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5 Financial Mistakes to Avoid in Your 20s

February 13, 2017

For many people in their twenties, learning experiences and financial decisions are plentiful. The transition from college to the professional world takes place during this time, and graduates learn how to support themselves without the help of their parents. It is an exciting time for 20-somethings to be financially independent, but it can also be daunting. When it comes to money, missteps made in younger years can affect people for the rest of their lives. Unfortunately, some 20-somethings do not realize the financial mistakes they make until much later on in life. Here are five of the most common financial mistakes people in their twenties make:

  • Not Setting Financial Goals

Many young professionals are often caught up in the excitement of receiving a sizable paycheck, but they fail to make a plan for what they are going to do with it. Not setting short-term and long-term financial goals can lead to frivolous spending without limits, which can make it more difficult to save money. Think about where you see yourself in the future. When would you like to purchase a car or home? How much do you want to have in savings by a certain point? Knowing where you want to go and coming up with a plan for your money can help you with budgeting as well. 

  • Neglecting to Budget

Writing and sticking to a budget is crucial for everyone, but this is especially true for young adults in the first phases of their financial journey. Without a budget, people might find themselves spending more than they should or even living paycheck to paycheck. Tracking your spending and being cognizant of where your money goes might lead to a realization that you are spending more than needed in unnecessary categories. Budgeting can help with that — it gives you boundaries and limits on what you can spend and where, freeing up more money to save, invest, pay off debt, or get you another step closer to achieving financial goals.

  • Failing to Establish Good Credit

This is another big item. In addition to existing education loan debt, 20-somethings are prone to piling on more debt in the form of credit cards. Credit cards make it easy to purchase things without immediately receiving a bill, so many people fail to consider the repercussions. Often, they will carry a balance from month to month by only paying the minimum amount. Do not make this mistake — credit card debt can be crippling to your financial health and can negatively affect your credit score, keeping you from getting the best rates on future purchases. Instead, use your credit card(s) responsibly by keeping your credit utilization ratio below 30 percent and paying off the balance each month. That way, when it comes time to buy a home or new car, you will be more likely to get the best rates, potentially saving you money on interest in the long run.

  • Foregoing an Emergency Fund

One of the first goals to set when starting the professional chapter of life is establishing a solid emergency fund. Financial experts recommend saving up at least three to six months’ worth of living expenses in case of emergencies. Many people in their twenties tell themselves that they can simply use their credit card for an emergency, or that emergencies will not happen to them at all. However, life is unpredictable — you never know when your car might break down, you take an unexpected trip to the emergency room, or your company needs to lay off some of its employees. It is better to be prepared for anything that could happen than to be blindsided by an emergency and not have the money to cover it.

  • Waiting to Save for Retirement

It can be very easy to put off saving for retirement. After all, you are in the early years of your life and career, and retirement is a distant thought. However, the earlier you get started, the better because that means that there are more years between now and retirement for interest to compound. If your employer offers a 401(k) plan, you will want to start contributing as soon as possible. According to a recent survey, 39 percent of retirees said they regretted not saving for retirement sooner. Try not to be part of that statistic and start saving immediately.

Start Out on the Right Foot

As a young person with the world at your fingertips and a paycheck in hand, making damaging financial decisions is easy — and the moves you make now can impact your life for years to come. To start out your finances on the right foot and enjoy financial success in the future, educate yourself on the financial mistakes people make at this age and vow to avoid them. Set goals for yourself, create an effective budget and stick to it, save up for emergencies, build good credit, and start saving now for retirement — you will be thankful you did.

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2019-11-20
5 Ways to Declutter Your Life in 2020

We’re all busy and feel overwhelmed from time to time. Balancing a job, family time, friendships and finances can take a pretty major toll. Taking control of the space around you and getting a grasp of your financial situation can take a burden off and help you feel at ease. Here are some tips for decluttering your life and your finances. 

 

1. Learn to Say No

When it comes to simplifying your life, one of the best tactics is to cut off your clutter at the source – in other words, learning to say “no” to things you don’t need . This also applies to the voice in your head that tells you to hang on to old furniture, keepsakes, family belongings, and everything else that you stuff away or put into storage. The truth is, holding onto everything of monetary or sentimental value just isn’t logical. Knowing when to say no, when to donate, and when to let things go will be a big help in simplifying your life. It’s been found that the average American thinks about decluttering at least six times per year, but only ends up decluttering about three times each year. Holding onto too many things can create a great deal of stress.

 

Try taking photos of your keepsakes and family furniture and file it away. By doing that, you’re able to hold onto the memories without holding onto the items that cause clutter in your home.

 

2. Clean Out Your Closet

Having a surplus of clothing can cause cluttering nightmares. While we like to hold onto novelty t-shirts from every 5k race, or think we’ll be able to squeeze into the jeans we last wore ten years ago, eventually things can get out of hand. If you struggle with overloaded closets and dressers, here’s a trick you might want to try – turn all of your clothes inside-out. After 9-12 months, reassess your clothing inventory and see which clothes are left inside-out. You now have a clear-cut idea of which clothes you wear, and which you don’t. If it’s left inside-out at the end of that time period, consider donating it to a good cause. If this doesn’t work for you, try sorting through them a few times each year and getting rid of the items you know you don’t wear.  

