How to Tackle Your Debt Once and for All

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When talking about debt, many people prefer to just avoid the conversation altogether for fear of shame. The reality is, if you’re in debt, you are part of the majority - as of 2019, 300 million people in the US are in debt, totaling an American Household amount of $13.21 trillion.

Read on to find out the different types of debt, how to create a plan on paying off loans, and why you should start ASAP.

Why should I pay my debt off sooner?

The most obvious reason? Interest. The longer you take to pay off debt, the more your payments are actually going to the interest and not the loan itself. Because of this, your payback amount will be guaranteed to be higher than your initial loan.

Also - the more you payoff initially, the less chance you have of paying off extra interest, and the more you’ll save in the long run. Avoiding paying the minimum balance is a sure way to guarantee you’ll pay off most the principal balance without those extra interest costs. Plus, the sooner it’s paid off, the sooner you won’t have to worry about it any more!

What types of debt are there?

There’s a decent chance you have more than one type of debt to pay - they’re not all created equal, and some are actually considered “good” debt. Here are the different types you may encounter:

  • Mortgage - You have to have a place to live, so this type of debt is almost unavoidable; however, if you invest smartly, you could actually make money in the long-term once you sell.

“If you buy a home for $235,000 and it appreciates 3% a year, it will be worth $485,000 when your 30-year mortgage is paid off. If it appreciates 4% a year, that initial $235,000 investment will be worth $649,000.” - Debt.org

  • Home Equity Loan/Line of Credit - This is a loan with a low interest rate that uses your house as collateral. You receive it as a lump sum and pay back off a certain amount each month, and it can be used to pay off high-interest credit cards. While this is a good way to keep interest rates low, you must be careful not to forget payments, as your house could be foreclosed.

  • School Loan - Depending on what you want to expand your knowledge on, taking out a school loan is great debt - as long as your future career can help pay if off easily. Nevertheless, acquiring a loan for school and paying it off on time is a great way to build your credit score and not feel so guilty about borrowing money, since it’s for the betterment of your future.

  • Small Business Loan - Most small businesses will take out a loan or ask for monetary help when first opening their doors. Much like the school loan, this will only work if your business can actually pay it off, otherwise you’ll end up owing more than what you started with.

  • Credit Card - While credit cards may seem appealing because they’re an immediate fix for financial woes, you end up paying big time in the long run. Some interest rates are as high as almost 20%, which means you’re paying extra on payback versus the amount you used for your initial purchase. While they can help you in a bind, credit cards can kill your credit score if you aren’t careful.

  • Payday Loans - Similar to a credit card, these loans are for getting you out of an immediate jam, but they come at a price.

“It’s quick and easy, but the finance charges range from $15 to $30 for every $100 borrowed. A typical two-week payday loan with $15-per-$100 fee equates to an annual percentage rate of 400%.” - Debt.org

  • Auto Loans - Depending on where you live, having a car may be a necessity. Be careful going into getting a loan for a car, however, because as soon as you drive it off the lot, it’s no longer worth what you paid for. You’ll be paying back a loan that doesn’t equal the value anymore.

Which One Should You Pay Off First

There are many ways you can tackle the order of your debts, from highest-interest to the smallest amount.

Paying off the debt with the highest interest rate makes sense - you don’t want to be paying more money than you have to, so wiping this one out will help combat those ridiculously high interest amounts you’re accruing the longer you leave them unpaid.

Paying off the smallest amount owed also makes sense - because it is smaller, it will get paid off more quickly. This is a great method if you find you lack motivation, because you’ll see substantial progress. Just remember, however, that those high interest loans are just going to get higher the longer they’re unpaid.

Ordering your debt repayment in terms of tax breaks can also factor into your final plan. School loans, for example, which typically have lower interest rates than credit card loans anyway, also come with a deductible on interest when filing taxes.

How to Create a Plan for Debt Repayment

You’ll need to determine:

  1. Which debts are the highest priority based on which method from above you use (highest interest, lowest amount, or order based on tax breaks);

  2. How much you can contribute to debt repayment each month (this will need to be done by creating a budget if you don’t already have one);

  3. If the repayment plan you make can be sustainable in the long run, meaning it won’t put you in the red, or be too little to make a large impact.

    1. You can, however, consider flexibility - perhaps you get a higher-paying job, or a raise, or you move to an area with a lower living cost. Any money that no longer has a job or any extra income can be accrued towards debt repayment. Just be sure to not lower this amount, and again, make sure it’s sustainable in the long run.

