As a bank with deep community roots, Bank Iowa understands the importance of providing the financial education and resources necessary to help our customers make their dreams a reality. Our financial education center is designed to help you learn how to better manage your money, make wise financial decisions and build wealth. If you would like to discuss your financial goals with someone who can help you get there, contact us today.
Please select from the following topics to learn more:
- Buying a Home
- Creating a Budget
- Get Smart About Credit
- Protecting Your Identity
- Saving for Major Purchases
- Teaching Children to Save
Achieving home ownership is the dream for many Americans, but it isn't for everyone. Today, there are a growing number of obstacles for homebuyers, including a higher credit score standard and more restrictions on credit. If you’re thinking about buying a home, here are some items to consider.
Know your credit situation
Your credit history is an important factor when applying for a loan.Most lenders rely on the Fair Isaac Corporation (FICO) credit score or the Vantage Score when determining your loan qualifications. This score reflects how well you manage your debt and is calculated using data from your credit report. A low credit score will result in a higher interest rate on your loan. If your credit score is low, you may want to delay buying a home until you can improve your score. There are a number of things you can do to help your score, including paying your bills on time, only opening lines of credit you need and keeping your credit card balances below half of your available credit.
Determine what you can afford
You don't want to borrow more than you can afford. Keeping mortgage payments under 30 percent of your monthly income is a good rule of thumb. If you can’t keep mortgage payments below that, you may be better off renting for a while. Use our mortgage calculators to help crunch the numbers.
Consider all the costs
Your lender will review costs like fees, closing costs, points, homeowner insurance and taxes. But you should also consider repairs and maintenance costs. As a homeowner, you are responsible for those additional costs – there won't be a landlord to call.
Plan for the future
A home is a long-term investment, so if you plan on being in an area only a short time, renting may be a better option. Typically, if you plan on staying in an area less than five years, buying a home may not be worth the cost of the investment with all the financing, closing costs and other expenses associated with owning a home. Instead, focus on paying down debt and building savings.
Be aware of first-time homebuyer programs
Contact your local community bank or state housing agency to see what programs might be available. Sometimes these programs offer better interest rates and terms than for previous owners.
Do your homework
The variety of mortgage types can make it difficult to know which one will best fit your individual needs. Be sure to work with an experienced mortgage lender who has your best interests at heart and who will take the time to help you understand the pros and cons of all your options.
Take charge of your finances by creating a budget and sticking to it. A budget can help you pay your bills on time, cover unexpected emergencies and reach your current and future financial goals. Most of the information you need to create a budget is already at your fingertips. Start by following these simple steps to help get a clear picture of your monthly finances.
Calculate your income
To set a monthly budget, you need to determine how much income you have. Make sure you include all sources of income such as salaries, interest, pension and any other income sources, including a spouse’s income if you’re married. Using our home budget calculator, click the “Edit” button next to “Net Monthly Pay” and enter a dollar figure next to each relevant income source. Make sure that the figure you write down is the amount you receive from each income source on a monthly basis.
If you get a salary, be sure to use your take-home pay, not your gross pay. Taxes are usually taken out automatically, but if they’re not, remember to include them as another expense. If you receive money from somewhere not listed, enter the source of that money along with the amount under "other income."
Once you have entered all of your income sources, click “Apply.”
It is a good practice to keep track of how much you spend each month. Using our home budget calculator, click the “Edit” button next to “Monthly Expenses” and enter a dollar amount next to each relevant expense. Some of your bills will vary from month-to-month, so use a monthly average. For example, if your cell phone is $45 one month and $55 the next, estimate $50 per month. For annual bills, divide the yearly cost by 12 for a monthly figure.
As you review your expenses, note that rent or mortgage payments plus your credit obligations should not exceed 35 to 40 percent of gross monthly income. Also, the amount you owe on credit cards, monthly car payment, student loans and other monthly payments should not exceed 10 to 15 percent of your take-home pay.
Once you have entered all of your expenses, click “Apply.”
Figure the difference
Once you’ve entered your monthly income and then your monthly expenses and hit “Apply,” the calculator will show you the difference by stating what is left available for savings.
If your income and expenses are equal:
- You might be living paycheck to paycheck. Cut expenses and develop a savings plan in case of emergencies or unexpected expenses. Use our benefit of spending less calculator to see just how much your budget reductions may be worth.
- If your income and expenses equal each other, but only because you're using credit to survive and paying only minimums each month, you may need to talk to a debt counseling service to help you get back on the track to live within your means.
If your total was negative:
- You need to make adjustments immediately. Keep in mind that it's usually easier to cut back on expenses than to increase your income. Analyze your budget to see where you can cut expenses – especially from non-essential spending categories. Use our benefit of spending less calculator to see just how much your budget reductions may be worth.
- Call your utility, phone, cable, cell phone providers. There may be ways to cut those bills that just take a phone call to find out.
- Consider increasing your income by getting a second part-time job or by working overtime.
