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architecture-family-house-front-yard-106399It goes without saying, but I’ll say it anyway…divorces are complicated! There are many questions that an experienced mortgage professional can help answer before you finalize your divorce. For example: Can one of us afford the family home or do we need to sell it? Will I have enough income to qualify for a mortgage after the divorce? Is my credit score good enough to qualify? Will I have enough assets to refinance or purchase a new home? Do I have the right job and/or job history for mortgage qualification? What’s my home worth? Will the family home appraise high enough to pull out equity to cover the cash I owe my spouse, or do I need to pull funds from another source? What’s the consequence if my Ex-spouse keeps the home but can’t refinance it into their name after the divorce? What’s the best loan for me post-divorce? Attorneys are not mortgage experts and there are many nuances in the mortgage world that can totally derail the perfect divorce settlement. Rainbow Mortgage Inc. takes a very proactive role in assisting our attorney friends and their clients in making sure their post decree housing goals are met. We help you to (1) make realistic decisions about what is possible, (2) understand your loan options, and (3) structure a mortgage loan focusing on your post-divorce goals. We are happy to help you by participating in client-attorney meetings to discuss potential initial options, provide revised options (if necessary) prior to the final signing of the decree, provide an estimate of what your home is worth using our AVM tool (which is the same tool used by lenders to evaluate whether a value on an appraisal is reasonable) and at no cost to you or your attorney, review the decree prior to it being sent to the judge. Here are a few examples of items in a divorce decree that have caused client issues in the past: (1) The length of time that a person is to receive support payments does not meet lender guidelines to qualify for a mortgage loan. Different loans have different guidelines however, standard guidelines require that a borrower prove that they will receive the income for a minimum of three years following the funding of the mortgage loan. The dates listed in the decree must be carefully monitored and possibly adjusted if the divorce process goes on for an extended period before it’s finalized. (2) Child care expenses are being shared and the decree lists a payment that is to be made monthly to a specified bank account- underwriters will sometimes consider this child support which can throw off a person’s monthly budget causing them to no longer qualify for a loan. Divorces are complicated but the mortgage doesn’t have to be with the right professionals in your corner. We can offer you the help you need and why wouldn’t you take it? Contact us for a FREE consultation and decree review. We only get paid when you are happy with our service and your loan closes. It’s a Win-Win for you!
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Friends for lifeYour divorce is over. It’s time to start sorting through all the things you need to do, to get your financial life in order.  Here are just a few tips to help you thrive financially, as you move into this phase of your life.  Pay Off Credit Card Debt One of the most important steps to achieve your financial goals is eliminating credit card debt. Start by paying off the balance of one credit card at a time, by either:
  • Paying off the highest interest rate credit card first, or
  • Paying off the smallest balance first, then applying that payment amount to the next smallest balance
And, always pay more than the minimum. Build an Emergency Fund Life has a way of throwing financial curve balls. To pay for these unexpected expenses, it’s important to have an emergency fund. A good rule of thumb is to set aside at least 3 to 6 months of expenses in a savings account earmarked for emergencies. This will keep the money “out of site, out of mind” and help reduce your stress level when financial emergencies pop up. Know Your Credit Score Despite its importance, many people don’t know their credit score. Credit scores assist lenders in determining the interest rate you’ll be charged, so you’ll want to know yours and work on improving it. To get your free credit report, visit www.annualcreditreport.com. Reviewing your credit report may also help you catch signs of identity theft early. Start Saving for Retirement We’ve all heard it before, but it truly is essential to start saving for retirement as early as possible. This is because you want to take advantage of compounding – generating growth not only on the original investment, but also on the return you’ve already earned on the investment over time. Compounding allows the potential for your initial investment to grow exponentially. Also, make sure you contribute at least enough to your company retirement plan to get our employer’s match. Don’t pass up free money! Create a Budget Although it’s not always fun, following a budget ensures you will have enough money for the things most important to you. A budget helps you find money to fuel your dreams. Refer to the attached Create Cash Flow* to help you put your budget together. One of the most important things to remember is to pay yourself first! Always set aside money for your emergency fund and retirement before any discretionary expenses. * a chapter from my book Ultimate Women’s Financial Guide to Thrive after Divorce   All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
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house for sale Divorce has a way of completely upsetting one’s expectations for the future.  One day things are moving along just fine, and the next you are making decisions that will impact the rest of your life.  One of the big decisions is whether or not to keep the family home.  It may really be two questions: “Should I keep the house?” and “Can I keep the house?”.   Let’s consider both in turn. Whether you “should” keep the home is more of an emotional question.  What does the home represent to you?  Often it is an emotional safe haven full of good memories that you have spent years getting just right.  It could also be an emotional roadblock to moving forward with your life. “Can I keep the house?” is more of a financial question.  Will your income post-divorce allow you to maintain the house?  Will taking the house in the divorce mean forgoing other marital assets such as retirement accounts, that may be more valuable in the long run?  Perhaps keeping the house will require keeping your ex-spouse as co-owner, do you want that? Due to its functionality, your house is an asset different from a stock or retirement account.  So, in many cases, the decision is a compromise focused on the question: “How long should I stay in the house?”. If you are unsure of the best way to handle the house, there are 3 exercises that you should go through to determine your best decision or when you should expect to sell.
