Your future self will thank you if you save today

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October 27  |  retirement  |   Lisa R. Hatcher

10471026_10152175918032391_1277064562242882543_nPlanning for retirement has changed a lot in the last 20 years.  There used to be the analogy of a three legged stool.  There was a company pension, Social Security benefits, and your personal savings.  As an employee, you weren’t responsible for choosing the investments in the pension.  As long as you stayed in the job long enough, you were eligible for the monthly check.

Fast forward to today.  Few people have pensions.  Some employees have access to a 401(k) plan, but they are responsible for the investment decisions, not the company.  Workers change jobs frequently, so they may not be eligible for the company retirement benefits.  Instead of a stable three legged stool, we are balancing on two legs at best.  Social Security benefits are projected to be reduced in the future if changes are not made to the system.  We are living longer.  Health care expenses are higher, and more of those expenses are paid by the retiree, not the company or Medicare.

What does all that mean for retirement planning?  The main takeaway is that YOU are responsible for your retirement.  You have to be engaged in the retirement planning process in order to reach financial independence.  You need a plan.  It can be simple or complex, but no matter your income level, you need to plan for the day when you don’t want to work full time or you are unable to.

The main parts of a retirement plan include the following:

  1. What are your sources of income going to be?
  2. How much will you need to spend and want to spend?
  3. How much do you need to set aside now and how do you invest your savings?

For most people, the first place to save for retirement will be at work, in tax deferred accounts like 401(k)s and 403(b)s where you don’t pay taxes now, but they are due when you take the money out or in Roth versions, where you put in money already taxed, and then it is tax free when you take withdrawals (as long as you follow all the rules).

Try to contribute at least the minimum amount to receive any matching funds in your work plan.  Strive to save 10% to 15% if you are in your 20s or 30s.  If you are older, the percentage is really going to depend on what you did when you were younger.  If you’ve been saving, then it may be enough to keep at that level, if you are later to the savings game, then your percentage could well be 20% or more.  No matter what, it is never too late to start saving and planning!

The choices you make in your spending have a direct connection to how much income is available to save.  For most people, housing and transportation are two areas that are within your control and are a large portion of your monthly budget.  Choose carefully.  Your future self depends on it!

What’s the right investment mix?

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September 22  |  bonds, home page news, investing, stocks  |   Lisa R. Hatcher

Your investment mix is your personal blend of cash, stocks, and bonds – how big a slice is investment pie charteach in your investment pie?  The right mix for you depends on several things – your goals, your time horizon, and the amount of risk you are willing and able to take.

  1. Know the difference between savings and investments.

Savings is cash set aside for short term goals, goals that are less than three to five years away.  Savings are for goals that you don’t want to risk losing money.  Examples would be for an emergency fund, a vacation, college tuition for a high school aged student, and money set aside for maintenance and repairs of your home and cars (at a minimum, enough to meet your deductibles if you have a claim).  Savings are also considered liquid, meaning you can access them quickly, without a loss in value.

Investments, for the sake of this blog, are stocks and bonds, either individually or in mutual funds and ETFs (exchange traded funds).  These are financial assets that one buys with the expectation that it will be worth more in the future and may provide income.  While stocks and bonds are generally easy to sell, there can definitely be a loss in value, depending on when you sell, so they are not as liquid as cash is.

Investment goals can often be divided between income and growth.  Generally, one looks to bonds for income and stocks for growth, but with the current low interest rates, that can be challenging.  Dividend paying stocks offer income, but with more risk than most bonds.

  1. Know your time horizon.

The longer your time horizon, the more risk you can take by investing rather than saving.  The value of stocks and bond go up and down, sometimes by a lot!  While the historical trend is for stocks and bonds to grow in value, at any particular time the values can fluctuate.  That’s why we recommend investing in stocks and bonds only when your time horizon is greater than three to five years.