Once you have these steps in place, just keep monitoring, and start imagining your life without debt - because now, it will become a reality.

If you need help with debt repayment - whether you aren’t sure where to start, or you just need some encouragement - we can help. Schedule a 60-minute consultation with us today.

Roth or Traditional: Which IRA is right for you?

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There are many options when it comes to how to save for retirement, with one of the most popular being an Individual Retirement Account (or an IRA). With two different types leading the pack, it can be hard to determine which type of IRA you should go for. Here, we break down the differences between a traditional and a Roth IRA, as well as their advantages and disadvantages so you can determine which type is right for you.

What is a Traditional IRA?
A traditional IRA (individual retirement account) allows individuals to direct pre-tax income toward investments that can grow tax-deferred. The IRS assesses no capital gains or dividend income taxes until the beneficiary makes a withdrawal. Individual taxpayers can contribute 100 % of any earned compensation up to a specified maximum dollar amount. Income thresholds may also apply. Contributions to a traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status and other factors.” - Investopedia

Pros

  • Tax deductions are made with pre-tax dollars

  • Flexible contribution restrictions

  • Extended contribution timeline per year (15.5 months instead of 12)

Cons

  • Required minimum distributions

  • Employer plans can interfere with tax-deductible contributions

  • Restrictions on investments

  • There are penalties for early withdrawal

What is a Roth IRA?
Roth IRAs are funded with after-tax dollars; the contributions are not tax deductible—although you may be able to take a Saver's Tax Credit of 10% to 50% of the contribution, depending on your income and life situation. But once you start withdrawing funds, qualified distributions (see below) are tax-free.” - Investopedia

Pros

  • Savings grow tax-free

  • There are no required minimum distributions

  • There is no penalty for withdrawing contributions

  • With right distribution management, you can diversify your taxes in retirement

Cons

  • Taxes are paid upfront, rather than when you withdraw

  • The maximum contribution is low - only $6,000/year

  • You have to keep track of your account and set it up yourself

  • You can only open a Roth IRA if you meet the income limit requirements

Is one better than the other?

Not necessarily - the biggest difference between the two is how the contributions are taxed, so, depending on your situation, this will be the biggest factor in your decision. Your income will also help - if you make too much to contribute to a Roth IRA, then the decision’s been made for you.

Typically, people will opt for a Roth IRA if they can, mainly because of the lack of restrictions for withdrawals and during retirement. Also, while you may be getting an immediate benefit of tax breaks now when you contribute to a traditional IRA, you’ll have to deal with that when you retire. In the end, it’s up to you to decide which IRA is best for your situation.

Which type of IRA do you contribute to? Do you think one is better than the other? Let us know in the comments!

Curated - June 2019

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Here are some of our favorite financial reads and Internet finds we came across from last month!

Remove temptation and the ability to act on it from your life as much as possible.
— Trent Hamm

My Biggest Retirement Fear | Can I Retire Yet? | We have many fears that creep up as we get closer to retirement. Darrow Kirkpatrick does an excellent job in breaking each of them down, along with what you can do to ease your worries.

12 Enemies of Good Spending Habits | The Simple Dollar | Does your budget suffer due to these temptations? Here’s how you can combat them.

How to Create a Budget-Friendly Spread for Fourth of July | Mint Life | Holidays and celebrations can get expensive, but they don’t have to be! Here’s how to save and still have fun.

Some Advice for New Investors | A Wealth of Common Sense | Don’t let investing scare you! Here are some tips on how to set yourself up for success.

When You Earn Extra Money, Don’t Save It All | Life Hacker | When was the last time you took a vacation?

ICYMI: How Much Should You Save in Your Emergency Fund? We’ve come up with some guidelines for you to evaluate your situation and figure out just how much you should have saved in your emergency fund before taking the next steps towards financial freedom. Check them out!

How to do a Semi-Annual Financial Check-In

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When a new year begins, it’s very easy to get excited about resolutions and goals. While this may be good for your finances at first, eventually life can and will get in the way. That’s why it’s always a good idea to do a 6-month check in with any of your goals, be they financial or otherwise.

Today, we’ll help guide you through your semi-annual financial check-in to make sure you’re still on track, or to get you back on track.

