Many people have the same financial questions, whether they are executives earning a six-figure salary or grade-school teachers making a fraction of that, financial planners say.
What size mortgage can I afford? Do I need long-term-care insurance? Should I buy or lease a car? And this year, people are bombarding advisers with questions about how to become a real-estate investor or whether the outcome of the presidential election will affect their investments.
“There are a certain number of questions that we go over and over and over again,” said Sheryl Garrett, a Kansas financial planner and author of “Just Give Me The Answer$.” Her book compiles more than 130 frequently asked questions with answers from dozens of financial planners.
The answers aren’t the same for everyone. Consumers may face the same issues, but the right course for them often depends on income, age, goals, investment temperament and sometimes even medical history.
Here are some of the frequent questions planners get and some factors to consider:
* How much mortgage can I afford?
“The Realtor and the mortgage company have all the motive in the world to have you buy as much house as you want,” Garrett said. But “what you qualify for and what you can afford is not the same thing.”
Homebuyers might qualify for a mortgage many times gross salary, but they are at risk of foreclosure if they suffer a slight financial setback, she said. For an affordable mortgage, stick to a loan that is about 2 1/2 times gross pay, she said.
* Buy or lease a car?
If you’re the kind of person who keeps a car five to eight years, you’re better off buying, said Steve Athanassie, a financial planner in New Port Richey, Fla.
But if you’re the type who gets a new car every two years, leasing is for you, Athanassie said. Leasing is an even better deal for business owners who are able to deduct a portion of their lease payment off their federal tax return, he added.
* How much life insurance does one need?
“Life insurance is only necessary if you have a financial obligation that, if you died, would be a burden that you would not want to be there for your loved ones,” said Mary Malgoire, a planner in Bethesda, Md.
For example, you might want insurance to pay estate taxes, the mortgage or children’s college tuition, she said. Even stay-at-home parents need insurance to cover the cost of child care if they die, experts said.
Garrett recommends at least $250,000 of term insurance coverage for a stay-at-home parent and 10 times gross salary for a breadwinner with children. That latter coverage should be enough for the family to financially adjust, such as having a surviving spouse returning to school for job training or paying for college for children, she said.
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