Financial Planning Workshop: Session 4

Welcome to the fourth of five sessions in our Financial Planning Workshop. Today we will discuss another topic that should be considered when planning for your future. This workshop will not develop a comprehensive financial plan for you, but instead is intended to give you some ideas and tips to help in your planning.

To reiterate, financial planning is the process of organizing your financial attributes (assets, liabilities, earnings, expenses, taxes, savings, investments) to achieve the financial results you want in life (nice house, college savings, early retirement, vacation home).  The process takes a lot of thought and changes over time.

Should You Get a HELOC?

If you have equity in your primary residence, you should consider getting a home equity line of credit (HELOC).  Most of the time, you can get a HELOC with no upfront costs or continuing fees.  It functions like a credit card in that you can borrow on it and pay principal down when you want.  All you have to pay each month is interest.  Interest is normally based on the prime rate which is much lower than credit card rates and in most cases the interest is tax deductible (up to $100,000 of borrowing).  Once you have a HELOC, you can use it as a line of credit for ten years.  If you still have a balance, the loan turns into a term loan for another ten years.  What could you do with a HELOC?

  1. Use it as your emergency fund and do not tie up your cash.  Only draw on it if you actually have an emergency.
  2. Pay for upgrades and remodeling costs for your house.
  3. Use it to fund large purchases like a car and make the interest tax deductible.
  4. Pay off current credit cards.

You have to be able to exercise self-control if you have a HELOC.  (You might not want to get one if you have more than 10 credit cards.)  If you think a HELOC is right for you, do not wait until an emergency happens.  Get one now.