Review your Credit Report annually

In today’s world of ever-increasing identity theft, it is more important than ever to check your credit report annually. You want to make sure that someone else is not using your information, social security number or credit illegally. There are three companies that allow you to check your report once a year. They are Equifax, TransUnion and Experian. If you time how check each of these reports once per year, you could check your credit every four months for free.

Benefits

When you check your credit report, not only are you checking for fraud, but you are also checking your report for inaccuracies on the bureau. A creditor may have not closed an account as agreed, they may say you owe more than you do, they may say that you owe when you do not. Being proactive in making sure that your account is accurate is a wise choice. It represents your digital reputation.

Teens

If you have teenagers in the house, once they turn 18, they are able to check their credit. Now, unless you have co-signed on a credit card, which is a bad idea in itself, they should not have any activity on their credit report. If they do, then they are a victim of identity theft.

Protection

One way to protect yourself, besides checking your credit report every four months is to have identity theft protection. This is pretty inexpensive and can save you hundreds of hours of headaches if you have your identity stolen. These companies will make the calls on your behalf to clean up the mess that identity theft causes. You can get a free quote online here.

A word about credit

We, here at Gerken Financial Coaching, do not use credit. We believe that you should  make purchases with cash or use a debit card, which is tied to your checking account. If you need to establish a payment history to buy a home, you can use rent payments, cell phone payments, and insurance or utility payment to establish a payment history for a bank to underwrite a loan. Since these practices used to be more popular, you may need to shop around to find a bank or credit union today that will do this. This process is called manual underwriting. In our area, one such bank is Key Bank.

By keeping updated on your credit activity, you will stay pointed in the right direction to avoid fraud and keep informed of the activities on your credit bureau account.

Tim and Kathryn Gerken are Financial Coaches in Newcastle, WA. They serve their community in the greater Seattle area with coaching, seminars and workshops. To find out more please contact us!

I do not believe I can settle how much to give. The only safe rule is to give more than we can spare. ~ C. S. Lewis.

How do you know when you are wealthy?

Wealth can be measured in many ways. Some say that if you have your health and the love of your family that you are wealthy. We totally agree with this sentiment. But since we write a blog about personal finance, we would say that you are wealthy when your investments make more income for you in a year than you can make in your job. This is your financial tipping point. It may take some people all of their lives to get to this point, while others will never see it. If your goal is to reach this pinnacle, you need to be actively planning your path up the mountain.

Step One: Eliminate All Debt

Your greatest wealth building tool is your income. In order to use it to its greatest potential you must first pay off all of your debts, both consumer and secured debt. Consumer debt is made up of credit cards, medical bills and student loans. Secured debt are items like cars, boats and homes. If you use a systematic formula to pay them off in your budget, the average family can have everything paid off including the home within 7 -10 years. Once everything but the home is paid off, you are ready to really begin investing for your future.

Step Two: Invest 15% of your income

While you are paying off the house, you can start investing 15% of your income into retirement accounts such as a 401(k), 403(b), or Roth IRA. By consistently paying yourself first with investing you will ba able to start building your nest egg. Time and compound interest will go a long way to helping you to reach your tipping point. To take advantage of them, though, you must consistently invest each year.

Step Three: Finish paying off the house

In the previous step we only invested 15% of our income, because the extra money that we used to pay on debt is now going to pay extra on the house. Some people are leery about paying off the house because they want the tax advantage of paying interest to a bank. However, you can get the same write-off by giving to a church or charitable organization. Your bank is not a charity, even if they make you think that they are.

Step Four: The finish line

Once the house is paid off you are free to take your income and invest it and give it away to your heart’s contentment. You are now pointed in the right direction, using your income to walk the last mile up the mountain to reach your tipping point. Enjoy the ride down the other side, where your money is making more for you than you are making. Not many people are on this side of the mountain, but I am sure that the air is clear of financial stress, worry and fatigue. Enjoy the journey!

Tim and Kathryn Gerken are Financial Coaches in Newcastle, WA. They serve their community through seminars, workshops and personal finance coaching. To learn more, contact us today!

Why Communicate?

