As the presidential election has come and gone, there was constant buzz about the topic of the Fiscal Cliff, the U.S. government’s plan to make changes to our nation’s budget in an attempt to keep this country out of a recession. Now there is a new topic being discussed: The Debt Ceiling. So what exactly is the debt ceiling? Let’s start with the basics.
To understand the debt ceiling (also known as the debt limit), one must know that the United States splits financial responsibility between the President and Congress. The President has two jobs when it comes to finances: 1) to collect taxes and 2) spend those taxes to run the government. Though it may seem like the President has complete power, in actuality, the President takes orders from Congress. Congress’ job is to set the tax level and determine how much the government will spend by making a budget. As a result, whatever Congress decides to spend money on is what our taxes are used for.
The Problem: Congress puts more money into the budget than what is collected through taxes, which forces the President to borrow money in order to cover the difference. Because our nation has been in debt for such a long period of time, Congress also has the power to limit how much total debt the United States can have. It’s important to note that the debt ceiling is not a limit on future spending, but about paying bills that have already been incurred. For example, the Government asks a company to repave a highway. However, if the debt ceiling is reached after the work is already done, they do not have the money to pay that company. This shakes trust in the United States, which in turn affects the entire world because large parts of the global economy rely on the American Dollar being stable.
Though it is unclear what the best solution to this financial mess is it seems that Congress will, once again, raise the debt ceiling to avoid panic, something they’ve done dozens of time in the past.
1. Nerf Gun Target. Put on a home movie video. When your wierd cousin appears...he is your target!
2. Virtual Aquarium. Download a fish aquarium video. They are easy to find. Boom. Instant Virtual Aquarium.
3. Entertain your cat. Cats love aquariums. See above.
4. Karaoke Machine. Download USing Karaoke. Download up to 300,000 songs. Go nuts, scare your neighbors.
5. Mood Lighting. The iPad has plenty of apps that will set the mood just right for you, with shifting colors or solid tones. Woo your girlfriend/boyfriend as only an Apple Fanboy/Fangirl can.
6. Fireplace. Yes, of course. There is an iPad app that simulates a fireplace. Now you don't have to wait for the holidays to watch a fireplace on television!
7. We heard one guy even used it to surf the web!
So, there you go. Enter our contest and enter to win an iPad. Your cat will thank you.
I recently read an article in Time magazine that talked about how this could be the “opportunity of a lifetime” to buy a house. As many of you are aware, the recent recession had a great impact on real estate, which on average lost a third of its value. However it appears that home values are going back up.
If you are interested in buying a home and expect to stay in it for at least a decade, there are several reason why the current housing market offers an exceptional opportunity. Consider these five factors:
1. Buying a home right now is cheaper than renting. Home prices and rental rates have risen, but rents are up more. Mortgage loan rates are at their lowest levels in more than 50 years. And given current prices and tax benefits, owning a home is cheaper than renting in almost every major U.S. housing market.
2. The mortgage interest deduction is unlikely to be eliminated. Tax reform proponents often call for curtailing the income tax deduction for mortgage interest, however the broad popularity of the deduction among homeowners greatly limits the extent to which the deduction can be modified. At most, the cap on the amount that can be deducted may be lowered, but probably not enough to affect middle-class homebuyers.
3. Home prices are very cheap but appear to be past a bottom. On a national basis, home prices are down more than 30% from their 2007 peak. Since the recession ended prices have recovered only a bit – but they aren’t getting any worse.
4. Eventual economic recovery will almost certainly boost housing prices. Following the recessions of 1973-75 and 1981-82, home prices rose by about 20% in real terms (i.e., not counting price increases from inflation) within seven years or less. The drop in home prices in the most recent recession was at least four times as large as the declines in those two previous recessions. As a result, the recovery is taking longer to get going, but the eventual rebound could be proportionately greater. Price increases resulting from inflation would be on top of those real gains.
5. A substantial amount of inflation seems likely at some point. Since 2008, Fed policies aimed at revving up the economy have more than tripled the basic money supply (including currency but excluding checking and savings accounts). In a simplistic sense, that means the potential exists for the dollar to lose up to two-thirds of its value. To prevent that, the Fed would have to drain much of money that it has added over the past three years. And that would be difficult to do quickly, because it would risk jacking up interest rates to a level high enough to cause another recession.
In short, since owning a home is typically cheaper than renting after tax benefits are considered, homebuyers would come out ahead as prices begin to rise as expected.
If you are interested in taking advantage of the market and buying a home, contact Minnesota National Bank. Our mortgage experts will help you determine how much you qualify for and what type of mortgage may fit you best. Or sign up for our rate watch so you can monitor changes in mortgage rates.
We watch. Then we share.