  1. Know your risk tolerance.

While our goal is to educate our clients so they feel comfortable taking appropriate risks (investing in stocks and bonds for long term goals), you know yourself and have a sense of how much you are emotionally able to stand by and watch your investment values go up and down.   If you can’t sleep at night because you are worrying about losing money, then you would want a more conservative investment mix.

  1. Know your risk capacity.

How much can you afford to lose and still meet your goals?  This involves looking at the numbers and your flexibility.  In the case of retirement, are you willing to work longer or spend less if necessary?  You may be willing to take on more risk in that case.  If not, then your preferred investment mix may need to be more moderate.

There’s a lot of jargon in the financial services industry, so another way of saying investment mix is asset allocation.   Here are some examples of allocations or investment mixes.  This does not include cash that is considered savings.  Note that within both bonds and stocks are many subcategories – the topic for another blog!

Conservative Moderate Aggressive
Cash 20% 5% 0%
Bonds 40% 35% 20%
Stocks 40% 60% 80%

Serving up a credit score – what’s in the secret sauce?

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August 26  |  budgeting, Credit, home page news  |   Lisa R. Hatcher

Your credit score is used by more than just a potential lender.  Your car insurance carrier, home insurance carrier, a prospective landlord, cell phone company, or utility company may all be looking at your credit worthiness.  All the more reason to understand your score and maximize it!ce_scorebreakdown

A FICO score is the most common score, (named after the Fair Isaac Corporation which first developed a credit risk formula) but each credit bureau, Equifax, Experian, and Transunion, use information from your file with them to create a FICO score, and they have collaborated to create the VantageScore.

There are five major components to your score.  Remember, scores can vary because of different information in your file and different weights given to the components. Here is an example of a typical FICO score.

The most important part of your score is your payment history – do you pay your bills on time?  Late payments have a very negative effect on your score.  If you bank online, we recommend that you set up your credit card payment so that a minimum payment is always made.  This way, if you forget to make your payment (which we hope is a paying the full balance each month!) at least the minimum payment is made and you avoid a late fee and a late payment mark on your file.

The second most important part is how much you owe.  How much of your credit available are you using?  Ideally, you are using no more than 30% of your available credit at any one time.  So, let’s say you have two cards, each with $5,000 credit available, $10,000 in total.  If you have a balance of $3,000 on one card and $1,000 on the other, you are using 40% of your credit.  This affects you even if you pay off your balance in full each month, which may come as a surprise!  This means that if you regularly charged $5,000 per month, paid it off completely, and charged another $5,000 next month (to get those travel rewards) it appears as if you are using 50% (in this example) of your available credit.   You may want to ask for an increase in your credit limit if you find yourself in this situation.  If you carry a balance, by paying down your credit card debt, thus decreasing your amount owed, you will increase your credit score.

You can’t do much about the length of your credit history, other than keeping open old accounts.  While it can be tempting to close an old account you no longer use, it’s better for your score to keep it.  We suggest that you use the card for some purchases to reduce the chance that the card company will cancel it.  Perhaps take one small bill that can be paid automatically through that card (like Netflix).

Opening up new credit lines in a short amount of time can have a negative effect on your score, so only open cards that you really need.  We recommend saying no to offers of a one-time discount if you open a card today.  Better to stick with two or three cards that truly meet your needs.  (Having more than one card that you use regularly means you are not dependent on one card company.  It’s okay to use one as your main card, but use one or two back up cards as well).

The last components of your score are the types of credit used.  This looks at the types of credit accounts you have and how many of each.  For instance, you may have an auto loan, mortgage, and an installment loan.  You don’t have to have every type to have a good score, but a mix can be beneficial.

You can check your VantageScore for free by registering with www.creditkarma.com which we recommend.  There is a wealth of information about credit on that website.  We also recommend that you get your annual copy of your credit report from each credit bureau at www.annualcreditreport.com.  Stagger your request every four months, for instance: Sept – Equifax, January – Experian, and May – Transunion.