The definition of communication is  the exchange of information between people, e.g. by means of speaking, writing, or using a common system of signs or behavior. This is a time for you and your spouse to sit down, uninterrupted, and talk about your future; where you want to be in 5 to 10 years and how you are both going to work together to achieve those goals. In society today, we work for a paycheck to pay the bills and we have our heads down, plowing through the work week to get to the weekend. Then we have the attitude that because we worked hard all week we deserve to have fun and spend money on the weekend. I agree! However, do it with a plan. If you need to save for retirement or eliminate your debt so that you can buy a home or a car, you may not want to be spending extra on weekend activities. Talk to your spouse and define your shared goals and dreams. When you come to an agreement write it down. Studies show that written goals are more likely to be achieved than spoken ones. You can revisit them each year to see if they have changed or need to be revised.

When to Communicate

The best time to talk to your spouse is when you are both rested and can focus on the discussion. Some basic rules are that you are there to share your views and opinions and to hear the views and opinions of your spouse. Here are some suggestions for other ways to effectively communicate. Rephrase what you hear so that you both know that you are communicating your thoughts clearly.

How to use the information

After you have written your life’s goals and dreams, you can look at your financial picture and start setting financial goals to meet those dreams. Financial goals without life goals attached are meaningless because you do not know what you are working towards. Money itself is not a reason to sacrifice. It is the lifestyle and dreams of what you can do with the money that motivates you to eliminate debt and build wealth. Build a budget, sit down with your spouse again and discuss the budget. Change some things so that you both agree to live within the budget and get pointed in the right direction to start getting traction in your personal finances to meet your goals. It all starts with communication.

Tim and Kathryn Gerken are financial coaches in Newcastle, WA. They serve their community through classes, seminars and coaching in the greater Seattle area. Contact us today to find out more.

If we don’t change, millions of American families are just one medical emergency, or one layoff, away from financial disaster and bankruptcy. ~  Jim Cooper

Sadly, the quote above is true for many American families, but you can be different. You can be weird. You can be prepared. You can buck the trend. If you are financially prepared for an emergency, it makes the emergency less traumatic. Let’s look at a few examples…

Medical Emergencies

If you ar someone in your family has a medical emergency, how will you pay for it? Will insurance  pay 100%? If you have a co-pay or deductible, do you have that cash set aside if you need it? What if the emergency happens to the wage-earner of the family? Can your family live from your savings while they recover and can get back to work? Having an emergency fund set aside will take the financial strain of recovery or doctors bills away and allow you to concentrate on the family member.

Unexpected Death

If someone in your family dies, will you be able to pay for a funeral and burying expenses? None of us can choose the time of your death, but being financially prepared with an emergency fund can help take the financial strain off of a grieving family. Along with that, it is especially important to have a plan for your family if a spouse dies.

Unexpected Tax Bill

Every now and then a mistake is made on Federal Taxes and you end up owing more than you thought, or you make a withholding mistake and have a major tax bill. An emergency fund can help you to pay the bill, without getting your wages garnished by the IRS.

General Emergencies or Big Expenses

This would be a traffic accident. We see them everyday on the freeway. Do you have your deductible saved? It could also be a new roof or a new washing machine or dryer. What will you do it your water heater goes out? These “every day” emergencies are both inconvenient and frustrating but need to be addressed quickly and without going into debt.

Saving for Emergencies

So how do you save and how much should you set aside?

1. Start with a $1,000 emergency fund. This should cover most of the every day emergencies, such as a car deductible or a water heater.
2. Pay off your debt so that you have extra cash flow that doesn’t have to leave your home.
3. Save 3-6 months of living expenses. Food, housing, utilities and transportation.
4. Try cutting expenses on every day items.
5. Keep your emergency fund in a savings account or a money market account that you have easy access to, but separate from your checking account, where you may be tempted to spend it on monthly expenses.

Get pointed in the right direction now, so that when an emergency takes place, you and your family are prepared and can deal with the emergency, not the financial crisis that the emergency would otherwise put you in. Build your savings and get out of debt to have a peace for the future.

