Money, Health, and Other Things

Educational Blog in the Area of Family and Consumer Sciences for the Middle Peninsula


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[Replay] Planning for Retirement, Part II

Over the next few weeks, we’ll revisit our series on retirement planning! This week, we’ll return and discuss some retirement terms.

What are defined contribution plans? Defined contribution plans are employer-sponsored plans, where the employee contributes to their own individual account, with a possible percent match from the employer. That match may be contingent on the employee remaining at that job for a certain period of time. Examples of defined contribution plans include 401(k)s, 403(b)s, and 457(b)s.

What are defined benefit plans? Defined benefit plans are retirement plans where an employer will pay retired employees a defined amount based on a formula that often uses factors such as highest earning salaries and years of employment. Another term for defined benefit plans are pension plans.

What is portability? Portability is the ability to move funds from one employer-sponsored plan to another employer sponsored plan. Some plans can be kept with your former employer, many plans can be rolled into your new employee sponsored plan, and the majority of plans can be rolled into an IRA, which is an individual retirement contribution plan.

What are tax deferred contributions? Tax deferred contributions are not taxed until you withdraw those funds from that plan. Examples include traditional 401(k), 403(b), and IRA plans. Tax deferred is different than tax deductible – tax deductible lowers your taxable income reported to the IRS. An example of this would be charitable contributions – even if you don’t itemize, you can reduce your taxable income by up to $300 with a $300 donation to a non-profit.

What are tax exempt withdrawals? Tax exempt withdrawals are withdrawals from a retirement plan in which no taxes are due. An example of this would be a Roth 401(k), 403(b), or IRA plan. Roth retirement plans are funded by post-tax contributions, but have tax exempt withdrawals, while traditional retirement plans are funded with tax deferred contributions but have taxable withdrawals.

Next week, we’ll return and discuss the differences between 401(k)s, 403(b)s, 457(b)s and IRA plans.


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[Replay] Planning for Retirement, Part I

Over the next few weeks, we’ll revisit our series on retirement planning! This week, we’ll discuss some questions and scenarios to get us thinking about saving for retirement!

Let’s start with a scenario.

Let’s say Aliyah saves $75 a month for retirement from age 18 to 28, then stops. If her retirement investments return 8%, she will have around $260,000 from just $9000 in contributions.

Now let’s say that Jason also saves $75 a month. However, he doesn’t start until age 28. He attempts to make up for this by savings all the way until age 65. Despite over $33,000 in contributions, close to four times as much as Aliyah, at 8% he will have around $200,000 in retirement savings, roughly $60,000 less than Aliyah.

This illustrates just how important saving early for retirement is in order to take advantage of cumulative growth.

Now let’s look at some data to see if people are saving for retirement early, like Aliyah in our scenario.

According to the 2016 Retirement Confidence Survey, by Employee Benefit Research Institute and Greenwald & Associates, while over 70% of employees age 35 and older are saving for retirement, only about half of employees between the ages of 25-34 have started, during the time period most beneficial for cumulative growth of retirement funds. Looking at more data from that survey, for those same employees ages 25-34 – less than 25% have at least $25,000 in savings and investments, and 60% have less than $10,000. In our earlier scenario, investing just $75 a month, and doing it for only ten years from age 18 to 28, Aliyah had over $25,000 in savings by age 35.

Part of this lack of savings may be a lack of planning. While the earlier years are so important for long-term retirement savings, the majority of young employees aren’t even thinking about it. Data from that same survey show that less than half of employees ages 44 and younger have begun figuring out how much money they’ll need to put aside to live comfortably in retirement. 

Over the next few weeks, we’ll discuss various terms, investment plans, how to calculate what you’ll need, and withdrawal strategies for retirement.


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[Replay] The Five Cs of Credit, Part II

This week, we’ll conclude our revisit of our past posts on credit, credit reports, and credit scores. This week we’ll wrap up the Five Cs of Credit!

The third C is Capital. Capital is the amount a borrower is willing to put towards a potential investment. With credit, this is generally referring to a down payment. The larger the capital contribution, the less likely a borrower is to default. Many lenders, especially in the housing market, have minimum down payments for their collateralized loans, which are loans to purchase large assets like homes and cars. A larger down payment may help with your eligibility and in some cases may even qualify you for lower interest rates. There are also personal benefits to larger down payments; a larger down payment means lower future monthly payments, less interest over the life of the loan, and you’ll be less likely to go under water on your loan, meaning you owe more on the loan than the value of the asset, which is especially risky when it comes to car loans with small down payments.