We are in the business of helping our customers successfully manage their finances. One of the tools we provide our customers is Rate Watch.
We keep an eye on interest rates so that you don’t have to. When you sign up for this FREE service we will email you when interest rates reach your goal or if you prefer, we’ll email current rate information on a regular basis.
We will monitor Interest rates on the following financial products:
- Certificates of Deposit
- Mortgage Loans
- Consumer Loans
- Agriculture Loans
- Business Loans
We are a community bank. We want to get to know our customers and provide valuable advice in order to help you make the best financial decisions.
By Karen Mills, SBA Administrator
In between the Black Friday sales and the Cyber Monday deals is Small Business Saturday (November 24th) – a day set aside to support the small businesses that play a vital role in creating jobs and economic opportunities all across the country. Last year, Small Business Saturday gave a boost to many of these Main Street businesses, with more than 100 million Americans shopping at independently-owned small businesses. And this year we can do even better!
So what can you do to participate?
- If you are a business owner, register your business at www.shopsmall.com so your customers know where to find you and you can receive free Small Business Saturday promotional materials. You can also make sure you’re prepared for the holiday season by checking out SBA’s advice at www.sba.gov/saturday.
- If you are a customer, learn which businesses in your community are participating in Small Business Saturday at www.shopsmall.com. The website provides information on businesses currently registered and how you can rally your community to support the initiative.
Small businesses are the back bone of our communities. And when we shop small, we not only get great products and services, but we support our neighbors and strengthen our local economies. Over the last two decades, small and new businesses have been responsible for creating two out of every three net new jobs in the U.S., and today over half of all working Americans own or work for a small business.
By shopping small, we can help America’s small businesses do what they do best: grow their businesses, create good jobs, and ensure that our communities are vibrant.
I encourage you to join small business owners and the more than one hundred million people who were part of Small Business Saturday last year.
Shop small this holiday season. I know I will.
Date: 10/9/2011 Author Information: Karen Mills, SBA Administrator
Small businesses in our local communities are the life-blood to our local economies. Minnesota National Bank, along with ICBA, is encouraging our customers to shop, dine and bank locally, especially during this holiday season. Click here to learn more.... http://banklocal.wordpress.com/2012/11/02/go-local-this-holiday-season/
Mary Kerfeld, Michelle Kortan Earn AAP Designations
The Accredited ACH Professional (AAP) designation is obtained by passing a nationally administered exam given annually in October.
The AAP exam covers a wide range of Automated Clearing House (ACH) information including; knowledge of the ACH network and comparative payment systems; knowledge of ACH rules and regulations; technical ACH skills, including operational requirements; understanding of ACH products and applications; risk management and other policy issues; marketing ACH services; management of electronic payment services; Regulation E and other federal requirements.
Mary Kerfeld serves as an Accounting and Remote Deposit Specialist in our Long Prairie office and Michelle Kortan serves as Senior Accounting in our Sauk Centre office. The AAP designation speaks to their expertise in ACH related issues in banking.
A critical part to any businesses success is being able to manage money properly, however not all business owners are financial experts. Therefore, they can sometimes lack the solid financial structure needed to generate consistent revenue and sustain themselves long-term. Here are some basic financial tips to consider if you want to succeed.
Set Financial Goals
Companies that set financial goals tend to stay on track by defining financial strategies. Goals are beneficial because they tell everyone in the company what to strive for, what to focus on and what the expectations are for success. With everyone on the same page and working together for a unified goal, the chances of success increase. According to Inc., it is important to keep financial goals measurable and realistic. An unrealistic goal defeats the purpose. So where do you want to be in 1-year? 5 years? Set a goal and come up with a plan on how to get there.
Create a Budget
Budgeting is important to managing money as it helps keep track of forecasts vs. actual revenue, and helps minimize unnecessary spending. Creating a budget requires a business to itemize all of its expenses and assign each a monetary value. The value that is set is the maximum amount of money that can be spent for the month or year on that product. Once a budget is created, managers and business owners are obligated to stay within the set financial parameters. Spending more money than what is assigned can cause businesses to lose money. Businesses should review their budgets frequently to determine if they are sticking to their financial plan.
Monitor Your Cash Flow
Cash flow is one of the quickest ways to get a pulse on how a business is doing. Cash flow statements allow companies to to review their financial position and determine where the they are making the most money (or losing the most money). A cash flow analysis is an important part of operating a successful business because it enables the management team to understand and address any financial concerns as they come up.
Find a Financial Partner
For any business, having a financial partner you trust, who understands the unique aspects of how your business works, can make a huge difference in your success. Minnesota National Bank has a team of financial experts that have been serving businesses within the Greater Central Minnesota area (including Sauk Centre, Long Prairie and Pelican Rapids) for over 100 years. If you need a financial partner, or just want to explore your options, contact us. We offer a wide range of financial business services and we welcome meeting with you and learning how we can help make your business more successful.