 

3. Cut Down on Food Waste

Our refrigerators get cluttered too. The main reason? We simply don’t eat everything we buy. If you’re the type that ends up with a full cart at the grocery store after going in for one thing, you’re probably dealing with an overloaded fridge as well. A study found that Americans consume only about 50% of the meat, 44% of the vegetables, 40% of the fruit and 42% of the dairy we buy. What doesn’t go to waste takes up precious space in our pantry and refrigerator. After all, who knows how long that bottle of salad dressing has been sitting there? Look into meal planning or even getting an affordable meal subscription (just don’t let it fall into the category mentioned below). What’s great about meal subscriptions is they’re perfectly portioned and will go far in cutting down the amount of food you waste or store away.

 

4. Cut Out Unnecessary Subscriptions

Ever checked your monthly bank statement to find that you’re paying $4.99 for a random app that you no longer use? A new study that surveyed 2,500 U.S. consumers found that they spend an average of $1,900 in subscriptions that are unaccounted for. These can include anything from TV and music streaming services to subscriptions to your local car wash. Getting your subscriptions under control is a great way to simplify your finances and decrease month-to-month spending. 

 

There are a variety of budgeting apps that help you track your finances, but Clarity Money® is great for managing subscription services in particular. After connecting your bank account, it will provide you with a list of your recurring subscriptions, and even allows you to cancel them right from the app. 

   

5. Refinance Your Student Loans

If you’ve graduated from college, you may be paying back student loans. Some people can find themselves paying back several loans that all accrue interest at different rates, and have differing payment due dates. Refinancing your student loans may make repayment more manageable because it consolidates your student loans into one monthly payment with a single interest rate. Not only could you have the flexibility of choosing a repayment term that fits your financial goals, but you could also lower your interest rate or save money over the life of your loan. 

 

We hope these tips help put your mind, your finances, and your life, at ease. By following these tips, 2020 could really be “new year, new you”. Stay tuned for more helpful tips from the ELFI team.

 
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
2019-11-15
The Importance of a Good Debt to Income (DTI) Ratio

It is evident to most people that having more income and less debt is good for their finances. If you have too much debt compared to income, any shock to your income level could mean you end up with unsustainable levels of debt. Every month you have money coming in (your salary plus additional income) and money going out (your expenses). Your expenses include your recurring bills for electricity, your cell phone, the internet, etc. There are also regular amounts that you spend on necessities, such as groceries or transportation. On top of all of this, there’s the money you spend to service any debts that you may have. These debts could include your mortgage, rent, car loan, and any student loans, personal loans, or credit card debt.  

What is the Debt-to-Income Ratio (DTI)?

The Debt-to-Income Ratio (DTI) lets you see how your total monthly debt relates to your gross monthly income. Your gross monthly income is your total income from all sources before taxes and other deductions are taken out. Below is the formula for calculating your DTI:

DTI = (Total of your monthly debt payments/your gross monthly income) x 100

  Example: Let’s suppose the following. Your gross monthly income is $5,000, and you pay $1,500 a month to cover your mortgage, plus $350 a month for your student loans, and you have no other debt. Your total monthly payments to cover your debts amounts to $1,850.  

Your DTI is (1,850/5,000) x 100 = 37%

Here’s a
handy calculator to work out your DTI.  

Why is Your DTI Important?

Your DTI is an important number to keep an eye on because it tells you whether your financial situation is good or if it is precarious. If your DTI is high, 60% for example, any blow to your income will leave you struggling to pay down your debt. If you are hit with some unexpected expenses (e.g., medical bills or your car needs expensive repairs), it will be harder for you to keep on top of your debt payments than if your DTI was only 25%.  

DTI and Your Credit Risk

DTI is typically used within the lending industry. If you apply for a loan, a lender will look at your DTI as an important measure of risk. If you have a high DTI, you will be regarded as more likely to default on a loan. If you apply for a mortgage, your DTI will be calculated as part of the underwriting process. Usually, 43% is the highest DTI you can have and likely receive a Qualified Mortgage. (A Qualified Mortgage is a preferred type of mortgage because it comes with more protections for the borrower, e.g., limits on fees.)  

So, What is a Good DTI?

If 43% is the top level DTI necessary to obtain a Qualified Mortgage, what is a “good” DTI? According to NerdWallet, a DTI of 20% or below is low. A DTI of 40% or more is an indication of financial stress. So, a good rule of thumb is that a good DTI should be between these two figures, and the lower, the better.   

