Why It Is Time to Say “No” to Retail Therapy

April 28, 2017

A wise blogger at Forbes recently said, “The road to bankruptcy is paved with good deals.”

Think about it. Each of us has a favorite store, accessories, tech goods, or some other non-essential item that is either just a little too pricey or is simply out of our budget…that is, until a sale hits — at which point, all budgeting bets are off.

If you want to start saving money, paying off debts, and generally begin to improve your financial situation, this has to stop — right now. Stop letting the blow-out sales blow out your budget. Not sure where to start? Try your closet.

For many people, one of the biggest budget-busting expenses is clothing. While the U.S. apparel industry is a smart $12 billion business, our ability to see and be influenced by more people, thanks to the internet, has caused us to continuously want more, want to look a certain way, and to splurge. These spending habits on clothing, according to the Bureau of Labor Statistics, mean that the average American family is annually spending somewhere around $1,800 on apparel and services (2015 statistics). Furthermore, as clothing prices have dropped over the decades — and as each of us are increasingly willing to place non-essentials on credit cards — purchasing extraneous wardrobe items has become too simple. For example, today’s American woman owns roughly 30 outfits, but in the 1930s, that number was nine. NINE outfits. Regardless of the actual number of items in your wardrobe, chances are that most of us do not even wear half of them, even if seasonal pieces are excluded.

As the average home size increases, our collective desire for more “stuff” is further depleting our hard-earned dollars. Furthermore, this “shopping for sport” or retail therapy takes up valuable time, both for shopping and maintenance, that could be spent in more productive ways, such as learning something new, building a career, spending time with family, researching more ways to save money, or doing other healthy things like exercising or sleeping.

6 Ways to Say “No” to Retail Therapy

Banish the idea of retail therapy. You do not need more clothes to be happy and, chances are, your spending in this category could be causing you stress.
Focus on quality clothing over quantity. Invest in a few timeless clothing pieces that will last longer, rather than buying more cheap clothing pieces that will go out of style or deteriorate quickly.
Before you buy anything, ask yourself if you really need it, if you already have something like it, if it is worth “X” hours at work, or if it fits into your budget. In most cases above, if the answer is “no,” do not purchase it.
If you do buy something, save the receipt. Return it if you do not wear it within a week.
Start rediscovering what you already own! Revisit your wardrobe to find new ways to put outfits together. Need some inspiration? Check out Pinterest. Only pin outfits that you already have the pieces to complete the look or something similar. While you are working on your closet, cull it of any clothing that just is not working for you anymore.
Create a capsule wardrobe. If you can, try to create one that mostly features pieces you already own — but make sure you love 100% of them. A capsule wardrobe is a versatile, minimalistic wardrobe that is meant to de-stress the idea of getting dressed, ensuring that you are going to love what you have to wear, all while minimizing spending habits on clothing. To achieve your ideal capsule wardrobe (a wardrobe that really suits your style), you may have to do a little shopping, but any wardrobe pieces you buy should fall under the principle of quality over quantity.

Going through your own closet to see what you already own — whether to rediscover or to build a capsule wardrobe — is a great way to appreciate what you already have, but it is also a great way to declutter and destress your life. Putting the brakes on a shopping habit, all while honing in on your ideal wardrobe, can be a great way to maintain a budget and feel great about what you already own, so let this be the year you say “no” to the idea of retail therapy and say “yes” to better finances, less stress, and a happier you!

What is Home Equity?

When you pay on a mortgage, even if you haven’t yet paid it off completely, you’re building equity in your home. Home equity is the dollar amount that you’ve invested in your home by making payments to your mortgage lender. Here’s an example of how to calculate it:

How to Calculate Home Equity

You can calculate your home equity by subtracting the balance of your mortgage from the current value of your home. The value of your home is determined by the fair market value of your house or the appraised value. This number is the true value of your asset (your house) since it takes into account the amount you owe on the loan. Your home equity is calculated in your net worth. You may have heard that home equity can be “tapped into.” This means you can borrow against the equity of your home and use the money in a variety of ways. A home equity loan can cover home renovations or pay off higher-interest debt. Your home is valued at $375,000 and your mortgage balance is $275,000. You determine the equity by taking the value of $375,000 and subtracting the mortgage balance of $275,000. The equity in your home is $100,000.

Home Equity and the Housing Market

Every time you make a mortgage payment, you are building equity, because you’re paying down the principal on your loan. Your home’s equity also increases when its value rises. Although the value is determined primarily by the housing market, you can raise the value through home improvements. Just as the value of your home can increase based on the market, however, it can also decrease based on the market. The only sure way to increase your home equity is by paying down your mortgage loan. The more of the loan you pay off, the more your equity increases.

Building Home Equity vs. Paying Down Student Loans

If you follow the normal payment schedule, you’ll increase your home equity slowly. If you make extra payments towards your mortgage, you can build equity faster. However, if you also have student loans, should you build home equity or pay down your student loans insead? Let’s take a look at some factors that can help determine the best course of action:

Interest Rates

If either your mortgage or any student loan has a variable interest rate, you may want to focus on that loan first, because you are at risk that the rate can rise and leave you with a higher payment to make. In addition, if one of your loans has a much higher interest rate than the other, you may choose to focus on it first.