If you have money leftover at the end of the month, you're doing a good job of managing your expenses. Some suggestions of what you could do with the leftover money:
- Open a savings account.
- If you already have a savings account, consider setting up automatic transfers to your savings account or, if you have direct deposit, ask your employer to put a portion of your paycheck automatically in to your savings account.
- Investigate whether your employer offers a 401(k) or other employee matching savings plan. The contribution you make to this type of account is taken out of your paycheck before taxes.
Once you’ve created your budget, be sure to continually monitor it to make adjustments as needed in order to achieve your financial goals and stay on track.
A solid credit history can be one of your most useful and powerful financial assets. The following tips can help you ensure credit will be there when you need it.
Know the power of credit
Banks look at your credit history as an indication of your future financial behavior. By using credit wisely, you can build a good credit history making it easier to get loans with low interest rates, rent an apartment, purchase a car or home and it may even help you get a job.
Spend only what you can afford
Credit is a loan and has to be repaid. It is your responsibility to manage your debts and to keep your commitment with lenders. Avoid reaching your credit limit or "maxing out" your cards.
Don’t let anyone pressure you in to getting a credit card
If you don't want one, you have the right to say "no." Under the CARD Act 2009, consumers aged 18 to 21 cannot be solicited for credit. If you no longer wish to receive pre-screened offers, opt out by visiting the National Credit Bureau’s opt-out website or call them at 888.567.8688.
Read the fine print on the credit application
The application is a contract, so read it carefully before signing. Credit card companies are very competitive so interest rates, credit limits, grace periods, annual fees, terms and conditions may vary.
Pay your bills on time and at least the minimum due
Late payments can affect your credit rating and increase your balance. To pay off your balance quicker, pay more than the minimum due. If you are having trouble making the minimum monthly payments, let your creditor know so they can work with you to create a more manageable payment plan.
Watch for warning signs of credit trouble
If you pay only the minimum balance, pay late, use cash-advances to fund daily living expenses or transfer a lot of balances, you might be in the "credit" danger zone. Talk to a financial counseling organization to regain control of your finances.
Order a copy of your credit report annually
You have the right to know what is in your credit report, and it is important to make sure it’s accurate and up-to-date. The Fair Credit Reporting Act requires each of the three major credit bureaus to provide you with a free copy of your credit report at your request each year. Your credit evaluates you as a borrower and needs to be accurate. To get a free copy of your credit report, visit www.annualcreditreport.com. If you see an error on the report, be sure contact the credit agency in writing and ask that it be corrected.
Watch out for anyone who claims they can "fix" your credit report
No one can legally remove negative accurate information from your credit history. The only thing that can fix a credit report is time and a positive payment history. Negative information generally remains in your credit report for seven years and bankruptcies may remain for 10 years. However, most lenders pay particular attention to your most recent couple of years of activity.
Be aware of identity thieves
Never give out credit card or personal information if you have not initiated the transaction. Be aware of identity theft and phishing scams that ask for credit card numbers. If you suspect your identity has been compromised and are a Bank Iowa customer, let us know so we can put you in touch with an on-demand fraud specialist at Identity Theft 911®, the nation’s leader in identity management and fraud education (this is a free service to Bank Iowa customers and their resident family members).
Each year, nearly 10 million Americans have their personal information stolen, according to the Federal Trade Commission. Victims of identity theft spend approximately $5 million a year repairing their credit, and businesses are now dealing with nearly $50 million in fraudulent charges annually.
While there are no guarantees for avoiding identity theft, the more you know about what you can do to protect your identity, the harder it is for identity thieves to commit crimes. Here are some tips to help you lower your risk of becoming a victim:
- Don’t give out personal information over the phone, through the mail or on the Internet unless you know who you’re dealing with and preferably only if you've initiated the contact. As a general rule, never give out your Social Security Number (SSN) or driver’s license numbers.
- Don’t carry your Social Security card or other cards that show your SSN in your wallet. Only provide your SSN when absolutely necessary—for tax forms, employment, student records, stock and property transactions, etc.
- Remember that banks will not ask you to verify your personal account information over the phone or via e-mail, as they already have that on file. If you receive a phone call or e-mail asking you to verify such information, don't respond. Instead, contact the bank directly.
- Don’t leave sensitive documents containing personal information where people can see it. Shred or destroy papers containing your personal information, including pre-approved credit card offers and bank statements you no longer need.
- Retrieve your postal mail promptly, and discontinue delivery while you’re out of town. Whenever possible, mail bills from your post office, not your mail box. Stop or reduce junk mail or unsolicited credit card offers by visiting the National Credit Bureau’s opt-out website or call them at 888.567.8688.
- Open your credit card bills and bank statements right away. Check carefully for any unauthorized charges or withdrawals and report them immediately. Call if bills don’t arrive on time—it may mean that someone has changed contact information to hide fraudulent charges.
- Review your credit report at least once a year to check for changed addresses and fraudulent charges. Go to the Federal Trade Commission’s authorized website for your free credit report.