The DTI Bottom Line

Your DTI is an essential measure of your financial security. The higher the number, the less likely it is that you’ll be unable to pay down your debt. If there are months when it seems that all your money is going toward debt payments, then your DTI is probably too high. With a low DTI, you will be able to weather any financial storms and maybe even take some risks. For example, if you want to take a job in a field you’ve always dreamed about but are hesitating because it pays less, it will be easier to adjust to a lower income. Plus, debt equals stress. The higher your DTI, the more you can begin to feel that you’re working just to pay off your creditors, and no one wants that.  

DTI and Student Loan Refinancing

Your DTI is one of several factors that lenders look at if you apply to refinance your student loans. They may also assess your credit history, employment record, and savings. Refinancing your student loans may actually decrease your DTI by lowering your monthly student loan payment. This may help you, for example, if you want to apply for a mortgage. ELFI can help you figure out what your DTI is and if you are a good candidate for student loan refinancing. Give us a call today at 1.844.601.ELFI.  

Learn More About Student Loan Refinancing

  Terms and conditions apply. Subject to credit approval.   NOTICE: Third Party Web Sites Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.
2019-11-13
Preparing for Natural Disasters: Financial Tips

Natural disasters happen – they can strike without warning and have no mercy. Natural disasters such as hurricanes, floods, earthquakes, or tornadoes can force people to evacuate their homes, and even worse, they can destroy homes, property, and even take lives.   When it comes to natural disasters, most people don't think about how they can affect your ability to conduct essential financial transactions. In addition to planning to gather your basic needs such as food, shelter, and water, you should also be prepared to deal with the financial challenges associated with natural disasters, such as paying for supplies and temporary housing if necessary. Here are some tips that will help you prepare.  

What to Have Ready

Consider keeping the following documents, bank products, and other items in a secure place and readily available in an emergency:
  • All forms of identification: These primarily include driver’s licenses (or state identification cards for nondrivers), insurance cards, Social Security cards, passports, and birth certificates.
  • Your checkbook: Make sure to have enough blank checks and deposit slips to last at least a month.
  • ATM cards, debit cards (for use at ATMs and merchants), and credit cards: Don’t assume that merchants and ATMs in areas affected by a disaster will immediately be functioning as usual. Have other options available for getting cash and making payments.
  • Cash: This is self-explanatory.
  • Phone numbers for financial services: These include local and toll-free numbers for your bank, credit card companies, brokerage firms (for stocks, bonds, or mutual fund investments) and insurance companies.
  • Important account numbers: These include bank and brokerage account numbers, credit card numbers, and homeowner’s or renter’s insurance policy numbers. You may want to copy the front and back of your credit cards (and keep them in a safe place).
  • The key to your safe deposit box.
 

What to Keep and Where to Keep It

After you’ve gathered your most important financial items and documents, protect them as well as you can while also ensuring you have access to them in an emergency. Here’s a reasonable strategy for many people:
  • Make backup copies of important documents. Make an electronic image of your documents so you can more easily store the information. Store your backups some distance from your home in case the disaster impacts your entire community.
  • Give a copy of your documents to loved ones. Alternatively, let them know where to find the documents in an emergency.
  • Determine what to keep at home and what to store in a safe deposit box at your bank. A safe deposit box is best for protecting certain papers that could be difficult or impossible to replace, but not anything you might need to access quickly. What should you put in a safe deposit box? Examples include a birth certificate and originals of important contracts. What’s better left safely at home, preferably in a durable, fireproof safe? Your passport and medical care directives because you might need these on short notice. Consult your attorney before putting an original will in a safe deposit box. Some states don’t permit immediate access to a safe deposit box after a person dies, so there may be complications accessing a will stored in a safe deposit box.
  • Seal important documents. Use airtight and waterproof plastic bags or containers to prevent water damage.
  • Prepare one or more emergency evacuation bags. Pack essential financial items and documents (e.g., cash, checks, copies of your credit cards and identification cards, a key to your safe deposit box, and contact information for your financial services providers). Make sure each evacuation bag is waterproof and easy to carry and kept in a secure place in your home. Periodically update the contents of the bag. It will not do you any good if the checks in your bag are for a closed account.

What Else to Consider

  • Sign up for direct deposit. Having your paycheck and other payments transmitted directly into your account will give you better access to those funds by check or ATM, and you won’t have to deliver the deposit to the bank or rely on mail service, which could be delayed. Note: There could be delays in the processing of direct deposits in a disaster situation, but the problem is usually fixed within a reasonable timeframe.
  • Arrange for automatic bill payments from your bank account. This service enables you to make scheduled payments, (e.g., for your phone bill, insurance premiums and loan payments, and avoids late charges or service interruptions).
  • Sign up for online banking. This also makes it possible to conduct your banking business without writing checks.
  • Review your insurance coverage. Make sure you have enough insurance, including: flood, earthquake, and personal property coverage, as applicable, to cover the cost to replace or repair your home, car, and other valuable property.
To find out more about being financially prepared for disasters visit 
fdic.gov/consumers/consumer/news/index.htm and type in disaster preparedness in the search box.  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.