  • Develop a post-divorce budget to see if you can afford to keep the home. Perhaps with child support it may make sense to stay. When the kids go, the house may need to go as well.
  • Run a retirement projection to see how keeping the home will impact your retirement and other financial goals.
  • Finally, list the benefits and tradeoffs of keeping the home. The benefits may be proximity to work and school. A tradeoff may be that you are now in charge of the upkeep.
There is no doubt that a house is treated different from a retirement account. Even so, it needs to be viewed with an honest and objective lens to determine how it will influence the unfurling of your new future as you blossom into the new you.
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piggy-bank-1429582_1920Sometimes your teenage children think they know everything. Do they know that if they saved the $6 they spend each day on a super antioxidant smoothie (or caramel macchiato), in 8 years they could buy a 4-door sedan in soul red or titanium flash (1)? Below are 3 lessons you should teach them about the long-term financial impact of decisions that they will soon be making for themselves. Lesson #1: Over time, compound interest can make a little bit of savings grow to a very big amount One of the regrets many of us has, is that we did not start saving soon enough. The idea of compound interest is something that your kids will understand by the time they are in middle school. There are numerous online calculators you can use to show them how deciding to save their money and forego that daily splurge can turn into better investments (like a new car). Lesson #2: College is a very expensive but financially important decision As your high schooler starts to contemplate where they want to go to college, don’t leave them out of the financing discussion. Even parents who expect to cover the entire cost of college need to make their child understand that it is a significant investment in their future, and not a nonstop party. Let them know that by completing college, they will likely earn $1 – $3 million more over their lifetime than their classmates who didn’t (2). Lesson #3: Credit cards are a tool and not a new source of money Credit card debt is rampant among people of all ages, but studies have shown that outstanding balances ramp up quickly after college. Before, during and after college, make sure your child understands that credit cards are not free money. Talk to them about using credit cards only to the extent that the balance can be paid off each month. Revisit Lesson #1 and show them how fast the balance on a 20% credit card can grow out of control. The best way to drive these lessons home is to set a good example. Demonstrate good use of credit by paying off your credit cards monthly. Develop a budget and then communicate how sticking to it serves larger financial goals. It’s very likely that you have made some big financial mistakes in your life. Wouldn’t it make sense to share what you have learned so they don’t make them too? (1) Assuming $6/day, saved for 8 years, earning 6% after fees, the total is $22,403. This exceeds the base MSRP of a 185 horsepower 2016 Mazda 6 4-door sedan with 6-speed manual transmission in Titanium Flash Mica ($21,330). The same model in Soul Red Metallic is $21,630. (2) The Economic Value of College Majors 2015, Georgetown University Center on Education and the Workforce.
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lemonade-standWhat are you teaching your children that will best prepare them for a successful adulthood? To be polite and say thank you? To believe in themselves? How about that if they save 15% of every check they ever earn, they will retire a millionaire (1). Preparing your child to handle the financial matters that they will face as adults doesn’t require a finance degree from Harvard. Below are some money lessons they can start at an early age. Lesson #1: Life isn’t one big shopping spree I think we have all experienced the grocery store tantrum when that 3-year-old just has to have the cereal with the cartoon character on the box. You can work with your preschoolers to understand that you go to the store for very specific items. Every trip to the store is not an opportunity for them to get a present. It is a lesson all ages could work on. Lesson #2: If you really want something, it is worth waiting for Teach your child about setting purchasing goals and saving for those goals. Have you given them a piggy bank yet? Every time they earn money or receive it as a gift, have them save at least 10% towards their goal. Lesson #3: It is important to spend wisely No one has an infinite amount of money so spending involves making choices. By the time your child is in elementary school, have them start to think about spending money on things they will still value in a couple of days. Here are a couple ways that you can help your child to develop money skills. #1 Give your child an allowance. You could use their age to determine their allowance amount. For example, my 7-year-old receives $7 a week. Make them understand that you take care of their needs and they use the allowance for their wants. An example of this would be when we went school shopping. I paid for my son’s school supplies that were on the teacher’s list. He really wanted a cool pencil box not on the list so he had to use his own money for this. It made him think about how badly he really wanted it. #2 Give them a birthday budget. Determine what you can afford for your child’s birthday present and party, then let your child determine how they want to spend it. Would they like to have the entire amount spent on a gift for themselves and forgo a party or would they like some combination of the two? Having a little skin in the game, really gets them thinking about spending wisely. During these early years, the overriding idea to teach your kids is that there is a difference between the things we want and the things we need. Giving them a little bit of responsibility at an early age will help them to understand this and set them up for a lifetime of healthy money habits. (1) Assuming that they work full-time for 40 years earning an after-tax salary of least $42,000 per year, and that their savings earn an average annual return of 6% after fees.
