e, being a thoughtful spouse, paying real estate taxes, and
orrying about the overall health of your lawn. My wife may
t share that last sentiment...
INDUSTRY INSIGHT
YOUR FINANCES
SPONSORED CONTENT
HELOC –
An Ignored Financial Planning Tool
has been the most exciting, joyous, and fulfilling time of
y life. That said, even as a financial planner, it hasn’t been
thout its nagging thoughts: Am I saving enough? Am I
king advantage of my benefits through work? Should I be
inking about saving for college already? Would my fam-
hen reviewing
your financial
be okay (financially) if something
terrible
happened to
important
question
e? Should I have an estate picture,
plan in an place?
What
the heck
to
answer
honestly
is
whether
a Bumbo?
W
you’re maximizing productivity.
Many times, we hear rules of thumb that we
though a lot of these issues are uncomfortable to discuss
purely take as fact and words to live by. Like most
d an added expense during an already expensive time,
things, however, when it comes to finances, the
ndling them now will not only give you peace of mind but
right path hinges on your unique situation.
olid foundation for securing your family’s financial future.
We’ve all heard some iteration of the saying,
“Keep six months of living expenses at the bank
ollege Planning
for emergencies.” This statement shouldn’t
you know, college
is already
(almost
be construed
as bad an
advice,
and illogically)
it would be expen-
ve journey. That,
however,
is not dismiss
slowing
the majority
of
irresponsible
to simply
it; however,
it
ivate colleges could
from be increasing
year the
after
year. If it’s
slowing you tuition
down. Enter
home
equity to line
of credit
HELOC.
ur family’s wish
help
cover – or
some
or all of these costs,
art saving when
they’re
in diapers. The earlier, the better.
INS AND
OUTS
you’ve reached retirement, you’re no longer relying on wages
ok to establish To
a 529
plan
and
set
up an
automatic
month-
understand
how
it can
be helpful,
we first
to sustain your family’s lifestyle. From that mindset, term
contribution must
for an
amount
that
fits
into
your
cash
flow.
learn the basic mechanics. A HELOC is a
u won’t even revolving
notice line
it after
a few
months.
Also, of let
the
of credit
rooted
in the equity
your
home. life
In insurance is truly the most effective (and cheapest!) way
Contingency is the obligation to find a buyer of your current
to go.
andparents know.
They it’s
just
may want
to lend against
a hand.
other words,
a credit
card secured
your house. Some
home in order to purchase your new home. If the buyer backs
typical terms we see from our local bank contacts include:
is unqualified
for any
you may
unable
to secure
So how do out
you or know
how much
to reason,
purchase?
If be
you’re
not
ork Benefits • Lend up to 90% of home equity
financing
for
the
desired
home’s
down
payment—potentially
running a thorough analysis on your existing portfolio,
• Interest
at/around
the Prime
(5.50% as
though there are
many variable
and they
will differ
from rate
company
out on your dream home. Having a HELOC alleviates this
of May to
2019)
anticipated missing
growth,
and future cash flow, a good rule of
company, I wanted
highlight one in particular—the
pressure.
It allows you to borrow against your house to make a
Interest only
charged if Account.
borrowed against
thumb is 10x salary. Have a qualified adviser go out to bid
ependent Care • Flexible
Spending
This account
down payment in cash and avoid contingency altogether. The
Minimal
(if any) income
costs to establish
to find a reputable insurance company that will provide that
ows the parent • to
set aside
before taxes in order
HELOC debt will simply be repaid when the home is sold.
• costs
Borrowing
period of 7-10
years
coverage at the most cost-effective rate. If you’re not in
help pay for the
of childcare.
Depending
on your tax
When most people hear about establishing a home equity line
Payment is interest-only during the borrowing period (no
good health, if you smoke, or have a family history of heart
acket, this can • easily
save you 20 to 30% on what you elect
of
credit, they cringe. They believe it entails borrowing against
required principal payments)
disease, for their
instance,
the low-cost alternative may be to
contribute.
home, which they’ve been diligently trying to pay off.
• Interest is tax deductible if used to “buy, build, or substantially
obtain that Utilizing
level of a HELOC
coverage
through
your employer.
They but that.
in the
ways outlined
above is anything
improve” the home
will
likely
offer
guaranteed
coverage
at
group
rates
for
up
to and
It’s leveraging one of your greatest assets to your advantage
fe Insurance
some
multiple
of
salary.
RETHINKING
THE
EMERGENCY
FUND
increasing the tools at your disposal. It’s also expanding flexibility,
e focus of life insurance is to cover a period of time in
So how can this help you? Once in place, the HELOC serves
thereby allowing you to increase productivity.
hich your family
is financially vulnerable. This window
as your emergency fund; this, in turn, gives you the flexibility to
Continued.
There are many other applications of the HELOC.
Reach out to
liability typically exists during your working years. Once
either invest excess savings, pay down debt, or both. It’s all about
a CERTIFIED FINANCIAL PLANNER™ to determine whether this
tradeoffs. If your savings account at the bank is earning 1.5% and
strategy could be a good fit for you and your family.
you have a car loan that’s costing you 3%, you’re doubling your
return with every dollar that you apply to the loan. Alternatively,
if you invest those funds for conservative growth, you could
potentially quadruple your return.
The economics of this strategy are straightforward. The
application, however, requires that behaviorally you’re
This Industry Insight was written by Matthew D.
Kelly, CFP®.
comfortable with keeping less at the bank. If it’s adding mental
stress where none existed prior, it’s not worth it.
As an advisor with Allegheny Financial Group, Matt
AVOIDING CONTINGENCY
Another benefit, and one that many will gravitate toward, is
utilizing the HELOC as a bridge loan, specifically when changing
residences. Many families don’t have a substantial after-tax
investment account to assist in a move. Their most significant
assets are retirement accounts and their homes—neither of
which are ideal. The home (as an asset) is illiquid, and retirement
accounts come with strings attached such as taxes, penalties, and
hampering future tax-deferred (or free) growth. Instead, many
families will find themselves in dreaded contingency.
helps guide individuals and families toward achieving
their distinctive financial goals. Matt and his wife,
Mia, live in Mt. Lebanon with their two kids and are
enjoying family life in such a friendly community.
For a better understanding of how Matt
could work with you and your family,
please call him at 412.536.8076 or email at
[email protected].
Allegheny Financial Group, LTD (AFG) is a registered investment adviser. Securities
offered through Allegheny Investments, LTD (AI) registered investment adviser and
registered broker dealer. Neither AFG nor AI is a bank or a lending institution, and
as such does not offer home equity lines of credit.
MT. LEBANON
❘
SUMMER 2019
11