The fourth C is Collateral. Collateral represent what the lender gets if the borrower defaults. This can be a number of financial assets, but very often it’s the asset your purchasing itself. If you don’t pay for car loan, the lender can repossess your car, if you don’t pay your mortgage for several months, they can start the foreclosure process. Loans with collateral are generally considered to be less risky, since the lender has a more straightforward recourse if you default. This is why you’re credit card and personal loan interest rates are likely higher than your auto loans or mortgages.

The fifth and final C is Conditions. Generally, this is referring to market conditions – the state of the economy, trends in that industry, and other external factors beyond your control. For instance, from about 2009 to 2016, interest rates were at record lows. A prospective borrower with identical creditworthiness may have dealt with interest rates multiple percentage points higher in 2007 than just five years later in 2012.


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[Replay] The Five Cs of Credit, Part I

Over the next few weeks, we’ll revisit our past posts on credit, credit reports, and credit scores. This week we’ll begin our discussion on the Five Cs of Credit.

Over the next two weeks, we’ll discuss the Five Cs of Credit – what they are, how they’re applied, and why they’re important to you as the borrower

Let’s start with the what the Five Cs of Credit are. The Five Cs are five criteria that most lenders will use to measure the creditworthiness of potential borrowers. This allows lenders to get an idea of how likely a prospective borrower is to default, so they can decide what interest rate to offer, or to offer a credit or loan product at all.

Let’s start with the first C – Character. For Character, lenders are looking at your reputation and track record for repaying debts. They generally do this by looking at your credit reports and credit scores. All other factors equal, the better your credit score, and the fewer potential negative items on your credit report, the more likely you’ll be approved for a loan or credit item, and the more likely you’ll be eligible for lower interest rates. In fact, certain lenders, particularly those in the housing market, may have specific minimum credit scores needed to be eligible for their loans. We’ve talked at length about credit reports and credit scores on this site, so instead of rehashing all of those items, you can find the links to our previous posts and videos below (1234).

The next C is Capacity. Capacity measures your ability to repay a loan by looking at your income and comparing it to your installment debt. This is done chiefly by assessing your debt-to-income ratio. Your debt-to-income ratio is your total monthly debt payments divided by your gross monthly income. For instance, if you make $60,000 a year, your monthly gross income is $5000. If your car payment in $400, your personal loan payment is $300 and your mortgage payment is $1300, your total monthly debt payment would be $2000. Your debt-to-income ratio would therefore be $2000/$5000, or 40%. Generally speaking, the lower your debt-to-income ratio, the better your chances for qualifying for a loan, and certain lenders, especially in the housing market, have maximum debt-to-income ratios for a potential borrower to be eligible.

Next week we’ll return with the other three Cs of Credit!


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[Replay] Four Common Credit Score Myths, Part II

Over the next few weeks, we’ll revisit our past posts on credit, credit reports, and credit scores. Today we will discuss the final two of four common credit score myths.

Myth #3: In order to build credit, you need to carry a balance on your credit card

There is no evidence that this is true, so if you’re carrying a balance just to improve your credit score, you’re likely wasting money by paying interest for no reason. Part of the reason for this misconception may be a misunderstanding regarding credit utilization ratios. While its true that those with 0% credit utilization have a lower credit score on average that those with small credit utilization ratios, not carrying a balance does not mean you have a 0% credit utilization ratio.

Which brings us to myth #4: paying off your credit card in full each month will result in a 0% credit utilization ratio. Credit card companies will generally provide information to the credit bureaus once a month. However, this is rarely done right after you’ve paid your credit card bill; in fact, more often than not, this information is sent to the credit bureaus at the end of your billing cycle. Which means, your credit utilization is usually calculated using your balance at the end of the billing cycle, when you receive your statement. So even if you’re paying your credit card in full each month, if you’re using a large percentage of your credit card balance, you could still be damaging your credit score. Going back to myth #3, the primary reasons people with 0% credit utilization tend to have lower scores – in order to have a 0% credit utilization that consumer is likely not using their card at all, meaning they’re not creating payment history, which is the largest factor that determines your credit score.


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[Replay] Four Common Credit Score Myths, Part I

Over the next few weeks, we’ll revisit our past posts on credit, credit reports, and credit scores. Today we will discuss the first two of four common credit score myths.

Myth #1: Don’t check your credit report too often or it will hurt your credit score

While it’s true that when someone checks your credit, it’s recorded as an inquiry on your credit report, and some of those inquiries can negatively affect your credit score, checking your own credit report isn’t one of those inquiries. Pulling your own credit report is considered a soft inquiry and has no effect on your credit score. Furthermore, creditors generally won’t be able to see your soft inquiries, so not only will checking your own credit not hurt your credit score, it’s unlikely creditors will have any idea how often you have or have not pulled your credit report.

