Your Top Money Questions… Answered!
Finance/Money

Your Top Money Questions… Answered!

 

A few weeks ago we asked readers what some of their top money questions were that they needed answered. We are thrilled to have Certified Financial Planner, JJ Montanaro from USAA to help us answer your top money questions.

Your Top Money Questions… Answered!

QUESTION:

How do you determine whether to refinance a conventional mortgage when you no longer live in it, but rent it out?

ANSWER:

We’ve refinanced several times, but never with a rental (haven’t had one). This is really a number crunching exercise and every situation can be different based on costs, interest rates and your long term plans. Here are several factors that would be top-of-mind if I was evaluating this opportunity:

  • Current interest rate vs. proposed. As a general rule of thumb, it would be nice to see a 1% reduction when you refinance. Since the property is a rental, you likely won’t have access to rates as low as you would see for a primary residence.
  • Remaining loan term vs. new loan. I’ve worked with folks that have both used the low current interest rate environment to pay off their home sooner or have actually extended the loan and reduced the payment to increase flexibility (for example, if you have a period without a renter). Either can work, just depends on your goals.
  • Savings vs. costs. Even if they are rolled into the loan or reflected in a higher-than-market interest rate, there will be closing costs. Will you recoup those costs in the form of less interest paid over the time you’ll have the mortgage?

Here’s a link to a USAA article on the subject and a refinancing calculator which could provide additional information to help you make the decision. Good luck!

money

QUESTION:

How do you realistically stash cash for sudden activation’s? We are in the middle of a serious natural disaster here in Louisiana, and about all of the National Guard is on Active Duty. This means that all service members have been suddenly yanked out of their civilian jobs and likely do not have much vacation time left. And because these are state orders, the pay is going to come slow. We are on week 2 of no paycheck on my husband’s side.

ANSWER:

First, let me say thanks for what you guys are doing to help out your community, just watching everything that’s been happening from afar has been painful. There are some great (and easy) ways to build an emergency fund which I’ll get to in a moment. In the meantime, I would reach out to the National Guard Soldiers and Airmen Emergency Relief Fund if you’re in an immediate bind. As far as stashing cash goes, when things are back to “normal” I would set up a savings account (if you don’t have one) and use automatic transfers into the account each pay period to get things started. In addition to that, USAA has a program called Savings Booster that I use to transfer ATM rebates and a portion of our paychecks above a certain amount—we transfer the money into a “house fund,” but you could obviously use a similar technique to build your emergency fund. Good luck and thanks again!

QUESTION:

What is a helpful way to invest your money, but you really don’t have a whole lot of savings?

 ANSWER:

Well, I would make sure you have some savings—at least $1,000—before you start investing. The thing about investing, that we see pretty regularly, is that there’s the real potential for loss or at the very least, fluctuation. You don’t want to have to pull money out of investments when a financial surprise pops up and having some savings can prevent that. Easy and helpful types of accounts include a 401(k) through your employer, the TSP through the military/guard/reserve or a Roth IRA. If you have an employer that offers 401(k) matching contributions, that’s something that deserves a very close look. What exactly you invest in should be based on your particular situation. If you’re interested, one of our USAA representatives at 1-800-771-9960 may be able to provide tailored guidance. Good luck.

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QUESTION:

Do you have any advice on the Thrift Savings and their ability to add to it or change their investments? Do’s and dont’s?

ANSWER:

My best advice with respect to the TSP is to “just do it.” The uniformed services participation rate is just a tad over 40%, so that means nearly 60% are not taking advantage of this inexpensive and easy way to build for the future. When service members join in 2018 and beyond and are covered by the new retirement system their investments will automatically be invested in an appropriate Lifecycle fund. However, at this time, the default investment is the Government Securities or G Fund. Unless you visit www.tsp.gov, log in and adjust your current or future investments the money will stay in this safe and stable investment option. Depending on your situation, this may or may not be an appropriate investment choice.

 

QUESTION:

Should we purchase a life insurance policy that’s outside the military? I see military insurance sky rocketing after a few years of the service member being out.

ANSWER:

If you’re just starting out, the $400,000 in SGLI that the military provides can be enough. However, add some kids, a house and additional financial obligations and you may very well need more life insurance. You can spend some time with a life insurance calculator to help determine how much is enough. USAA life insurance policies offer some unique benefits for military members. As far as VGLI prices skyrocketing after you leave the military, that’s true. Here’s the premium table. You can see that at age 30 the premium for $400,000 of coverage is only $32 per month, but that increases (in 5 year bands) up to $432/month at age 60. However, one very cool thing about VGLI is that it is available without health questions as long as you apply within 240 days of separation from the military.

 

QUESTION:

Does it pay off to just hire a financial advisor to help you?

ANSWER:

I may be biased, but I’d say it certainly can! Here’s a link to an article on what to look for in a financial advisor. Whether tapping into Military OneSource, installation financial counselors or someone like me, a financial advisor can help you map out a plan to achieve your goals and that can be a good thing…but you still have to do the heavy lifting! In the same vein, I’ve seen where having a third party in play has helped arbitrate “family conflicts” in a much more productive way.

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