Security

With student loans, in certain instances, if you are facing financial hardships you can temporarily suspend payments. Mortgages offer less flexibility with payments, therefore missing payments can result in foreclosure and losing your home.

Loan Balances

If you have student loans with lower balances than your mortgage, you may be able to pay them off more quickly. Then, you can continue to build equity after paying down your student loan debt.

Tax Implications

You may get a bigger tax break by building equity versus paying off student loans. However, this doesn’t apply to everyone. Interest paid on student loans is deductible, however, there is a cap on how much. As of 2020 the cap is $2,500. Your income must meet the requirements to be able to deduct this amount. Interest paid on mortgages is also deductible, but only if you itemize your deductions. The mortgage interest deduction can be much higher than $2,500. If you itemize your taxes, paying more on your mortgage may be advantageous for you come tax time.

Refinancing Your Student Loans With ELFI

If you don’t want to choose between building equity or paying off your student loans, then consider refinancing your student loans with ELFI. Use our student loan refinance calculator to see how much you may be able to save.

The Bottom Line

Each person’s financial goals and situation are unique, so you have to make the best decision for you. Hopefully, however, knowing more about both options and which is better in certain circumstances will help you make an informed decision.

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. *Subject to credit approval. Terms and conditions apply.

Man feeling overwhelmed by student loans

2020-10-15

What to do When Your Student Loan Payment is Overwhelming

Having student loans is not unusual. In fact, 45 million people have them. It’s also incredibly common to feel overwhelmed by your student loan payments. A survey of student loan borrowers found that almost 65% of respondents said they lose sleep because of the stress caused by their loans. If you find yourself overwhelmed by your monthly student loan payment, there are some options you should consider to lessen the burden. Before you can explore alternatives, however, you need to know the types of loans you have. Certain options are only available for federal loans as opposed to private loans. Check the Federal Student Aid website to determine any federal loans you may have, and request your free credit report to see any private loans. Once you’re familiar with your loans, you can consider new courses of action.

Create a Budget

If you don’t already have a budget, create one! This will allow you to see if you can afford your current student loan payment. It will also show you areas where you’re spending unnecessarily. If you find there just isn’t enough income to cover all your necessary expenses, then you can begin working on different ways to reduce your student loan payment.

Research Different Payment Plans

If your federal student loan payment is overwhelming, consider switching to a different payment plan. When you initially begin repayment, your loans are automatically put on the standard repayment plan. On this plan, your payments are based on a ten-year repayment term. A Direct Consolidation Loan can help you change your payment plan to help make your payment more affordable. It can also help consolidate multiple federal loans into one loan. (Note: Consolidating your federal loans is different from student loan refinancing, discussed below.) This will help you qualify for certain longer repayment plans, resulting in a lower monthly payment. One of the drawbacks of extending your payment term is you will end up paying more in interest costs over time.

Income-Driven Student Loan Repayment

Certain loans are eligible for income-driven repayment plans. They can help make your payments more affordable and are based on your income and family size.

Graduated Student Loan Repayment

If an income-driven repayment plan does not work for you, you can change to a graduated repayment plan. Your payment will begin low and increase over time for a ten-year term.

Extended Student Loan Repayment

Another option is an extended repayment plan. To qualify, you must have certain loans over at least $30,000. Your payment may be fixed or may increase over time for a 25-year term.

Look Into Refinancing

If you have overwhelming private or federal student loan payments, consider student loan refinancing. Refinancing may lower your interest rate and reduce your monthly payment. This is a good option even if your current payment fits your budget. Refinancing can help lower your monthly payment, and can also save you thousands of dollars in interest over the life of the loan. Refinancing means obtaining a private loan to pay off your existing student loan or multiple loans. Student loan refinancing differs from consolidation, which is only for federal student loans and may not necessarily reduce your interest rate. You can refinance private or federal loans, or both, and can also change your student loan repayment term to better fit your needs. Here is an example of how refinancing can save you money: If you have $65,000 of student loans with a 6% interest rate and have 10 years remaining on your loans, you will pay approximately $722 per month. If you refinance and qualify for a lower interest of 3.61%, your monthly payment would be reduced to approximately $646 per month. This equals savings $76 per month in savings. You will also save more than $9,000 in interest over the life of the loan. To see how much you could save, try ELFI’s Student Loan Refinance Calculator.*

Increase Your Income

Of course, increasing your income is easier said than done. If your student loans payments are becoming overwhelming, however, it may be a necessary step. Increasing your income through overtime hours or a side hustle can make your payments more manageable. A side hustle can be as easy as babysitting or dog walking, or more involved like starting a side business based on a passion. If you haven’t begun repayment on your loans, but know you will face a significant loan payment after graduation, consider these steps:

Build a Budget Early

Start a budget before repayment begins that includes your future student loan payment. This will allow you to see if you will be able to comfortably afford your payment. It will also help you build an emergency fund and a strong financial foundation.