Myth #2: You shouldn’t close unused credit cards because the loss of credit history will immediately hurt your credit score

This one is a little more complicated because there are a few true pieces to it. It is true that closing your unused credit cards will result in a loss of credit history…eventually. Assuming the credit card was in good standing, accounts in good standing with no history of missed or late payments will remain on your credit report for at least 10 years from the account closing. That said, closing an unused credit card can have an immediate effect on your credit score. If you have multiple credit cards, closing one credit card will likely impact your credit utilization ratio, which is the 2nd largest factor that determines your credit score. For instance, if you have two $1000-limit credit cards, and credit card A has a balance of $500 and credit card B has a balance of $0, your credit utilization ratio is currently 25%. If you close credit card B, your credit utilization ratio would jump to 50%, negatively impacting your credit score.


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[Replay] Demystifying Credit Reports and FICO Credit Scores, Part II

Over the next few weeks, we’ll revisit our past posts on credit, credit reports, and credit scores. Today we will discuss five factors that make up your FICO credit score!

Today we’ll move forward and discuss FICO credit scores, a score from 300-850 that is meant to reflect your credit worthiness. Here are the five factors that make up your FICO credit score: the largest factor for your credit score, at 35%, is your payment history – are you making your credit and loan payments on time? Are they being paid as asked? More than a third of your score is based on how well you’ve done making payments!

The next highest factor, at 30%, is your credit utilization ratio – what percentage of your open credit (for example, your credit card limit) are you using? Keep in mind, this is NOT calculated after you make your payment; if you’re consistently using a high percentage of your credit limit, even if you pay your bill in full at the end of each month, this could still damage your credit score! While there is no universally agreed upon target credit utilization ratio, keeping your utilization ratio below 30% is a common recommendation. FICO has provided data that those with a credit score in the 800s have an average utilization ratio of 4%, so the lower the better!

Next, at 15%, is length of credit history. In general, having a longer history of well-maintained credit will help you increase your FICO credit score, and it may take some time to re-establish or build credit for the first time.

A smaller factor, at only 10%, is credit mix. In general, a consumer that is doing a good job maintaining a credit card, student loan, car loan, and mortgage will have a better credit score than someone who only has a credit card, all other factors equal.

The last factor, also at 10%, are inquiries. Inquiries occur whenever someone checks your credit; however, not all inquiries impact your credit score. “Soft” inquiries, such as credit checks from employers or credit checks that haven’t involved you applying for a new credit item or service, will show up on your credit report (*for you, they likely won’t be visible for creditors checking your credit report), but will not impact your credit scores. “Hard” inquiries, which occur when you apply for a new credit/loan item or service (*depending on the type of service, it may be a hard or soft inquiry), may negatively impact your score. While one hard inquiry is unlikely to have a significant impact, numerous hard inquiries in a short period of time can! Fortunately, if you’re rate shopping for a mortgage, auto loan, or student loan, inquiries made in a 45-day period are likely to be counted as only one hard inquiry, and the first inquiry shouldn’t impact your credit for 30 days.

That concludes our two-part discussion on credit reports and FICO credit scores, if you have any questions, feel free to contact me at gjsturm@vt.edu.


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[Replay] Demystifying Credit Reports and FICO Credit Scores, Part I

Over the next few weeks, we’ll revisit our past posts on credit, credit reports, and credit scores. Today we will discuss what’s on your credit report.

Most people are aware of what a credit report is – a detailed document of your credit history, typically from one of the three major credit bureaus: Equifax, Experian, or TransUnion. However, there are plenty of misconceptions about what exactly shows up on your report. Generally, there are four sets of information that make up your credit report: identification information, your credit accounts, inquiries, and your public record information.

Your identification information includes things such as your name, addresses, past addresses, a portion of your social security number, date of birth, spouses or co-applicants, and possibly certain employment information. While none of this information is used to determine your credit score, there is a lot of sensitive information. If you do choose to print or save your credit reports, be sure they aren’t easily accessible to others.

The largest portion of your credit report is usually your credit accounts. These can include a variety of different accounts such as credit cards, charge cards, auto loans, mortgages, and student loans to name a few. There is also quite a bit of information to go along with each of these accounts: including the creditor, account numbers, recent balances, when the account was opened, if the account is current, 30, 60, 90 or more days late. There may also be data about credit limits, high balances, and possibly even month-to-month data on balances, when payments were received, and the amounts paid each month.

Another section is your credit inquires. This section contains a list of everyone who has accessed your credit report in the last two years. Some of these can potentially have a negative impact on your credit score, while some have no impact at all. We’ll talk more about that next week!