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A will is the cornerstone of your estate plan. It allows for an organized distribution of your assets after you pass. Not only does it make sure that your assets end up with your chosen loved ones, it also reduces the legal and financial obstacles that your family and friends will face after your death. A will does the following:
  • Outlines how you want your property distributed
  • Names an executor to ensure that your creditors are paid and that your property is distributed as you wish
  • Nominates a guardian to care for young children (in situations where needed)
Other documents that are regularly part of an estate plan include:
  • Power of Attorney
  • Healthcare Directive
  • Trust – in some cases
A Power of Attorney gives the person that you designate the authority to act for you on financial matters, if you are unable to make decisions for yourself. Unlike a will, a Power of Attorney form is “in force” when you are still living.  If you become incapacitated in some manner, then the person you designated (the attorney-in-fact) has the power to handle your financial affairs for you. Despite the name, the person you designate does not have to be a lawyer, only someone you trust to handle your financial affairs. Instead of financial matters, in a Healthcare Directive, the person you name is authorized to make decisions about your healthcare when you are unable to do so.  A healthcare directive usually includes directions to your healthcare provider regarding the extent to which you want life-sustaining measures taken in an end-of-life situation. Don’t procrastinate!! Complete your estate plan now.
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market volatilityThere’s no question that periods of increased market volatility, like we have seen recently, can be unsettling. However, deciding to move to the sidelines versus staying the course can have long-lasting implications. In fact, making emotionally-based decisions in regard to short-term market events is one of the fastest ways to derail your long-term investment strategy. This is because it’s impossible to accurately time the financial markets. Studies have shown that investors reacting to market events tend to opt out at the worst time – when markets have fallen considerably. They then buy back in when they are certain the markets are back on track, but that ends up being a higher price than when they sold. On the other hand, staying the course and remaining invested and focused on long-term investment goals has proven helpful in creating long-term growth. This is achieved by buying at lower prices when the markets are down and selling only to rebalance your portfolio or fund financial goals. A time-tested approach to managing investments through periods of uncertainty is to focus on asset allocation. An asset allocation that is aligned with your financial goals and tolerance for risk allows you to concentrate on your long-term objectives instead of getting sidetracked by short-term market fluctuations. While asset allocation cannot guarantee a profit or protect from a loss, the proper asset allocation can help eliminate the potential for emotional decision-making that could have an adverse impact on your long-term investment strategy. Following a divorce, consider checking in with your financial advisor to make sure your portfolio’s asset allocation is well balanced and appropriate for your risk tolerance and time horizon.
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iceRecently, a friend told me that a good Samaritan found and returned the wallet he had lost the previous day. The funny thing he said, was that the credit cards and money were still there but his driver’s license and Social Security card were missing. Not finding it at all humorous, I told him he was likely the target of identity theft. I advised him to file a police report and to contact the three credit rating agencies to place a freeze on his credit report. A credit freeze (also called a security freeze) places a restriction on who can access your credit report.  Only your current creditors and government agencies can access your credit report while the freeze is in place.  This makes it hard for identity thieves to open a credit card account or take out a loan in your name, because most credit card companies will check your credit report before issuing a new credit card. To set up a credit freeze, you need to contact all three of the credit reporting agencies; Equifax, Experian and TransUnion.  Each has a credit freeze website that is listed below, along with their telephone number. Equifax: 800-349-9960   https://www.freeze.equifax.com  Experian: 888-397-3742    https://www.experian.com/freeze/center.html  TransUnion: 888-909-8872   https://www.transunion.com/freeze The best way to set up a credit freeze is to request it in writing. Check each of the websites above to see the information they require. Typically, requirements include a photocopy of your driver’s license, Social Security card and a utility bill from the address listed on your driver’s license. There is a charge to set up the freeze, ranging from $5 to $20 per reporting agency. All three credit rating agencies offer protection plans that include credit monitoring, but those plans are an additional monthly cost and are not that useful once you have the freeze in place. Once your credit freeze is established, each of the credit reporting companies will send you a confirmation letter that contains a pin number. Keep these pin numbers in a safe place because you will need to provide them when you wish to lift the freeze. Freezes can be lifted permanently or just temporarily via each of the credit company’s websites. There is typically a $5 charge to left the freeze, even if temporarily. You will need to lift your credit freeze at each of the credit reporting companies each time you apply for credit, such as applying for a new credit card or a loan. You will also need to lift them to get your free credit report from www.annualcreditreport.com, or if a potential employer wants to check your credit history. Identity theft can be costly and take years to clear up, so the time and fees involved in setting up a credit freeze is a small investment for some peace of mind. One last piece of advice – never, never, never carry your social security card in your wallet.