A FICO score has a range of 300 to 850.  The VantageScore range is 501 to 990.  Each lender is going to have their own guidelines as to what comprises a “good” score.  Here is an infographic that looks at a FICO score.  It really shows the financial benefit of having a good score!

credit scores

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Teaching Kids to Save

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July 28  |  goals, saving money  |   Lisa R. Hatcher

MoneyMonkey-PNG“Monkey see, monkey do”.  An old cliché, but an apt one in this case.  One of the best ways to teach children how to save is by example.  The age of the child needs to be taken into consideration to figure out what to do.  For instance, a younger child will respond to a piggy bank, something very tangible, whereas an older child can understand the idea of putting money into a savings account at the bank.  In fact, a field trip to the bank for the purpose of opening an account and explaining how a bank works can be a fun activity!

Getting into the habit of talking about money and sharing how you are managing money goes a long way to teach your children.  They don’t have to know the exact numbers, but getting a sense that one sets aside money now in small amounts so that it can grow into a bigger amount in the future is a good lesson to learn.  This strategy of sharing can be an incentive and motivator for you as well to stay on track.  The idea of delayed gratification is challenging but is an oh so important lesson to learn when young.

Setting goals is a critical part of handling money.  For your next family vacation, let the kids help plan it.  Teach them about creating a budget, help them work through tradeoffs of not being able to do everything they want.  Once you have the total budget, work backwards to figure out how much to save weekly and monthly in order to be ready for the trip.

Lots of parents have questions about allowances.  There are different schools of thought, and I encourage you to read up on the various options.  The main sticking point is whether or not the allowance is tied to chores.  Each family needs to decide what works best for them.  Research does show that getting an allowance in some form results in better money management later in kids than just doling it out as needed.

Here is a great website that talks about money and kids at every age level.  Check it out!  http://moneyasyougrow.org

Have a recent college grad at home?  We love to talk college students and recent graduates about getting off to a good start financially. Call for an appointment.

 

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Getting Divorced? First steps financially

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June 13  |  divorce, home page news  |   Lisa R. Hatcher

UntitledGetting divorced sucks.  I don’t actually like using that word… sucks… I think it is vulgar, but having gone through a divorce myself, I can attest to its validity.  Divorce is one of the most emotionally draining experiences one can go through that doesn’t involve the death of someone.  There is a death, though.  There is a death of a relationship that once held great promise.  It is difficult to think about the financial aspects of divorce when your emotions are raw and you are mourning the loss of the marriage.  I think both parties may feel this, even the spouse who initiates the divorce.

So while it is a challenge to think about, the financial issues are a huge part of the process and you can best protect yourself with information and knowledge.

Below are some initial things to do once you realize divorce is on the horizon.

Gather copies of your financial data.  Get copies of last three years of tax returns, get latest statements of all individual and joint accounts (checking, savings, brokerage, retirement accounts such as IRAs, Roth IRAs, and employer plans like 401(k) and 403(b), HUD statements for any home purchases, titles to cars, life insurance policies, and any other information about a substantial asset.  Also gather the latest pay stubs for each person.

Get copies of credit report from all three bureaus.  Note which accounts are joint and individual and where there may be an authorized user.  Joint accounts will eventually need to be closed and authorized users removed.  If you do not have a credit card in your own name, now is the time to apply while you can still include household income if you are not employed or your income is low.

Determine your spending.  This can be the hardest work if you are not used to tracking your expenses.  Review your bank and credit card statements to get a sense of your spending.  You may want to try an online tool called Mint.com which will get about three months of spending history on average when you set up your account.  You can use this tool moving forward to track your spending.  Get a sense of what your “squeak by’ number is, that is, the basic amount of spending to keep you and your family housed, fed, clothed, and transported (in a low frills manner).  Then see which expenses are more flexible and can be reduced if needed.