Tim and Kathryn Gerken are financial coaches in Newcastle, WA. They serve their community by speaking, teaching seminars and coaching individuals and families. To learn more contact us today!

Weddings take months to plan, but a marriage will last a lifetime. Weddings have obvious costs to them such as the ring, the dress and the tux, but it also has hidden costs as well. Cake cutting fees, gratuities for the reception staff and postage for the invitations are just a few. How much should you budget?

The Wedding

As more and more people get married at a later age, more of these newlyweds are paying for their own weddings without the help of Mom and Dad. The average wedding costs about $28,000. With the average household income of around $50,000 a wedding is about half a year’s income. Some weddings are done for considerably less and some for more.

The Ring

A wedding ring should not cost more than a month’s wages. It feels like you should spend more but you are just starting out your life and relationship. There will be many more years to upgrade if you feel it is necessary. I have a small ring that we could afford and 20+ years later I still have it! I would not give it up for a larger diamond because it reminds me of the day and our phase of life during that time.

The Budget

No matter how much you are planning to spend, make a budget! If you don’t get all the parts down on paper, before you start spending the money, you will look up 3 weeks from the wedding date a realize that you have either gone way over budget or you have run out of money. Plan it on paper, shop and compare prices before you commit and then plan where your dollars are most important and where you can cut back and save.

The dress

O.K. ladies, we all want to look good on our wedding day. However, you will only wear this dress one time in your life. Chances are that your daughter or granddaughter will not want to wear it in the future or it will be the wrong size. So let’s try to keep the cost of a dress reasonable and within the budget.

Happily Ever After

Remember that your wedding day is special, but the reason for the wedding is the marriage that will last the rest of your life. Get pointed in the right direction! Don’t go crazy with your spending. At the end of the day, you will still be married whether you spent $2,800 or $28,000. How great of a honeymoon could you have with the extra that you saved? …but that is a different blog topic…

Tim and Kathryn Gerken are Financial Coaches in Newcastle, WA. They serve their community with seminars, speaking and coaching individuals and families in the Seattle area. To learn more contact us today!

• The envelope system has been a lifesaver, and we found we needed to move certain expenses into the “envelope” when the debit card became too easy to use and we overshot our planned spending amounts.
• We also participated in Dave Ramsey’s 13 week Financial Peace course at our church, and found it immensely helpful and reinforcing. We thought our work with Tim and Kathryn prior was key in being able to really understand and get the most out of the course. It would have been totally overwhelming otherwise. The facilitators of our class are really great folks, but not professionals in this area as Tim and Kathryn are. I also don’t think they work the program as diligently as they do, so they continue to be our role models.

Here is our progress since working with Tim and Kathryn: we have been steadily paying down debt on the AMEX and are hopeful it will be completely closed in early 2013, when we will finally attack the VISA with a vengeance. We have cut up our remaining credit cards, so do everything with cash/limited debit/check. Phil finished the backyard shed sufficiently that he moved the last load of “stuff” tonight from the storage space we were renting – this will save another $75/mo to go towards debt payoff. We refinanced our house, freeing up another nearly $400/mo to go towards debt payoff as well. Although Phil is currently between contracts, for the first time we feel like we are well in control of our expenses and so the worry load is greatly reduced. Best of all, our communication as a couple is better than ever and we are reaching deeper places spiritually than we thought possible. It feels like we are really leading an integrated life where our values, actions, and management of the assets we’ve been blessed with all align.

Housing should be no more than 25% of your take home pay.

First of all, if you are renting or buying your mortgage or rent should be no more than 25% of your take home pay. For example, if you bring home $3,500 per month you should be paying $875 for your mortgage and insurance. If you are paying more, you either have too much house or rent or your rate is too high.

How to decide

If you are planning to stay in your home for at least 5 years, you may want to consider refinancing. We suggest a 15 year fixed rate mortgage at the 25% of your pay or less. If you can’t afford a 15 year, then you can go to a 30 year fixed mortgage. The closing costs will be a percentage of the amount borrowed. Let’s say that you want to borrow $200,000 for the mortgage. If the closing cost is 1%, then you will pay $2,000 in closing fees. Here is the decision part. How long will it take you to save that $2,000 in fees on your new reduced mortgage payment? If your payment is reduced by $200 per month it would take you 10 months to recuperate your refinancing costs. This means that you would have to stay in your home at least 10 months in this scenario. For some this is the deciding factor.

