2014 is a big year of transition for me and the husband. A lot of change is ahead and to top it all off, we’re looking to sell our downtown San Diego condo and upsize to some more space both indoors and out. Selling and / or buying a home is a huge undertaking that can come with a lot of confusion and questions. We recently ventured down the path of finding a realtor we work well with and had our list of questions armed and ready as we powered through some interviews. If you’re in the market for a real estate agent, below are some questions to have on hand when finding your best fit:
- What experience do you have / How long have you been in business?
It’s important to know how long your agent has been in business, whether this is a full or part-time job and if they specialize in your neighborhood or area of town (depending on the size of the area you live in). Ask about average length of time the agent’s homes sit on the market, their list-price-to-selling-price ratio and types of properties the agent has experience with.
- How will you keep me updated?
Communication is a key factor in any successful relationship. Understand the frequency and form of updates you’ll receive. Indicate the level of information you expect in terms of buyer interest, new property listings, open house feedback and more.
- What are the drawbacks of my home?
Your agent is there to give you honest feedback in order to set appropriate expectations for the home buying / selling process. If you’re selling, your agent should be able to identify any items that may be an issue and affect the value of the home.
Whether it’s a for sale sign on your front lawn, a direct mail campaign, or open houses and online marketing – make sure you’re aware of what each agent’s strategy would be before signing on – and more importantly, that you’re comfortable with it. For buying – it’s important to know what type of competing buyers are in your market, how the agent will assist in searching for a new home, how they’ll handle multiple offers, and the level of activity in terms of driving to homes or just sending you listings via e-mail.
- Do you work alone or with a team?
Understand if your agent handles all details solo or if they leverage a team environment to ensure efficiency. If a team environment is the case, find out what areas your agent specializes in and who you may be working with aside from them and in what capacity.
- How many clients are you currently representing?
This will help you to gauge how much of your agent’s time you may receive. Are they spread too thin or perhaps not representing many clients at all? This one will be a personal preference as to what matters most to you – time or experience (preferably, a healthy blend of both).
- Can I see your references?
Typically you can find these on Yelp these days. If not, ask for at least 3 references from satisfied clients. When screening references, be sure to ask about accessibility, personality, professionalism, communication and satisfaction with the agent.
Most real estate fees are negotiable. Agents will typically charge a percentage averaging 2-4% on each side of the transaction. Percentages vary by agent, but commissions tend to be around 6%. Check out what’s average for your area before going into talks. Make sure you understand the agent’s cancellation policy and any other fees involved with the sell or purchase of a home.
- What should I ask that I haven’t?
Ensure your agent takes the time to educate you and make you feel comfortable. This isn’t a decision or relationship you want to rush in to. Note the agent’s observations about your home, their effort to explain key terms and refrain from using industry lingo and their genuine interest in helping you reach your goals.
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The investment world can be a complicated and overwhelming place to those on the outside, and it doesn’t matter where you fall on the GenY to Boomer spectrum. Not only are there a variety of account types to consider when stashing away cash for the long term (think 401(k)s, Individual Retirement Accounts, Roth IRAs, SEP IRAs, 403(b)s, etc.), but on top of that there’s a slew of investment terms and types to be aware of too! The terminology alone can make someone’s eyes glaze over if there’s no context behind it. One of the big “no no’s” in the financial planning profession is throwing around industry lingo and using schmancy words in front of clients to make them think you’re smart. That doesn’t fly for me. I took Spanish in high school and Italian in college. I know that learning a new language is tough. And I know that understanding your investments shouldn’t make you feel like you have to break out the books and start studying. That’s why I’ll be taking the next two weeks to break down some basic investment terminology for you. Part One will cover basic investment terms and Part 2 will cover account types and considerations. If you’re already finance savvy – consider the below a recap (but feel free to review and share) and if you’re new to the investment world, you’re in the right spot. Read on for a GenYer’s mini-financial dictionary.
One share of stock represents a single share of ownership (equity) in a company. When you purchase a share of stock, you become a part owner in the company (proportionally to the number of shares owned by others) and you can even vote on how the company operates. The price of the stock will fluctuate up and down over time depending on how much an investor is willing to pay for it (or think it will be worth). Fun homework assignment: Visit www.yahoofinance.com and look up the stock prices for some of your favorite companies. You can track the movement in price throughout the day and overtime.