- Protect personal information on your computer by following good security practices. Use passwords that are hard to guess. Install firewall, anti-virus and anti-spyware software that you update regularly. Download software only from sites you know and trust and only after reading all the terms and conditions. Don’t click on links in pop-up windows or in e-mails from unknown sources.
- Before you get rid of an old computer, destroy the information on the hard drive. Often that means destroying the drive itself because erasing data doesn’t completely eliminate it or use software tools that will completely wipe data from the hard drive.
- Use caution when shopping online and only provide personal information and credit card numbers on websites that offer secure transactions and have strong privacy and security policies. You can often tell if a page is secure if “https” is in the URL or if there is a padlock icon on the browser window.
What to do if you are a victim of identity theft
At Bank Iowa, we understand that being a victim of identity theft can be a life-changing experience. That’s why we provide free identity theft protection services to our customers. Simply contact your local Bank Iowa, and we’ll put you in touch with an on-demand fraud specialist at Identity Theft 911®, the nation’s leader in identity management and fraud education.
If you are not a Bank Iowa customer and are a victim of identity theft, you should file a police report, check your credit reports, notify creditors and dispute any unauthorized transactions.
Free identity theft resource center
For more information on identity theft and prevention guidelines, visit our identity theft resource center.
Saving for a major purchase is a traditional way of setting a personal goal, striving to achieve it and then celebrating when it is reached. The sense of accomplishment and power you’ll feel when you have the money to make your big purchase is priceless.
There are many reasons why saving is an excellent alternative to borrowing or buying on credit:
- Instills the discipline of saving in general. Like anything else in life, habits are hard to break. Once you begin a savings plan with a specific goal, you will tend to continue saving even after the goal is reached.
- Provides an emergency fund if ever needed. In the event of an emergency, your major purchase could be postponed and you could use your saved funds to cover the unexpected expense.
- Encourages wise decision making on purchases. People tend to think more about how much they are spending and what they are spending their money on if they are using “real money” as opposed to a credit card or funds from a loan. No more compromising on quality, price or giving in to any other influences.
- Saves money in the long run and keeps you from getting bogged down in debt. Using your savings to make your big purchase will save you from spending money on interest and other finance charges that you would likely incur from credit cards or loans.
How to get started
Creating a budget is a great place to start. Once your monthly budget is established, you’ll be able to outline what money you can comfortably set aside for your savings plan. Then, determine how long it will take you to reach your goal, based on the amount you will be saving.
Find additional money to save
If you were hoping to reach your goal sooner, consider what areas you can cut back on each month. While it may seem difficult sometimes just to make ends meet, chances are you have extra money you didn’t even know about. Here are some ways to find it:
- Keep track of everything you spend for a week. You might be surprised what you’re buying and what you can do without.
- Make purchases with cash. This can help you stick to a budget and avoid impulse purchases. Simply decide ahead of time how much you want to spend and then set aside that amount in cash before you go shopping.
- Lower your bills. Many creditors will give borrowers a lower interest rate if they’re asked. Also, conserving electricity and gas can make a big difference.
- Rank your nonessential expenses. Keep the ones you like the best and cut the items on the bottom of the list.
- Pack a lunch or cook more dinners at home. Eating out could be eating up a big portion of your money.
- Use our benefit of spending less calculator to see just how much your budget reductions may be worth.
Make saving a priority
Be vigilant by treating your savings contribution just like any other must-pay expense, such as rent or groceries. Have your bank automatically transfer funds from your checking account to your savings account or ask your employer if a portion of your paycheck can automatically be deposited into your savings account. With a little self-discipline and effort, you’ll reach your savings goal before you know it!
It's never too early to start saving for the future, and there are a number of ways to pass along good savings habits to the next generation.
Talk openly about money with your kids
Communicate your values and experiences with money. Encourage them to ask you questions, and be prepared to answer them – even the tough ones.
Lead by example
Children tend to emulate their parents' financial habits. Be an example of a responsible money manager by paying bills on time, being a conscious spender and an active saver.
Help your kids understand the principle of earning money
If your kids can learn to appreciate what it takes to earn money, it will help instill a sense of the value of a dollar. As a starting point, consider assigning chores and giving your children an allowance for completing their tasks.
Teach your kids to save
Require them to save at least a small portion of their allowance each week. The three jars method, one for spending, one for saving and one for charitable contributions, is a good way to impart a sense of responsibility. Consider opening a savings account for your child so they can make regular deposits and watch their money grow each month.
Encourage your kids to spend wisely
Explain the difference between needs and wants, the value in saving and budgeting and the consequences of not doing so. Discuss the importance of saving to reach a specific financial goal. Help them determine what things they might want to buy and how much they should set aside each week to meet their goal. Children tend to save money best when they have a specific goal in mind.
By talking with your children about the importance of saving, instilling a sense of the value of a dollar, helping them set financial goals and regularly going with them to make deposits into their savings account, you can help them develop good saving habits.
For more information and tips, visit the ABA's Teach Children to Save website.