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tightropeBeing a single parent demands so much of a person’s time and energy that taking care of longer-term financial concerns often take a back seat. So many single parents face financial restrictions that make it seem they are constantly on a financial tightrope. Getting off that tightrope and onto solid financial ground should be a priority for every single parent. Finding solid financial ground starts with determining your financial goals and monthly cash flow. Determine your financial goals  The first step on the path to a more secure financial future is to determine your financial goals. Your financial goals should include short-term, medium-term and long-term goals. Short-term goals may be to reduce spending and not rely on credit cards to make it to the next paycheck. Medium-term goals could be paying off your credit card(s) and creating an emergency fund. Long-term goals may be saving for your children’s college expenses and retirement. Figure out your cash flow  All of your financial goals require one thing – saving money. To do so, you need to figure out how much you spend and then create a budget that incorporates saving. Tracking your spending can be pretty easy these days with online account aggregators like Mint.com. To better understand your spending habits when using credit cards, you may need to go old school and save the receipts to review your purchases.  This is particularly helpful if much of your shopping happens at Walmart, Target or Costco, where your shopping cart could include groceries, video games and clothes. One way or another, figure out how much of your spending is essential and how much is unnecessary spur of the moment buys. Create a budget that accurately matches your essential spending and replaces most of your unnecessary spending with savings. Be mindful of not only what you buy, but also how you buy it. Using high interest credit cards are an impediment to meeting your financial goals. Paying off high interest credit cards is a financial goal that improves the odds of meeting your other financial goals. Save the tax-free way  Tax-deferred investment accounts such as Investment Retirement Accounts (IRAs) for retirement and college-funding accounts, such as 529 accounts, are a good way to meet those long-term goals. These accounts often can be opened with a couple hundred dollars. Setting up automatic monthly contributions from your bank account to these accounts can be done for amounts as low as $25. Both types of accounts grow without being taxed until the money is withdrawn. For 529 accounts, there will be no taxes if the withdrawals are spent on qualifying college expenses. Figuring out your budget shouldn’t be a chore done after the kids are in bed. It should be a family project. Developing good financial habits that lead to meeting financial goals is an essential skill that all parents should share with their children.
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124129198While we financial advisors need to know a lot about numbers, we often use some shortcut “rules-of-thumb” to make quick estimates.  Two of those rules-of-thumb are the Rule of 72 and the Rule of 115. The rule of 72 is a shorthand way to figure out how long it will take an investment to double in value, if one knows the annual rate of return or interest rate.  The equation can also be switched around to figure out the annual rate of return if one knows how long it took for the investment to double. It is called the rule of 72 because the doubling time is figured out by dividing the rate of return by 72.  For example, an investment earning 6% per year will double in 72/6 = 12 years.  An investment earning 8% will double in 72/8 = 9 years. Flipping the equation around to determine the rate of return is done as follows.  If an investment doubles in value in 10 years, the annual rate of return is 10/72 = 7.2%. The rule of 72 is an approximation that is based on annual compounding.  The true results will differ slightly. Many investment returns are based on continuous compounding which grows a bit faster than annual compounding.  For situations involving continuous compounding, use 69.3 instead of 72. The Rule of 115 is used to figure out how long it will take for an investment to triple in value.  It follows the same process as the Rule of 72.  If an investment earns 7% per year, it will take 115/7 = 16.4 years for the investment to triple in value.   As with the Rule of 72, the Rule of 115 is an approximation.  There are some practitioners that learned this as the Rule of 114.  115 slightly overestimates the time it takes for an investment to triple and 114 slightly underestimates it. If you have REALY big aspirations… use the Rule of 144 to calculate, your investment will quadruple!