Let’s face it, low interest rates are GREAT! – when you have loans. But, what about those who don’t have any loans? If you’re CD investor, then low interest rates are not what you want to hear. So, why do you invest in CD’s? Well, they’re secure, you won’t lose your investment, you can use the interest to supplement your income and you can get your hands on your money if you need it (although penalties can apply). So with all those positives, let’s work on earning you more without jeopardizing your investment. One way to increase what you earn, is to use a CD ladder.
A CD ladder is an investment strategy where you buy several CDs that mature over different maturity times. By using a CD ladder, you make sure that money is available periodically, and increase the yield on your overall CD’s. You’ve always heard the saying, “don’t put all your eggs in one basket”, so why treat your CD’s the same way?
For example, if you invest $100,000 in a 12 month CD earning 0.85%, your yield is just that, 0.85%. If you ladder your CD’s and split your money into 5 chunks and invest $20,000 for 1 year, 2 years, 3 years, 4 years and 5 years you can take advantage of the higher yields that the longer term CD’s offer, yet still have money available each year that you can reinvest or use the cash as you need.
In our example, let’s say the 1 year CD earns 0.85%; 2 year CD earns 1.25%; 3 year CD earns 1.50%; 4 year CD earns 1.75% and 5 year CD earns 2.00%. The average yield on your $100,000 investment jumps to 1.47%. That’s a 73% increase in the yield versus investing everything in the 1 year CD at 0.85%. Then, when money comes due, invest it back in the 5 year CD and the process will continue to earn you higher yields.
Set up your CD ladder with your CD’s spread out by 1 year or maybe try a 6 month gap between them. In either way, you’ll increase what you earn on your CD’s. Now, this strategy only works if you stay committed over time and as interest rates rise, you’ll get to reinvest in those higher rates each year. It’s a proven strategy that will make those low rates not seem quite so low.
Rates in this article are for illustrative purposes only. For actual rates available today, please contact a Personal Banker. Actual results may vary. If you would like us to watch rates for you, please sign up for our Rate Watch program!
If you were looking to buy a house 14 years ago, the best mortgage rate you could get on a $150,000 fixer-upper (with 20% down payment) was over 8% fixed. That means your payment would have been about $880. That didn’t sound too bad at the time.
If you were starting over today with a 3.75% fixed interest rate for 30 years (which is the current rate MNB is offering), things would be drastically different. Your monthly payments would be $555. That’s a savings of $325/month or $199,800 over the course of the 30-year mortgage! That’s the difference interest rates can make.
With interest rates at historically low levels, now is the best time to buy a house. Before you do, here are some important questions to ask:
Are interest rates going to go lower?
No one can predict if the interest rate on home loans will go lower, but given that current rates are at historical lows it’s hard to imagine them going much lower. When you add in low rates with the price of homes, which are still low due to the recent down turn in the real estate market, now is a good time to buy.
How can I make sure I only buy what I can afford?
What you can afford depends on a lot of things: your interest rate, your down payment, and your credit rating are just a few things. However you must also take into account how disciplined you are, your current bills, car payment and other expenses. If you have a lot of debt or expenses, making the house payment may be hard to do every month. The best way to determine what you can afford is to meet with your mortgage lender and pre-quality.
What is the rule for what to spend on a home?
You may want a beautiful home in a great neighborhood, however, you may not be able to afford all of that now. Some experts say that you should not spend more than 35% total of what you take home on housing. So if you take home $65,000 a year, you should not be spending more than $22,750 a year (or $1900 per month).
If you focus on what you can afford and find a good place, the equity can soon build in your home. Start small. As you start to pay off the home and make improvements to it, the value of the house goes up until you eventually have a nice little nest egg.
What should I plan for hidden expenses?
Remember that mechanical and structural problems often come up in a house – especially if it is an older house. Remember also that with a house comes insurance and property taxes. These are expenses that you may not have planned. As a general rule it is recommended to save 3-5% for any of these surprises.
Should I go for a 30 or a 15-year home loan?
Many people are excited to own their home outright and a 15-year loan not only has a better interest rate, it sounds very impressive to your friends. However, if circumstances change, the higher monthly payment may be difficult to meet. Instead consider getting a 30-year mortgage and just make one-two extra payments per year. This way the time line will be much shorter and the minimum payment due will make it less risky than a 15-year mortgage.
Purchasing a home is one of the most important decisions that you will ever make. The current interest rates make it easier for it to be an investment that pays off in the long term. Meet with your MNB mortgage lender to learn more about what may be the best loan option for you.