Other factors

How much debt do you currently have other than your home? The bank may not let you refinance if your loan to debt ratio is too high. Paying off some of your consumer debt may help you get a better interest rate.

How much do you owe on your home versus the current value of your home? You may be required to have your home appraised prior to refinancing, which is an additional cost to you. If you home is currently valued for less than you currently owe, you are considered underwater. This means that in order to refinance you will have to pay your mortgage off up to the current value of the home. For example, Your current mortgage loan is for $200,000, but your home is only valued at $180,000. Now, hopefully home prices will rise in the next few years but right now you are underwater. You may be required to come up with the $20,000 that  is between the current mortgage and the new value before you refinance.

Since refinancing will ultimately save you money in interest payment over the life of the loan, to go from a 6.5% interest down to a 3.5% interest will save you money. But, the upfront costs all have to be weighed, as well as the consumer debt and the amount of time that you expect to stay in your current home. Who knows, after you run the numbers you may find that you are paying 30% or higher for your mortgage costs and you may decide to move into a smaller more affordable home instead of re-financing. Just remember the 25% rule of thumb and you will get pointed in the right direction to reduce the stress of your housing costs.

Tim and Kathryn Gerken are financial coaches in Newcastle, WA. They serve their community with seminars, speaking and of course, personal coaching. To find out more, please contact us!

How much are you paying each month?

Most consumers feel that if they can afford the payments, they can afford the car. But when other debt payments come along, pretty soon they become stretched too thin to make all the payments. The average new car loses 21% of its value in the first year. If you do not put at least that much down you will owe more than the car is worth (also known as being “upside-down”) within 12 months. That makes it hard to sell, if you get into a financial bind.

The better option is to purchase a used car that you can afford and pay cash to do so. This might mean driving a cheap, $2,000 car, while you pay yourself a car payment. Doing that for 10-12 months will give you the cash to upgrade to nicer used car. Used cars do not depreciate at such a rapid rate as new cars.

Calculating other costs

Let’s assume that you have a car that is paid for. What are the other monthly costs associated with car ownership? First, there is insurance. Most states have mandatory car insurance laws. Next there is the cost of gas, oil and maintenance. If you plan on driving the car you will need to budget for all three of these items. If you live or work in a city there may be additional parking expenses to think about as well. Even college campuses have parking fees per quarter or per use.

Other options

Now that we have reviewed some costs, how can we cut them?

• Drive less, or carpool to share expenses
• Cluster your errands by area, so you are not traveling back and forth a lot
• Consider public transportation
• Find out if your job will let you tele-commute from home occasionally
• Ride a bicycle or walk, where it makes sense. This gives the added benefit of daily exercise!
• Changing your own oil can save you money over having a garage doing it. Just be sure you properly dispose of it.

Analyze your family’s driving habits. It may be that you can cut costs by owning only one car. The best way for most people to save is to buy a used car with cash and skip the payments. You save on depreciation, you save on interest and most of all you get pointed in the right direction to getting your debt paid off, so that your stress levels are reduced and you can have financial wellness and peace.

Tim and Kathryn Gerken are Financial Coaches in Newcastle, WA. They serve their community by teaching classes, speaking and coaching families in the Seattle area. To learn more contact them.

Food ranks in the top three spending categories of Americans.

Almost 13% of monthly household spending was for food according to the 2009 Consumer Spending Survey. That 13% averaged to $6,372 per year, $2,619 of which was spent in restaurants, while $3,753 was for eating at home. All of this was for an average family of 2.5 people with an average before tax  income of $62,857. The other two top categories according to the survey were housing and transportation.

This breaks down to $531 per month spent on food for 2.5 people. In our family of (currently) 6, we spend about $900 per month on food.  So where does your family fall? Are you above the national average or are below it?  Remember that your income is probably different than the average as well as the number of people in your household. Regardless, if you have two or three people in your household your monthly food bill should not be $1,200. You would be eating your retirement income!