The final section are your public records and collections. Credit bureaus collect public record information from state and county courts, including bankruptcies, foreclosures, and debts that have been sent to collections. Traditionally, your credit report also included civil judgements and tax liens, but recently credit bureaus have been moving to remove these from your credit report.

Need a copy of your credit report? Since the passage of the Fair and Accurate Transaction Act in 2003, consumers are able to get a free copy of their credit report, once per year, from each of the three major credit bureaus through annualcreditreport.com. This allows you the option to check one of these credit reports every four months to more regularly monitor your credit, and check for errors or possible cases of identity theft. If you need a reminder to periodically get a copy of your credit report, University of Wisconsin’s Extension has a great tool, linked in the text below! If you find any errors or accounts that do not belong to you, the Federal Trade Commission, or FTC, has a great step-by-step guide to help you dispute them, also in the text below.

That concludes this week’s discussion on credit reports, we’ll see you next week when we talk about FICO credit scores!


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[Replay] Six Interviewing Tips

Last week we replayed our post on resume writing tips for those looking for new jobs. This week we’ll follow up that post and replay our post on interviewing tips! If you’re interested in learning more and attending a free resume writing and interview techniques workshop, check out our flyer below for our workshop in partnership with Virginia Career Works – Hampton Center

  1. Don’t show up unprepared with little knowledge of the organization and their initiatives. Learn as much as you can about the company; at minimum, researching some of their history, their focus areas, and their organizational mission.
  2. Show an interest in the job first. In most situations, it’s not a good idea to ask about salary, benefits, and perks right off the bat, and avoid talking about future aspirations, especially if they don’t involve that company.
  3. Don’t turn the weakness question into a cliche positive. Avoid answers like “my greatest weakness is I work too hard” or “my greatest weakness is I care too much about my job,” most interviewers have heard it before, and they’re not buying it. Instead, think about aspect of your resume that may be weaker than other job candidates, particularly things the interviewers probably already know about, like limited experience, lapse in time working in that field, different educational background than that position, etc. Discuss that weaknesses and how you would overcome it, that way you’re not admitting a new weakness and have the opportunity to address it with your interviewers.
  4. Be conscious of your body language. Even if you’re not interviewing in person, if you’re interviewing over video-conferencing, like Zoom, professional body language is still important. Be sure you have good posture, positive facial expressions, and avoid playing with hair, adjusting your clothes, or biting your nails.
  5. Give specific examples when answering questions, but be concise. Avoid answering too many questions with a simple yes or no, but don’t rattle on for 15 minutes with each answer.
  6. At the end of most interviews, your interviewer will ask if you have any questions for them. The worst thing to do is say “no.” This is your opportunity to ask more questions about the position and the company. Not only does this show interest from your end, this also gives you a chance to evaluate the company and the position. Remember, interviewing isn’t just about convincing the interviewer that you would be a good fit for them, it’s also about figuring out if they would be a good fit for you!


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[Replay] Six Resume Writing Tips

Over the next two weeks, we’ll revisit our posts on resume writing and interview techniques. If you’re interested in learning more and attending a free resume writing and interview techniques workshop, check out our flyer below for our workshop in partnership with Virginia Career Works – Hampton Center

  1. Only include what is relevant and applicable to the position you’re applying for. This means omitting things like hobbies, and possibly excluding past employment, education, and skills that are not relevant to that specific job. This means that if you’re applying for multiple positions in different industries, you will likely need unique resumes for each of those positions. Also, remember that what’s relevant in one situation may not be relevant in another. One individual fresh out of college would likely want to include employment information during college and high school, to show some level of structured employment experience, while someone applying for the same job but with 20 years of relevant full-time experience should likely omit that information.
  2. When listing your job duties from past employment, be sure to describe what you specifically did using action verbs, and avoid vague terms like “assisted”, “contributed,” or “provided customer service.”
  3. List education and job history in reverse chronological order, most recent listed first. If your resume is growing too large, beyond the typical rule of thumbs of one to two pages, consider removing past employment information from more than 15 years ago, especially if it’s not related to the position you’re applying for.
  4. Don’t forget to include applicable skills, and relevant extracurricular and volunteer experiences – to some employers this can be just as valuable as previous employment experience.
  5. Include a cover letter – cover letters allow you to stand out and sell yourself in a more personal way that shows your interest in that specific position.
  6. For your section on education, if you have a college degree, you probably don’t need to include information about graduating high school. Additionally, for recent college graduates, a good rule of thumb is to exclude providing information on GPA unless it was 3.0 or higher.