Gather up all your accounts and statements

First, you’ll want to make sure you have all your ducks in a row by getting all your financial account statements. This includes your bank statements, credit card statements, investment statements, any debts or loan repayments you’re doing, real estate/mortgage, and anything else you can think of that falls into this category. You could also include your credit score statements, but just be careful you aren’t checking these scores too often in one year, as this can affect your score.

Having all the documents laid out will make sure that, when you evaluate them, you aren’t forgetting anything. Make a check-list if you want to be extra-organized!

Re-evaluate your goals

A lot of the time, people will feel as though they are trapped in their goals and have to see them through before making a new one. This doesn’t have to be the case! Sometimes our values or expectations change, which means that our goals will also change. Don’t be afraid to admit if your goal doesn’t align with your beliefs or lifestyle anymore, and change it accordingly.

If your goal is still relevant to you, however, take a look at what steps you’ve accomplished so far, and take time to congratulate yourself. Even if you aren’t quite where you want to be yet, acknowledging that you’ve made progress at all is a great way to keep yourself motivated.

Write down your action plan for the next six months

It’s one thing to think about what your next steps are going to be - it’s another thing entirely to write them down. According to a study at the Dominican University of California, you’re at least 42% more likely to achieve your goals if you write them down and revisit them consistently.

By taking your plan and writing it down step-by-step, you’ll set a clear path for yourself to make sure you will reach your financial goals, and you will also be able to know when you complete certain steps!

Do a quick check-in every month to stay on track

When it comes to my finances, I check my statements every single day to make sure I haven’t missed anything and that I’m on the right track. You don’t have to be as crazy as I am, but make sure you check in with your progress at the very least once a month. Once a week may be even better! That way, you can figure out immediately what has worked, what hasn’t, and change your plan accordingly.

Goals, especially financial ones, can be daunting if you don’t have a path or you’re unsure what to do. Follow these steps, however, and you’re much more likely to be successful!

What are some of your financial goals for the next six months? Have any of your goals changed from January? Let us know in the comments!

How to Save Money During the Summer

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Summer is here! The endless parties, nights, vacations, festivals, food and drinks are always fun to partake in - but they all take a toll on your finances as well. Here are our top five tips to save some money this summer and still be able to have some fun! 

  1. Embrace the beautiful weather!
    Now that we're going to have consistently warm and sunny weather, it's time to use that to our advantage! Instead of driving, consider walking or biking to work, and you'll save on gas money and parking. 
    Exercising outside will also help with any monthly gym fees you may have but never use. Jogging, hiking, or yoga are all great outdoor activities!

  2. Timing is everything!
    Seeing a movie? Go during a matinee! Getting dinner or drinks? Take advantage of the longer days and go outside of the dinner rush. Always be aware of local deals happening during off-times during the summer when you'll perhaps have a little more free time. 

  3. Picnics over patios!
    Summer and Patio Season are interchangeable. While it's fun to meet friends for outdoor drinking once in a while, change it up and plan a potluck-styled picnic instead. Everyone gets to share their best recipes, you'll be outside where it's likely to be less crowded, and you'll be saving money! 

  4. Don't forget about local deals!
    A lot of places offer a discount for people who live in Milwaukee or the surrounding area. The museum and the zoo are two notable examples, and both are great for summertime visits. When out and about, make sure to bring your ID with you, and you may be treated to a discount or special you never even knew existed!

  5. Street festivals, anyone?
    One staple of Milwaukee is what seems to be its endless supply of street festivals during the summer. When I lived in Bay View, I was lucky enough to be able to walk to the end of my own street to partake in one every year! Bars and local businesses love making these events happen to celebrate their city and thank their community, so head to these for inexpensive fun! 

Happy Anniversary! Looking Back on Year One

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Originally featured in the May 2019 E-Newsletter. Click here to subscribe.

On the 13th of this month, Milborn Advisors officially turns the page on our first year. We are extremely thankful to our family, friends, and clients for the support during these past 12 months. Before we look ahead, I thought it would be fitting to look back on our favorite moments throughout year one.

10. The Gift of Wine

Our very first appointment on that first Monday was with a long-term client of ours. He rewarded our journey with a bottle of wine that still sits proudly in my personal office. We are saving this memento for our next milestone anniversary.

9. Sign, Sealed, Delivered

A very proud moment came a few weeks after we officially moved into our office in the Third Ward. Chris Sherman of Brilliant DPI stopped by to hang our official signage on the front of the building.