Reining in food costs

The first step is to make a budget and decide how much of your income you can afford to pay out in food. Keeping in mind that food should be the first thing on your list of priorities, not the credit card bill. Once  you have an amount established, go to the bank and take out cash for your food. You can get out the amount for the whole month or just for the week. This is the only money you can use to purchase food. If you run out, you must adjust your budget someplace so that it stays balanced. Using cash to pay for your food helps you to see how much you are spending and how much you have left. It helps you to say “no” to the kids as well as to yourself when it comes impulse purchases.

Make a menu

Whether it is for the week, the pay period or for the month, a menu is essential to keeping your food costs down. The main reason for this is that you know exactly what is for dinner when you get home. There is no impulse eating out if you have a meal already planned. Anyone can start to cook it when they get home if they know what is planned and have the ingredients. A menu also helps when you are at the grocery store. You know exactly what you need to prepare the meal and can stick to your list and not impulse purchase.

Couponing

Many people today use coupons to help save on their food budgets. Couponing can save you money but only if you use it correctly. Only clip coupons on items that you would normally purchase anyway. Do not let it become an impulse shopping list item just because you are saving 10 cents with a coupon. Make sure that your coupons are organized so that you actually use them. Otherwise, it is a waste of your time and energy to clip them out. There are online coupon sites that can be helpful, but we do not suggest paying for a coupon.

Get organized. Spending time each week to plan a menu and shop on a budget with a list will take you a long way to getting pointed in the right direction to save on your food expenditures each month.

Tim and Kathryn Gerken are Financial Coaches in Newcastle, WA. They serve their community by speaking, facilitating workshops and seminars and by coaching people on their personal finances. To learn more contact us today!

No one can confidently say that he will still be living tomorrow. Euripides

This was brought home to me once again this week, when the daughter of a friend became ill and within two weeks had died from her illness. She left a husband and young daughter. In this sad situation I am reminded that everyone needs life insurance to help to take care of the family that is left behind. Whether that person is the bread-winner of the household or the stay at home mom, the position that they filled in the family will need to be financially replaced. The surviving spouse will need to work and the children will need care.

Term Life Insurance

Purchasing term life insurance can help to release the financial stress of the loss of a loved one. It is hard enough to continue after the loss of a loved one even without the financial burden it may create. Term insurance is inexpensive for otherwise healthy adults to get. It is one of the necessities of a good financial plan and if you have children, it is a must.

For a man or woman in their mid-thirties, you can obtain 20 year term life insurance for approximately $25 per month for $500,000 in coverage. For a personalized quote click here. The average American income is $50,000 per year. This will give that family 10 times its annual income. If they invest it, it is possible to use the proceeds to help with the living expenses of the family until the kids are adults.

Obtain some outside of work

If you and your spouse do not have term life insurance in place, please do not put it off any longer. It is the best gift that you can give each other and your families. If you have life insurance through your employer, consider having some outside of work as well. It is inexpensive. If you develop an illness while serving your current employer and are subsequently laid off, fired or quit that illness may mean you are no longer qualified to obtain insurance due to the pre-existing condition. Life insurance through an employer terminates when your employment does. The safest road is to have term insurance outside of work.

What happens when my 20 year term is up?

If you are serious about getting out of debt, paying off your home early and building a retirement fund, within 20 years you should not need life insurance. You will be self insured! Your kids will mostly be grown and on their own. You will not have debt and you will have a large emergency fund. Your investments will be able to make some money and the spouse that is left behind will be able to make ends meet with the financial portfolio that you have built over the past 20 years.

Life is fragile. We will all die eventually and none of us know when or how. Get pointed in the right direction today and leave your family the security that they will need for move on without you or your spouse. Get term life insurance in place so that you can enjoy your life and live it to the fullest without worry for your family.

Tim and Kathryn Gerken are Financial Coaches in Newcastle, WA. They serve their community through seminars, speaking engagements and personalized coaching in the Seattle area. To learn more contact us.