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Procrastination…the CFP® Exam is coming!

Procrastination….the ramifications and some study solutions…the CFP® Exam is coming!

 

We all procrastinate about something.  It may be scheduling a dentist appointment, getting our oil changed or cleaning the fridge.  It gets us nowhere.  Whatever we procrastinate needs to eventually get done, though now with the added stress of being immediate!

 

When it comes to studying for an exam, that very easily gets put on the back burner to accommodate work and family responsibilities.  What we don’t take into consideration is that procrastinating on the next big exam will add MORE stress to the family and work.  By starting early, you can spend an hour or two a day and take a day off each week to spend with family and friends.  Waiting until 6 weeks before the CFP® exam will not work.  Let’s look at a breakdown of the hours.

 

Suggested study time dedicated to CFP® Exam review: 200-300 hours

 

Time before the exam:            12 weeks                             10 weeks                             6 weeks

 

Studying 6 days per week:   2 ½ – 4 hours per day,  3 – 5 hours per day,  5 ½ – 8 hours per day

 

How can we help you keep your work/life/study time in balance so you don’t need to procrastinate?  Use MP3 files while working out, running, cleaning, driving…..great way to multitask.   Flashcards can be thrown in your purse, or briefcase, to use when you are between meetings or waiting at the doctor’s office.  Have your kids quiz you with the flashcards.  Study when they are studying, setting a good example for them!  Our Key Concepts Infographics can be downloaded to your iPad and viewed at any time!   It may not be easy, but you won’t beat the feeling of seeing a “pass” on your exam!

 

Keir Educational Resources          •             800-795-5347     •             www.KeirSuccess.com

Useful Behavioral Finance Information for CFPs®

Mid adult couple smiling while looking at female financial advisor at desk in office

 

The concepts of behavioral finance are applied increasingly in our world. Governments are using decision-making psychology to encourage behaviors like saving more for retirement. This type of psychology is also used by a wide range of businesses to help maximize their profits. Although plenty of behavioral interventions do work, others fall short of expectations or even backfire. Understanding what creates these differences is essential for CFPs® who want to provide the assistance clients need to make the right financial decisions:

 

The Role of Emotional Triggers

 

Both governments and businesses that use behavioral finance strategies have to overcome the challenge of getting people’s attention in a world that’s full of distractions. To cut through the noise technology is being developed using systems that trigger emotional responses.

 

One example of these types of triggers has been developed from the concept of loss aversion. The theory of loss aversion states that people react more strongly to the threat of a loss than the possibility of a gain.  Using this concept, app developers have found that  the average person doesn’t want to use something that solely tracks their failings without any positive reinforcement.

 

Another example arises from the realization that nudges become less effective over time. It’s standard practice for app developers to do extensive testing to figure out exactly what works best with users. But as many technologists have discovered, what’s fully optimized now may not be nearly as effective in a few years. Dealing with this issue is why more resources than ever are being put towards creating and delivering experiences that are highly personalized.

 

Using Behavioral Finance on a Big Scale

 

While behavioral finance is something that has a lot of appeal to smaller technology companies looking for a big opportunity, it’s on the radar of larger financial institutions as well. Designing more effective savings products, small-dollar loans, and automobile loans with lower rates are all things that established financial companies have enlisted help with from behavioral finance experts.

 

One interesting aspect of all the attention on this topic is the realization that this attention will eventually reduce the effectiveness of behavioral finance. While these practices currently have the ability to improve outcomes by ten to thirty percent, experts have stated that consumer suspicion is something that may eventually make it more difficult to achieve these results.

 

By taking the time to test out some of the apps and other types of technology being developed in the area of behavioral finance, CFPs® can gain some hands-on insights that they can pass along to clients.

 

Reverse Mortgage: Rip Off or Blessing?

Reverse mortgage on blackboard

 

A reverse mortgage is a useful tool for helping senior citizens remain in their homes and maintain their lifestyle.

 

A reverse mortgage is a ripoff, a scam. Don’t fall for it or you might lose your house!

 

So which is it, a blessing or a trap? As with most financial products, the answer is, “It depends.” For some clients, it is just the opportunity they need for financial stability, but for others, it can be a danger. No one solution is right for everyone, as we all know.

