirement savings plan? Many employers match savings contributions, and if they do, be sure to take full advantage of this money before spending your money elsewhere.
  • Can you save or earn at a higher interest rate than you are paying your mortgage at? Right now, interest rates are low on typical savings and money market accounts, but that might not always be the case. If you are paying a mortgage rate of 5 percent and find a way to save or invest your money that will return 7 percent a year or something like that, it may make more sense to put your money to work.

If you are sure that paying extra on your mortgage is a smart thing for you to do, here are some tips on making it an easy practice.

  • Round up. Instead of paying $825 every month, simply round up to $900. This is not much more money and you probably won’t find yourself missing it, especially once you are used to that amount being paid every month.
  • Use any tax returns, bonuses, or other unexpected money toward your mortgage. Instead of spending extra money on new furniture or vacations, use that money to pay down the principal of your mortgage.
  • Pay one-twelfth of your mortgage extra every month. This results in one extra mortgage payment a year. That might not seem like a lot, but during the course of 20 years, that extra payment can add up to several years’ worth of payments.
  • Talk to your mortgage lender about refinancing if the rates decrease. Also ask about the possibility of taking out a 20-, 15-, or even 10-year mortgage, which would increase your monthly payment but result in less money paid over the life of the loan.

If you have questions about whether or not it’s a good idea for you to pay off your mortgage early, give Mascoma Wealth Management a call to schedule a meeting.

Saving for College Tuition

The days seem long gone when kids could work summer jobs and save up enough money to pay a substantial portion—if not all—of their college tuition. Today, students borrow tens of thousands of dollars to cover the cost of their college degrees, and it seems the price tag is only going to go up.

Graduation cap on top of hundred dollar bills

That’s bad news for parents hoping to save enough money to help their children make college more affordable. The statistics are grim. A recent study found that fewer than 40 percent of middle-income families were putting money aside for college. And even those who do save for college are falling far short of their goals. The average family wants to save around $40,000. But they’re ending up with less than $20,000.

Saving is tough. Add up all the things you’re supposed to be saving for—emergency funds, home maintenance, car repairs, retirement—and it’s easy to see why college savings fall by the wayside. 

It helps to have a plan—and to know that a plain old savings account is definitely not the way to go. There are better investment options to choose from.

  • 529 College Plans. More than 30 states, including New Hampshire and Vermont, offer investment opportunities called Qualified Tuition Programs. The 529 accounts are a breeze to set up online, and they allow your savings to grow at much faster rates than a savings account. Start early—how about as soon as your child is born—and make automatic installments of $50 a month, and you could have more than $20,000 in 18 years. When you draw the money out, you pay no taxes.
  • Roth IRA. You may already be saving for retirement in a Roth IRA, but did you know those funds can be used for educational expenses? You generally have to wait until you’re 60 years old to withdraw money for retirement purposes, but you can withdraw for qualified educational expenses after just five years. Another nice thing about a Roth IRA for college savings? If your child doesn’t attend college after all, you’ve still got that money for your retirement. It’s a win-win investment option.
  • Coverdell Education Savings Account. These accounts are similar to 529 plans, but they come with an added benefit. They can be used for K-12 educational costs. If you foresee private school in your child’s elementary, middle, or high school future, the Coverdell ESA covers all your bases.
  • Prepaid College Tuition Plans. These plans aren’t for everyone. They are currently offered in only about a dozen states, and they are only an option if you know for sure your child will attend a state school. But if that’s your situation, they’re worth checking out. Prepaid tuition plans allow you to lock in the cost of college at today’s prices. With the way tuitions are going up, that could amount to a whole lot of savings.

Saving is a best practice, even if you don’t have kids that you’re sending to college. Visit insight.mascomabank.com/blog and read our blog Five Steps to Start Saving—Today! for tips on how to make saving money happen!