Make a list of your assets.  Note how they are titled, joint or individual, and if joint, what type of survivorship.

Make a list of your debts. Note the original balance, the current balance, interest rate, and minimum payment, and the term of the debt if not revolving.

All of this information will eventually be needed as the divorce proceeds.  While it can be overwhelming, make a checklist from the items above and start chipping away at it, one item at a time.  The more you understand about your financial picture, the better equipped you will be to make property and support decisions.

At Hatcher Byles Financial Planning, we can help you organize and analyze your information so the settlement process is more efficient and less costly.  We work with clients (with one or both parties) on their own and in conjunction with mediators and attorneys.

GETTING MARRIED? TALK ABOUT YOUR FINANCES!

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May 28  |  home page news  |   Lisa R. Hatcher

marriage_love_wedding_265659_lGetting married is such an exciting time! But through all the excitement and hectic planning, don’t forget to spend some time with your soon-to-be spouse to talk about the #1 topic couples argue about –finances.

Handling your finances does not have to be painful, it’s just something that needs to be discussed, planned for, and agreed upon and the best time to do it is before you tie the knot. Think of it as part of the planning for your amazing future together and setting some goals for all the wonderful things you will do together!

Here is something to consider: how are you going to handle your finances once you are married; separate bank accounts, joint accounts, or a combination of both?

1) Separate Accounts (i.e.: you each have your own accounts in your own name)

If you have separate accounts how will you separate the bills?
One option if you are a two family earner, you may choose to split the bills in the same % as your earnings (i.e.: if hubby earns 60% of the household income and the wife earns 40% then split the bills 60/40).

2) Joint Accounts (i.e.: you put your money together into one account that you share)

If you have joint accounts, how will you handle if one person wants to make a large purchase (shoes, gifts, etc)? Perhaps you make a rule that if one person spends over a certain amount (like $100 for example) that it needs to be discussed first.

3) Combination of Separate and Joint Accounts

You use joint accounts for household expenses and joint savings goals, and , if applicable later on, for child related expenses.  Keep separate accounts for personal expenses for things like personal care, clothing, and gifts.

There’s no one way that is right for everyone and it may take some trial and error to find the best match for you and your beloved. It’s important to talk about this and be prepared to tweak as needed.

We recommend that you each have at least one credit card in your own name. The other person can certainly be an authorized user and have a card for that account but you each need to continue to establish and maintain your own credit.

The most important thing to do is to set your goals; how much do you want to save each month, how much do you want to invest, how much do you want to spend? You may want to have a look at our blog: http://hatcherbyles.com/needs-wants-and-savings-the-50-30-20-rule) for some great suggestions.

Do you want to save money to buy a home? Do you want to travel? Are you planning to have children? Will one of you stay home and work part time or not at all? When do you want to retire (it’s never too early to plan for that!)?

Once you agree on your goals, it’s much easier (and more exciting) to save your money knowing you are working towards something wonderful.

Start your new life out right and talk about your finances. Not sure how to get the conversation going? Just print out this article and share it with your spouse. You’ll be so glad you did!

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Stormy Weather or We’re In the Money?

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April 15  |  home page news  |   Lisa R. Hatcher

stormy weather (150x149)One of my delightful clients described to me how her emotions mirrored the music on NPR when the stock market report came on.  If the jingle was “We’re in the Money” she felt good, it meant the market was up and if it was “Stormy Weather” she felt bad, as that meant the market was down.   If you are regular listener of NPR’s Marketplace, you can relate.

Research shows us that investors feel the sting of loss more deeply than they do the joy of gain.  This emotional, visceral response to losing is strong.  We want to avoid situations of loss.  But taking some level of risk in the stock market is necessary for almost all of us in order to achieve our goals of financial independence.  Understanding this emotional component and having a mindset and an action plan to counteract our gut reactions is crucial to the long term growth of our investments.