 

Most of us in the financial planning field are familiar with the basics of a reverse mortgage. It is a means by which older homeowners (62 or over) can make use of the equity in their home without having to make payments on a loan. The amount a person can access depends on the value of the home, the age of the homeowner and interest rates. The money can be taken as a lump sum, monthly payments, or a line of credit. Nothing needs to be paid back until the home ceases to be the primary residence, either due to death or to the homeowner moving, perhaps to a nursing home.

 

Along with the age restriction, there are a few other conditions. Besides a single family home, a 2-4 unit building also qualifies, as long as the owner occupies one of the units. The home generally must be owned free and clear, although if there is a low mortgage balance it can be paid off with proceeds from the reverse mortgage. A financial assessment should be done to assure that the homeowner will have the means to keep paying property taxes, insurance, and maintenance.

 

Most current reverse mortgages are FHA-insured Home Equity Conversion Mortgages (HECM). There is a maximum amount a person can borrow under this program, currently $625,500. The owner of a higher-valued home might consider a proprietary reverse mortgage through a private lender. These are not subject to the HECM loan limits.

 

Under certain circumstances, a reverse mortgage can be the perfect instrument to address a senior’s needs. A lump sum can be used to make necessary home repairs or adaptations for an elder. A monthly stream of income might be the difference between an active or restricted lifestyle. Perhaps a line of credit can be tapped for a special vacation or a new vehicle.

 

A reverse mortgage is not the solution for everyone, however. In some cases, the homeowner might be better off downsizing, or moving to an assisted living facility. Some people might take a lump sum, only to squander it and be left with no equity and no cash. Unexpected expenses may deplete resources needed to pay property taxes, insurance, etc. And there may be no value left for heirs. If the heirs don’t have the means to pay back the mortgage themselves, they will have to sell the home. Fortunately, there is usually a “non-recourse” clause in the agreement so that if the value of the home is less than what is owed, the heirs don’t have to make up the difference.

 

Reverse mortgages come with significant fees and closing costs, so it’s worthwhile to shop around. However, the client must beware of salespeople who try to pressure them into a hurried agreement or sell them other products to invest the proceeds. There are always shady operators out there, and the best course of action for a client is to consult with a financial planner and consider all options before making a decision.

 

Housing Decisions – Deciding to Rent or Buy

Hands holding a  piggy bank and a house model

 

 

 

Housing is usually a significant part of a budget. The advantages of homeownership are security, privacy, peace of mind and pride of ownership. Some people also feel that a home is a better environment for raising children than an apartment.

 

Home ownership also has tax advantages because mortgage interest and property taxes paid on a home may be deductible expenses on the federal income tax return. In some states, homestead laws also protect a person’s home from certain creditors. A home can be a good inflation hedge because houses often appreciate as much as or more than inflation.

 

However, a home should be considered primarily as a place to live, rather than an investment asset. The big investment required in a house is often the most significant disadvantage of home ownership. Moreover, the investment is relatively illiquid. Another possible disadvantage of home ownership is that home values can decrease, as many homeowners discovered when the housing bubble burst several years ago. The time and money required to maintain a home can also be a disadvantage.

 

Renting may be advantageous if a person plans to move from a community soon. Renting can be less expensive than paying for closing costs, real estate agents’ fees and maintenance on a home. The problems and delays associated with selling a home can also be avoided. But if a person will remain in a community for some time, homeownership should be considered because the mortgage payment will remain fixed, while rent will generally increase with time.

 

The 5 Most Important Factors to Consider

 

In deciding whether to buy or to rent, a person should perform a financial analysis of the following factors:

 

1. Amount of the monthly rent versus the monthly mortgage payment.

 

2. Property taxes, the amount of mortgage interest and the individual’s tax bracket because taxes and mortgage interest are deductible.

 

3. Cost of insurance and maintenance.

 

4. Lost income on the money used as a down payment.

 

5. The increase in equity on a home, including reduction of the mortgage principal amount and the home’s appreciation.

 

Advice for Renting

 

For those who choose to rent, it is important to choose the rental unit with careful consideration and inspection. It can also be a challenge to objectively compare multiple rentals to each other. That’s especially true for students who may be renting for the first time.

To help with this process, we created a renter’s checklist. The checklist covers all the important elements of the renting process, starting with reviewing the terms of the lease. It also has a detailed section on inspecting an apartment, as well as factors to consider for the surrounding neighborhood. You can download and print this free checklist:  INTRO Guide Appendix A- Sample Renter’s Checklist