How and Why to Set Up an IRA for Your Child

Most parents will agree that nothing matters quite as much as the future of their children. We often go to great lengths to ensure our children are eating healthy, exercising, and performing well in school as ways of ensuring a bright future. But what about their financial security?

paint splatter on floor with word "Future"

With an economy that increasingly relies upon digital technology and a shifting professional landscape, there’s no telling what the future may hold for our kids. What kinds of jobs will be available to them? What types of skills will they need to compete in the workplace? How much money will they be able to save for their own retirements?

One solution to this ever-present concern is to set up an individual retirement account (IRA) for your child, and given how straightforward the process is, there’s no real reason not to go out and do it tomorrow.

Why an IRA?

Compound interest can be a beautiful thing. With every passing year, an account grows until it becomes exponentially more than its initial starting balance. It’s one of the hallmarks of the individual retirement account, and it should stand to reason that the earlier contributions begin to be made, the more likely it is that the account will see significant growth over time.

Traditional IRAs are funded with money that has not been previously taxed, a benefit being that taxes do not need to be paid on these funds until it’s time to make a withdrawal. A Roth IRA—another popular option for children—is different in that contributions are made with post-tax money. Many people prefer this account due to the fact that withdrawals can be made up to the amount contributed at any time without having to pay tax penalties.

So, which type of IRA is right for your child? There are pros and cons to each option, which is why it’s always wise to sit down with a trusted financial advisor and explain your scenario in full before moving forward with opening an account.

Opening an IRA for Your Child

Opening an IRA for your child is not a particularly difficult process. You’ll have to meet two main requirements: the child must be under 18 years of age and have earned income from a job they have performed. With these requirements met, you can open a custodial IRA with your banking institution of choice—this is an IRA that your child owns but that you have full control over. Typically, transfer of control occurs once the account holder reaches 18 years of age.

Every year, your child can contribute a portion of their income—currently up to $5,500 of their total earned income. 

Teaching Through Experience

Individual retirement accounts are excellent tools for teaching children how to manage money. You can present real-world situations they might encounter later in life, such as mock 401(k) matching in which you agree to match your child’s contributions into the account until they turn 18. It’s also an opportunity to encourage your child to gain an understanding of the finer points of investing, which can be a fun educational experience for the whole family. The more effort you put into the teaching side, the more prepared your child will be to take over the account once they become a legal adult.

Setting up an IRA in your child’s name can help take away anxieties about the future for both parties—start now to get the most out of the account.

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10 Things You Don’t Realize Could Hurt Your Credit Score

Having a good credit score in imperative to anyone applying for a mortgage. Learn what might be bringing down your score.

Word cloud with "Credit Score" larger than the rest

When you’re applying for a mortgage, your credit score can be the difference between getting approved for the best interest rates and having to pay penalty rates. Unfortunately, no one really thinks too much about their credit score until they need to apply for a loan. These 10 things affect your score more than you realize.

1Paying your bills late

Every time you make a late payment (typically more than 30 days late), a notation is made on your credit report. This includes utility bills. Be careful about paying everything on time.

2Applying for too much credit

A notation is made on your credit report every time a lender has to check your credit. Each of these checks takes less than ten points off of your credit score, but those points can really add up if you apply for a lot of credit in a short period of time.

3Carrying high balances on your credit cards

Maxing out your cards lowers your debt-to-credit extended ratio. This ratio can account for up to 30 percent of your credit score. One solution is to ask for an increase to your credit limits. This will make it appear as if you’re only using a fraction of the credit that you’ve been extended.

Paying off debt will also help this ratio, and it will help the debt-to-income ratio that mortgage lenders look at very carefully.

4Closing old credit card accounts

The length of your credit history is important to your score. When you close old credit cards, your credit history could look a lot shorter than it really is. Before you close a line of credit, we suggest that you talk to a lender.

5Not making the full minimum payment

If you can’t pay the full minimum amount of your debt payment each month, it can hurt your score almost as much as if you never paid the bill at all. That’s because these partial payments are logged as missed payments. Keep track of how much you should pay each month.

6Keeping utilities out of your name

Utility accounts are a great way to build credit. They establish a credit history and show that you can make payments on time. If you don’t have any utility accounts in your name, however, you miss out on these advantages. If you’re applying for a mortgage, move one or two accounts to your name.