A bond is a debt investment where as the investor, you loan your money to an issuer (a corporation or government) for a set period of time. In exchange for the loan, the issuer promises to repay the principal and a set interest amount over the life of the bond, which is a predetermined time. Think of this as an IOU where you loan a company money and in exchange they agree to a set of terms for repayment. The value of a bond will increase or decrease based on changes in interest rates (increase when interest rates fall and decrease when interest rates increase). They tend to offer more moderate returns and risk when compared to stocks and can sometimes work in a portfolio to even out risk.
A mutual fund pools together money from a group of investors and purchases stocks, bonds and other securities. The fund acts as one investment and as the underlying securities increase or decrease in value, so does the overall value of the fund. Mutual funds help individuals to take advantage of diversification, asset allocation and professional money management when they’re unsure or don’t have the time to do it themselves. Each mutual fund has a manager and a strategy for the fund’s overall objective, which can be found in the fund’s prospectus. Some may be geared towards growth or capital appreciation and others may be geared towards income generation or stability. Even though a mutual fund may own stocks, bonds and other securities, its price does not fluctuate throughout the day, but instead is set at the end of each trading day. This means that if you want to purchase or sell a mutual fund, you will do so at the end of the day after its price has been set based on the value of its underlying securities. Note: You’ll likely see a variety of mutual fund offerings for you to choose from in your employer’s 401(k), 403(b) or TSP plan. Among these options you may see a Target Date Fund, which is a type of mutual fund whose asset allocation is set according to a selected time frame. The allocation becomes more conservative as the “target date” approaches.
Exchange Traded Funds (ETF):
An exchange traded fund (ETF) is similar to a mutual fund in that it pools together funds to purchase a set of stocks, bonds or securities. However it trades throughout the day instead of at the end of the day. The price of an ETF is determined throughout the day and they trade just like stocks. Note: Most ETFs are passive in nature and therefore tend to come with lower internal expense ratios than similar mutual funds. Be sure to check the expense ratios of any mutual funds or ETFs you’re investing in.
Asset Allocation: This is a strategy that adjusts the amounts or percentages you own in certain asset classes in order to balance risk versus reward based on your overall risk tolerance, goals and timeframe for holding investments.
Risk Tolerance: As an investor, this describes your comfort level with certain levels of uncertainty when it comes to fluctuations (large and small) in the value of your portfolio.
The key to understanding your investments is to start off as you would with any other goal. Break it down into smaller goals and conquer one piece at a time. Start by getting clear on key terms, then account types and then work your way up to how they relate to each other and most importantly – to your life. And if you’re ever feeling like your Advisor is talking above you, using words you don’t know or just plain isn’t making things easy to understand – call them out on it. You deserve to have an understanding and education about these things. Make sure to ask for it.
What is your credit score?
I’ve said it before and I’ll probably say it again –your credit score is one of the most important numbers in your life. This three-digit number essentially acts as your financial report card, except there’s no leaving it behind after graduation. Your credit score is used to represent your creditworthiness, which translates into the likelihood that you’ll pay your debts in a timely manner. If managed wisely, it can bring you peace of mind and result into dollars in your pocket via low interest rates and higher credit limits. If not managed properly, your credit score can delay your ability to reach goals and result in you spending more money than necessary to make up for past mistakes.
What makes up your score?
There are five elements that make up your FICO (Fair Isaac and Company) credit score:
- 35% of your score is based on how you pay your bills. (Are you paying on time or often late or missing payments?)
- 30% of your score is based on the amount of money you owe and the amount of available credit to you.
- 15% is based on the length of your credit history.
- 10% is based on the mix of your credit accounts. This involves both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans.
- The final 10% is based on new credit applications.