8. Not-So-Evergreen

Last spring, Drew and I decided to walk to MODGEN - an incredible general store a few blocks from our office - to reward ourselves with some beautiful office plants. We realized after this trial period that neither of us are plant people. If you have a green thumb, please assist us the next time you stop by - these plants need you!

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7. Won't You Be My Neighbor?

Deciding to locate our office in the heart of the Third Ward has been extremely rewarding. It's great to meet fellow business owners through the Historic Third Ward Association, grab a quick lunch at the Public Market, or run into our great friends and clients as they are perusing around the city.

6. Welcome Home!

The evening when many of our clients and friends gathered for our first open house was one to remember. We were so excited to showcase all the hard work that went into our original vision of Milborn Advisors. Watching everyone react to the space was definitely one of the biggest moments for me personally.

5. Simply Having a Wonderful Christmas Time

On another personal note, back in the dead of winter, we hosted a second open house for Christmas in the Ward. My kids still talk about the night they came to dad's office and met Mr. and Mrs. Claus, along with all the reindeer. It was just what we all needed to get into the holiday spirit.

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4. History Repeating

In January, we hosted our first client appreciation event at Pizza Man on the East Side. It was an amazing collection of clients - some with us for 4 months, and some for 10 years. We ate, drank, and listened to my dad tell stories. This night was certainly a nostalgic experience for he and I, as we had our first dinner in Milwaukee in 2007 at the original location. 

3. In the Airwaves

As a die-hard music lover, I couldn't believe when I heard our first live read on Milwaukee's independent radio station, 88Nine. This is a station that I have listened to since I moved to Milwaukee - to hear our practice showcased on the air was a dream come true! 

88Nine will also be the space for our client appreciation event in July, so be on the lookout for invitations!

2. Braving the Cold

Of course, I have to give a special thanks to everyone who braved the ridiculous arctic conditions back in January for the evening at the Ice Bars. I think we can all agree that that may have been the coldest experience for everyone in attendance, but we were able to take some amazing photos to prove that we all toughed it out!

1. Here We Go....

Finally, sending out our introduction letters and e-mails a year ago was one of the most rewarding - if not stressful - days of our lives. We trusted that most of our clients were going to join us on this journey, but we really didn't know what it was going to look like until we pressed "Send".

Within minutes, I received some of the most encouraging e-mails and text messages on my phone. This is a day I will never forget.

This year has been tremendously rewarding to continue working with everyone and allowing us to do what we love. I also want to extend a special thank-you to the handful of clients who retired this year under our new practice. It has been an absolute pleasure and joy to meet with all of you throughout this past year, and we look forward to many, many more years here at Milborn Advisors.

Cheers! Now - can we please officially start spring? 

Curated - May 2019

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Here are some of our favorite financial reads and Internet finds we came across from last month!

I didn’t really understand what it meant to have a relationship with money until I hit my 20s. It was ingrained in me that to have money meant you were either inherently shrewd or corrupt. So we ignore our behaviors, thoughts, and beliefs about money until the damage is done.
— Jackie Lam

If you think financial advisors are a waste, here are six reasons why they aren’t | Rockstar Finance | Not that you need us to convince you, of course.

A Loan Won’t Solve Your Money Woes If You Don’t Fix These 10 Issues First | The Simple Dollar | Make sure you reevaluate your money habits before considering taking out a loan. The Simple Dollar gives great examples as to why.

What I Wish I Knew About Money Throughout the Years | Mint Life | How old were you when you learned these lessons?

Retirement Surprises: What I Wish I Knew About Retirement BEFORE I Retired | New Retirement | The sooner you learn these tips, the better your retirement will be! And - if you’re already retired, consider incorporating these into your life!

3 Fund Portfolio: The Lazy Investing Strategy That Crushes the Pros | My Money Wizard | An interesting take on how to construct your investing portfolio, and why it works.

An ETF That Pays You to Invest is Probably Not a Good Idea | Two Cents | But it does sound oh-so-tempting, right? Here’s why you shouldn’t go for it.

Investments for Beginners | Nerd Wallet | Here’s a list of 6 investments to help you get started on your investing journey.

Tips to Prepare for Retirement Success | The Balance | You can never be too prepared for your retirement!

How to Discuss Finances Before Tying the Knot | Milborn Advisors | Follow these tips to include this discussion in your wedding planning.

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