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January 16th, 2014 |
On October 1st, the start of a month we light-heartedly associate with ghouls and monsters, many Americans woke up to something far more terrifying—they were out of a job. For 16 agonizing days 800,000 federal workers stayed home, while another 1.3 million went to work without certainty as to when they would be paid. Then there were the countless others whose businesses depended on the patronage of those government employees who had suddenly gone missing. It was a frightening time for all, and it serves as a stark reminder that major financial events can’t always be anticipated.
Fortunately, unforeseeable crisis isn’t the norm when it comes to our finances, but it’s always smart to be prepared. Many experts recommend keeping six months’ worth of living expenses in an emergency fund. This should be enough to cover you in the off chance your source of income is cut off, and it serves as a comfortable cushion should any surprise expenses pop up. As for the rest of life’s major financial events, those are easier to handle. That’s not to say they’ll be any cheaper, but you can at least prepare for them by knowing your options and taking advantage of the ones that work best for your unique situation.
The following list is by no means comprehensive, but it should offer you some insight as to how you can prepare to tackle life’s greatest expenses:
Buying a home. Buying a first or new home can be one of the largest financial transactions of your life. Investigating the mortgage options before you start looking at homes can help you focus on a home you can afford and help keep you focused on the home selection and purchase negotiation parts of the process. You should talk to a lender to get pre-qualified or at least learn what the current rates are and how much your monthly payments would be for different size mortgages.
Changing jobs. It is seldom easy to change employers. New responsibilities, new co-workers and a new environment can be stressful. In addition, you will probably get a distribution from your old employer’s retirement plan. Once you get that distribution, you have important decisions to make. You must move the funds into another qualified plan or IRA within 60 days to avoid paying taxes on the distribution. You must also make investment decisions. Retirement plan distributions are often the largest single sum an individual ever has to invest at one time. Sometimes, a new employer’s plan can accept transfers as well. If changing jobs is in your near future, investigate your options early to make the transition less stressful.
Remodeling your home or making major repairs. Home equity loans have become a major source of funds used when making improvements to homes. The application process is usually easy and inexpensive with funds available when needed. This avoids paying interest on funds you don’t need. Home equity loans usually have attractive interest rates and the interest is tax-deductible. If you are considering a major home improvement, you may want to investigate this source of funds.
Funding a child’s college education. The cost of a four-year college education is expensive. Annual college costs at private out-of-state institutions can run over $30,000. Even state sponsored schools can be at least half that amount. Paying those college bills can be tough if you don’t start saving early. Make time your ally by establishing a regular savings program and taking advantage of some of the new tax-advantaged programs like Education IRAs and Section 529 Plans*. Although, if it’s too late to start saving, a home equity loan can also be a great way to fund your children’s college education.
Retirement. After a career, venturing into retirement brings many changes. Along with Social Security benefits, your existing assets must pay for a major portion of your living expenses. Your living expenses will probably fall somewhat, perhaps by 20% to 30%. You will probably want to modify your investment strategies to be more conservative. While you are young and still accumulating assets, it can be easier to absorb a fall in the value of your portfolio because you have time to recoup your losses. During retirement, a significant fall in your portfolio can be troubling. You may want to consider a more conservative asset allocation with more of your funds in cash and shorter-term fixed income investments.
As the saying goes, being prepared is half the battle. Begin saving early, and most importantly, research the various products that can help you get through life’s major financial events. Visit Sandy Spring Bank’s website for information regarding our home equity loans and various savings vehicles, or stop in at one of our local community offices to sit down and talk with someone about how we can help you prepare for anything and everything life has in store for you.
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*Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and the 529 Plan Program Description, which can be obtained from a financial professional and should be read carefully before investing.
The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. Investments in mortgage-related securities involve additional risks, such as prepayment risk, as more fully described in the prospectus.
You may face ordinary federal income tax and a 10% federal tax penalty on any earnings withdrawn for expenses not related to higher education. Please see the 529 Plan Program description and prospectus for more information about fees and expenses.
* NOT FDIC INSURED * NO BANK GUARANTEE * NOT A BANK DEPOSIT
* NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY * MAY LOSE VALUE
Securities are offered through, and Financial Advisors and Consultants are registered with, LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Sandy Spring Wealth Management and Sandy Spring Bank are not registered broker/dealers and are not affiliated with LPL Financial.