FICO score range:
Your FICO score will range from 300-850. The higher the number, the better. The breakdown of credit score ranges can vary, but this is a good overview:
- 720-850: Excellent
- 690-719: Good credit
- 630-689: Fair (average) credit
- 580- 630: Poor credit
- <580: Bad Credit
How to make sure your credit report/score is accurate:
To start, use a website such as annualcreditreport.com or creditkarma.com to obtain your credit report and look for discrepancies. If you find anything, you should immediately contact both the credit reporting agency and the company that is portraying inaccurate information. There will likely be phone calls, letters and e-mails involved to get it updated. It may be a headache, but having a good credit score translates into a lot of dollars back in your pocket.
How often you should be monitoring your report and checking your credit score:
A minimum of once a year to check for accuracy and potential fraud attempts. If you’ve been a victim of identity theft, enrolling in some type of credit monitoring service may be best for your score and your peace of mind going forward.
Tips for protecting your credit report and having a strong credit score:
- Since how you pay your bills accounts for 35% of your score, it’s essential that you pay your bills on time. If you’re late on a consistent basis, or have been sent to collections, that can definitely hurt your score. This doesn’t just apply to credit card accounts. It also takes into account utilities, retail accounts, installment loans, finance company accounts and mortgages. Note: How recent and the frequency of late payments matters.
- Ensure your credit cards are carrying a low or zero balance. Having maxed out cards translates into a low amount of available credit (meaning lenders think you need to borrow funds to live day to day or aren’t tracking your spending closely) and therefore lowers your score. When you’re perceived as overextended, it translates into a higher risk credit score. Note: Closing credit card accounts that have a zero balance and are in good standing will not raise your credit score and will reflect a decrease in the amount of credit available to you. Understand the pros and cons of closing credit card accounts before taking action.
- Start building your credit NOW. The longer you’ve displayed a responsible credit history, the higher your score.
- Be proactive. If there’s an issue that you foresee, such as being late on a payment, a bounced check or anything else of the matter – reach out to the company or creditor to give them a heads up. You’ll likely establish higher rapport and will prevent them from having to track you down. You may even be able to get any fees associated with the mishap waived.
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But this doesn’t mean yours shouldn’t be. Brian and I got married two years ago. At that time I went through all of our finances, combined accounts, changed names, updated beneficiaries, and made a list of items to complete: Wills, Powers of Attorney and additional life insurance for me. That was two years ago in September. While our finances are doing fine, our estate plan is partially completed. Time got away from me as it does with all of us sometimes. We both completed the forms required by the military to get our Wills done, but then I needed to be present to execute mine and since it was hard for me to get away from the office during the week, Brian got his copy completed before he deployed earlier this year, while my completed draft gathered dust on our desk and is now outdated and needs to be redone. In addition, while I had every intention of getting additional life insurance (and even applied for it), it turns out there was an outstanding check-up that I hadn’t completed some 3 years ago from a doctor referral and I can’t qualify for coverage until that’s completed. Another item to added back on the “To-Do” list. However, I’m on a mission to get these items in place before year-end and having just grabbed my now outdated draft off of my desk, I thought there would be some good lessons in this:
1) As I mentioned previously, Financial Planners aren’t Perfect.
2) There is a common misconception (especially among the younger crowd) that in order to need an estate plan, you have to be “rich” or have a complex assortment of investments and items that would need to be dealt with if left behind. However, this couldn’t be further from the truth. Having an estate plan in place is a necessity, and once you hit the age of 18 – you should have the proper documentation in place to make sure you’re covered, no matter how simple your life is. Doing so will ensure that you remain in control of how your possessions are distributed at your death, that your wishes for medical care are carried out and that your minor children (if any) are cared for as you desire. While it may be the case that you are just getting comfortable broaching the topic of estate planning with your parents about their wishes, it’s important that you take some time to think about what you would want as well.
When thinking about your need for an estate plan, consider the following:
- How do you want your personal assets to be distributed?
- Who stands to inherit them?
- Are there certain items or gifts that you would want to go to specific people? (For example, your assets could pass to your spouse, but you could indicate your grandmother’s jewelry be passed to your sister or your DVD collection be donated to a local charity).
Creating a Will allows you to appoint an executor of your estate and provide details on how your assets should be distributed in the event of your death.
- Should you ever become incapacitated, who would you want to carry out any financial tasks on your behalf?
- Do you own a business? Who would take care of it?