Seek Employer Student Loan Benefits

Look for an employer that offers student loan assistance. The number of companies that are offering student loan benefits is increasing, although the benefit is still rare. Some offer monthly benefits that can help you pay your loans off faster. Others offer a yearly benefit amount for a certain number of years. Either way, extra money from an employer to help pay loans will help you reduce your loan amount faster.

Work Toward Public Service Loan Forgiveness

Apply for employment that may qualify for forgiveness. If you have federal loans, certain employment can qualify for forgiveness under the Public Service Loan Forgiveness program. Certain loans and types of employment are required so be sure to pay close attention to the requirements.

Bottom Line

If you have an overwhelming student loan payment, explore your options to reduce your payment while furthering your debt-free journey.

*Subject to credit approval. Terms and conditions apply. 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.

2020-10-09

How to Start Investing: A Millennial’s Guide

One of the best things you can do for your finances is start investing. Over time, investing is one of the likeliest ways you’ll build enough wealth to reach your financial goals — and even achieve financial independence. While investing can seem like a daunting task, the good news is that it’s easier than ever to get started. Here’s what you need to know about how to start investing.

Decide how much you can invest

Figure out how much you can invest each month. The key to long-term investing success is consistency. Even if it’s a small amount, you can start investing. Look at your income and expenses. Review which items can be reduced to create some room for investing. Even if you can only invest a few dollars per week, it will help you get started.

Paying down debt vs. investing

One of the big issues facing millennials is whether to pay down debt or invest. In the end, it depends on your preference, but having debt doesn’t mean you can’t invest. For example, if you have student loans, you might put 70% of your available money toward paying down those student loans and the other 30% toward investing. However, if you have high-interest debt like credit cards, it might make sense to put 90% toward debt reduction and 10% toward investing. Depending on your situation, you might want to tweak where you put the money, but you don’t have to let being in debt stop you from investing if you want to start building wealth.

Know your goals

Next, decide on your goals. What do you want your money to accomplish on your behalf? What you plan to use your money for, as well as your timeline, can determine how you invest your money.

Short-term goals: If you want to save for a down payment on a house, a vacation or a similar goal in the next one to three years, consider putting your money in high-yield savings vehicles, or, depending on your situation and risk tolerance, bond investments. Even for short-term goals, in some instances, a mix of stocks and bonds can work.
Long-term goals: For longer-term goals like saving for a child’s college education or your retirement, you might decide to invest more heavily in stock funds, real estate investment trusts (REITs) and other higher-yielding assets.

Your risk tolerance

As you learn to start investing, make sure you understand risk tolerance. You need to be familiar with how much risk you’re prepared to take on. For example, if you’re relatively young, you have more time to withstand and recover from market downturns, economic problems and investing mistakes. You should also consider your emotional risk tolerance. Even if, financially, you can handle the ups and downs of the market, you must be able to handle them emotionally, as well. If you struggle with the idea of using a stock index ETF to meet your short-term goals, then look for something that better suits your needs.

Get help to learn how to start investing

There’s nothing wrong with asking for guidance as you learn a new skill. A number of online investment brokers can offer you professional help as you make your plans. Betterment, Wealthfront and Wealthsimple can help you build a portfolio that matches your risk tolerance and goals. Additionally, it’s possible to get help from human advisors as you create a portfolio.

Basic tips to help you start investing

Start ASAP

It’s all about compounding returns, so the earlier you start, the better off you’ll be in the long run. Many investing experts talk about “time in the market instead of timing the market.” For many investors, starting early and being consistent about investing, while increasing contributions over time, is most likely to result in long-term success. You can start investing at any time. If you haven’t started already, begin now. It’s relatively easy to open an account and begin investing.

It’s fine to start small

You don’t need a lot of money to start investing. In fact, there are a number of apps that allow you to invest using pocket change. Check out our recommendations for the best investing apps here. It’s true that investing a few dollars each week isn’t likely to fully fund your retirement or other financial goals. However, starting small gets you in the habit of investing and growing your wealth. As your finances improve, you can increase how much you invest, growing your contributions to meet your goals. But, for now, start with whatever amount you can. The money you do invest in will grow over time, and you can keep adding to your portfolio in the future.

Consider index mutual funds and ETFs

When trying to decide what to invest in, some people are overwhelmed by the prospect of sifting through individual stocks and trying to pick “winners.” For many beginners, it makes more sense to focus on vehicles that offer “instant diversity.” Index investments offer exposure to hundreds — or even thousands — of securities at once. Rather than trying to choose individual stocks, you can get access to a wide swath of the market. If you decide later that you want to invest differently, you can change your portfolio makeup. For beginners, however, index investments offer a way to start building wealth while you research other choices.

Learn the basics

Finally, make sure you learn the basics. Read about how investing works, how different assets perform and when they might be appropriate. While you can start small with index investments, use that time to learn when (or if) it’s time to try other investing strategies. In the end, no one knows your situation as well as you do. Before investing, carefully consider your own situation and consider requesting help from an investing professional.