7Co-signing a loan

The debt that you co-sign for can show up as a liability on your credit report. Too many liabilities can lower your credit score. More importantly, many lenders will count this debt against you when computing your debt-to-income ratio.

If possible, take steps to get yourself removed as a co-signer from any loans.

8Having too many accounts

Opening a checking and savings account reduces your credit score by a few points. While this seems strange, it’s rarely enough points to make a difference. If you have multiple bank accounts, however, each one could reduce your credit score enough to be a problem. Close and combine some of your smaller accounts to avoid this problem. You’ll be simplifying your finances in the process.

9Wrong information

More than 90 percent of credit reports are estimated to have some type of error. This could be a wrong address or a delinquent account that was wrongly assigned to you. Review your credit report and fix problems before it’s urgent.

10Too many disputes

When false information appears on your credit report, the common wisdom has been to file a dispute with the credit bureau. Too many disputes, however, can cause your account to be flagged as a problem. Only dispute the information that makes a difference to your score. Leave the rest of it alone for now, and fix it after you’ve applied for a mortgage.

5 Things You Should Know About Credit Counseling

Credit counseling can be a long process, but it is one of the best ways to get your finances in order and put yourself and your family in a position where you can build wealth and improve your credit scores.

Four glass jars with coins inside. Last jar has plant growing out of it

When you’re having trouble paying your bills or if you just don’t seem to have any money left over after paying your bills every month, then someone might have suggested that you try credit counseling. These programs are a great way to have a professional review your budget and suggest ways to save while paying down your debt. Before you decide to try credit counseling, however, you should know a few things.

1Going to a credit counselor won’t affect your credit score

One of the biggest reasons that people enter credit counseling is because their credit score is preventing them from buying a car, home, or other major purchase. It’s important to realize, however, that simply showing up for credit counseling will not improve your score. Improving your credit score is a process that takes a lot of time and requires you to keep up one-time, full-debt payments. While credit counseling can help you to stick to a bill-paying schedule and make it more likely that you will have money in your account to pay your bills, it will not automatically raise your score.

2Your counselor cannot make you do anything

Signing up for credit counseling doesn’t mean that you’re turning over your finances to another person. While a trained, professional credit counselor can review your bills and accounts, he or she will not pay your bills for you or force you to stick to a budget. They can only make suggestions as to how you should spend and save your money. It’s up to you to decide what to do with that advice. The credit counselor cannot force you to do anything.

3Every situation is different

All too often, people hear about a friend or relative who went through credit counseling and assume that they’ll have a similar experience. The truth is that because everyone’s financial situation is different, everyone will get different advice from their credit counselor. For example, people with very similar levels of debt might get advice ranging from picking up extra hours at work to make more money to selling their car in order to pay off more debt. The exact advice will depend on a lot of different factors that the credit counselor reviews with his or her clients.

4You might not like some of the suggestions

The suggestions that a credit counselor makes will not always be easy to comply with. While developing a bill-paying schedule or giving up bottled drinks at gas stations might be relatively easy to do, other suggestions may require major lifestyle changes to fix your finances. In some cases, credit counselors have proposed that their clients get a second job, sell a car or home, remove their children from private school, and/or cut up their credit cards. Keep in mind, however, that it’s very rare for clients to be given a single option. For example, a client may be told that in order to reduce their debt they need to sell their home and look for cheaper housing or cut back on spending in areas such as dining out. While the choices might not be easy, it’s important to remember that you have options.

5You have to be honest

The most important thing to remember as you go through credit counseling is to be honest with your counselor. Keeping credit card accounts or a record of bankruptcy a secret from your counselor only makes it impossible for him or her to give you effective advice. These are professionals who have an obligation to keep your personal information confidential. It’s also helpful to know that most of them have heard and seen a lot of cases, so odds are your situation isn’t the worst they’ve seen. It may also help to know that you can always request a private meeting with your financial counselor, even if you’re in counseling with other family members.

Credit counseling can be a long process, but it is one of the best ways to get your finances in order and put yourself and your family in a position where you can build wealth.

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