If you have a big life event or money decision coming in
2015—whether it’s buying a house or car, sending a child to college, hosting a
wedding or having a baby—start planning now. Early preparation will help you
keep your emotions in check—that’s crucial for keeping your finances on track. The
first step: Detail where your money is going now, so you can see where to cut
back. Then divert that money into savings for the big outlay. Here are more
strategies to consider:
Buying a Car
The Internet is your friend when it’s time to buy a car.
Kelley Blue Book (kbb.com) and Edmunds.com offer tools for comparing
market prices on new and used cars, arming you with the necessary information
to negotiate the best deal. They also offer information on the total ownership
cost, including insurance, gas, maintenance and depreciation, so you can
pinpoint the specific model you want—and can afford.
Read up on auto trends to suss out deals. Research the pros
and cons of buying a used car from an individual owner; there are risks but the
price is likely to be lower than a dealer’s. Decide whether you’ll pay cash or
borrow for the car. If financing the car, ask your bank or credit union for a
loan quote. When you’re at the dealer, tell them to beat or match those terms.
Buying a House
For long-term savings on a home purchase, it’s crucial to
ensure your credit is as polished as possible. Rates on 30-year, fixed-rate
loans are averaging less than 4%, but only borrowers with stellar credit get
those rates.
You can go to AnnualCreditReport.com for a report
from each of the three credit-reporting companies. Doing this early gives you
time to fix anything. Next, use an online calculator to see how much house you
can afford.
Assuming the monthly payment is more than your current
housing cost, save the difference for a few months to see whether “it’s
comfortable living at that rate” of spending. Save for closing costs, which now
average about $2,500 nationwide, according to Bankrate.com, and for taxes and
home insurance. Another potential cost:
mortgage insurance. Generally, borrowers with a down payment of less than 20%
will have to pay mortgage insurance.
Paying for College
If a hefty tuition bill is coming up, there are some urgent
tasks to complete. First, estimate your 2014 taxes, then use those figures to
fill out the Free Application for Federal Student Aid, or Fafsa. If your state
offers a 529-plan tax deduction and you don’t have one yet, open one.
As financial-aid offers roll in, assess what you can afford.
If you’ll need to borrow, research your options. Federal student loans often
have lower interest rates and more flexible repayment options than private
loans. A home-equity loan shouldn’t be a first choice.
Plan now to maximize tax perks. For example, the American
Opportunity Tax Credit—worth up to $2,500 if you spend $4,000 on qualified
expenses—can’t be tapped if you use 529-plan money to pay the same expenses.
Use a savings account or loan proceeds to avoid double-dipping on tax breaks.
Planning a Wedding
Communication is crucial to make sure a wedding doesn’t
leave the bride and groom, or their parents, with a depleted savings account or
a debt hangover. Both families should talk about who is paying for what. Write
down a detailed budget, forcing the bride and groom to decide what’s important.
Baby on the Way
If a baby is in your future, take steps now to get your
family on firm financial footing. Create a budget, then add in specific
baby-related costs. Check out the “baby cost calculator” at BabyCenter.com.
Consider how your income will change after the baby arrives.
Ask your employers about maternity or paternity leave. Research family leave
and disability options. Given child-care costs, some couples may weigh whether
one parent should stay home. Day-care center costs vary widely, but are as high
as $16,000 a year for infants, according to ChildCareAware of America, a trade
group.
Research 529 plans. Ask
your 529 provider about how others can contribute on your child’s behalf, and
provide that information to anyone eager to give your baby a present.
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