A Durable Power of Attorney appoints a representative, such as a spouse, sibling, or parent to perform certain actions on your behalf such as pay bills and make financial decisions, if unable to perform these tasks yourself.
- In case of a medical emergency, who do you want responsible for making decisions on your behalf if unable to make them yourself?
An Advanced Healthcare Directive (or Living Will) documents which types of medical care, including life-sustaining treatments you deem to be appropriate or inappropriate should you become incapacitated. A Medical Power of Attorney designates a representative to carry out those wishes if needed.
- If you have young children, who do you want to care for them should something happen to you and your spouse?
Without an appointed legal guardian, which can be stated in a Will or Trust, any interested parties ranging from family friends to relatives to social services agencies may apply for guardianship through the courts.
- Have there been any recent transitional changes in your life such as marriage, divorce, birth of a child, or sickness?
Once in place, your estate plan (including any beneficiary designations on retirement accounts or life insurance policies) should be reviewed annually to ensure documents and designations remain aligned with your current state of affairs and wishes. No matter what your estate looks like, at a minimum you should work with a trusted estate planning attorney to ensure you have a will, durable power of attorney, advanced healthcare directive, and durable medical power of attorney in place should you ever be faced with one of the situations listed above. Keep in mind that creating an estate plan is one of the most lasting gifts you will leave behind. Not only can it act as a form of insurance and risk management when used properly, but it will make it easier for your family to move forward with healing and rebuilding.
As I mentioned in last week’s newsletter, as a GenYer or Millennial, your human capital is one of your most valuable assets. Aside from what you may know about how it contributes to running a business, your human capital is your ability to earn (or command) an income. It includes your skill set, expertise, education and ability to connect or interact with others. In financial terms, your human capital is the present value of all your future wages. It matters most for GenYers because of the value it will continue to provide over the next 20-40 years (i.e. funding your lifestyle, allowing you to save for current and future goals). Thus, increasing your human capital gives you the ability to increase your net worth. Below are some strategies to reflect on and items to consider when it comes to investing in your ability to earn an income:
What skills or certifications could you acquire to enhance your value or diversify your experience? Are there conferences, events, or trainings that you could attend? When it comes to your education, subscribing to the lifelong learning model has never hurt anyone. Via what avenues can you continue to pursue knowledge? You don’t necessarily have to stay within the barriers of your company. Look to related industries and fields. For example, many insurance brokers, financial planners, accountants and estate planning attorneys attend the same networking events or conferences to gain exposure to new ideas and developments. Some of the most creative and refreshing ideas can come when you’re exposed to how other industries or businesses are doing things.
Industry Trends and Developments
What is the latest news in your company and industry? Are you aware of trends, revenue sources, and the overall market for your company or product? Do you know who your company’s competitors are? Stay current by reading industry publications and understanding imminent changes or advances in technology or product design that are contributing to the company bottom line. Be a resource.
How can you make yourself indispensable to your employer or to your clients? GenY has a reputation for being tech savvy. As cliché as it may sound for our generation now, take advantage of the fact that you catch on to technology trends quickly. Could your company use a social media refresh (or rollout?). Could you volunteer to review the latest software products or CRMs that are meant to streamline your business and report back to the company on which make sense? If you own your own company, consider the ways you can provide indispensable value to your clients (without making yourself available 24/7). What are the small things that matter?
It’s not always about who you know, but when it comes to building your human capital, it could help to have a solid relationship with key members in your company or community. Who are you connected to professionally? Have you taken the time to invest in those relationships? Should you establish new ones? Professional relationships aren’t built overnight. They take time and commitment. If you’re looking to connect with someone, ask questions about them and practice active listening. If you’re seeking out input on a question, issue or project, be appreciative and respectful of the time and thought being contributed.
If you were fired today, would you look for a similar position or make an industry or career change? Are you on the path to your dream job? Happiness is a factor when it comes to your human capital as you are more likely to do each of the above if you are in a job that you enjoy. Doing the research, continuing to learn, building relationships, and being indispensable are easier to pursue when you’re following your goals. If you’re not currently in a position or industry that you enjoy, take some time to reflect upon where you’d like to be. Strategize for steps you could take that would get you there and begin to develop a plan to implement.