As we’ve had some recent days of down markets, it’s a good time to be reminded that ups and downs are inevitable in investing.  While it is no fun, volatility is to be expected.

Here are some key points to remember in order to succeed as an investor:

Cultivate this Mindset:

You can’t beat the market over the long term

Market timing doesn’t work

Focus on what you can control (fees, savings rate, your asset allocation)

Investing is for the long term (match your risk level to your time horizon)

Execute this Action Plan:

Choose an investment mix wisely

Stick with your mix

Keep your investment costs low

Rebalance annually

If you are already a client, you know that I am a big fan of Vanguard funds.  For a more extensive discussion, including supporting research, on the topics I’ve raised in this blog, see this link on the Vanguard website.

If you have any questions about how to implement your own Action Plan, please schedule a Get Acquainted meeting with us, we’d love to help you.

Photo credit – 2oth Century Fox Studios

The Behavioral Side of Finance: What’s holding you back?

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March 19  |  goals, saving money  |   Lisa R. Hatcher

I’m celebrating this month!   It’s been 10 years since I started working in financial planning and five years since I moved my home-based financial planning practice to a cozy IMG_20140318_154812_379office in Bon Air, Virginia.  Long time readers of this blog know that I love vision boards.  The picture with this blog is from 2008 – it was my vision of my business space.   Thanks to Ikea, interior designer Kelly Brown, and some sweat equity with a screwdriver, this dream office came true!

As I look back on my ten years’ experience, what I learned that wasn’t talked about or acknowledged in my coursework was the effect of our emotions on our finances.  Now it is much more of a hot topic.  In fact, I co-created a workshop where we delved into it, The Behavioral Side of Finance:  What’s Holding You Back?  I want to share some of the key points of that presentation with you. *

First we talked about our money blocks.  What are the messages you received growing up about money? What messages do you get from society, your family, and your friends now?  Was there a scarcity mentality or an abundance mentality?  Was money talked about or was it considered taboo?  By examining these beliefs, we then discussed some of the common ways we sabotage ourselves through behaviors such as avoidance, over-spending, indecision, and for many women, beliefs that they “just aren’t good with money” and/or that someone else, i.e. a spouse, would come along so they don’t need to think about money.

Next up was “change your money mindset”.  Once you’ve identified the money blocks, it is much easier to avoid them!   While each specific behavior needs to be addressed, a common thread was the idea to think about money differently, to show it gratitude and appreciation.  How do you do that?  Instead of thinking negatively about all your bills, think about how fortunate you are to have electricity when paying the power bill, how divine a hot shower is when paying the water bill, and how easy it is to jump in your car to drive wherever you want to go when the car payment is due.  This may seem like a subtle shift, but expressing gratitude helps us to be open to more abundance.

You show money appreciation when you know your goals and you know your numbers.  What numbers?  To start out, do you know:

1) how much money comes in each month?

2) how much money goes out and where?

3) how much you owe?

4) how much you own?

If those numbers are fuzzy, then this is a good place to start.  Once you’ve got this nailed down, then it’s time to review the typical financial topics of taxes, savings, insurance, investments, retirement, all the usual stuff.  Address the behavioral side, and then focus on the financial planning side.

The last takeaway we gave them was to pay attention to your money.  By this we mean, check your balances every day.  Become intimately acquainted with your money.  When you check it every day, you gain awareness and the opportunity to show gratitude.  It can help you stay motivated and committed to your financial goals.  Set an alarm on your phone to remind you to check.

By identifying your money blocks, changing your money mindset, knowing your numbers, and paying attention to your money, there’s nothing to hold you back from reaching your financial dreams!

 *Thank you to Angela Bach, a licensed professional counselor, who was my co-creator and co-presenter of this workshop.

 

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Applying to College?

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February 18  |  college, home page news  |   Lisa R. Hatcher

photo (1)You need to know about the FAFSA.

If your son or daughter is applying to college, be sure to check out the available financial aid. Many factors affect financial aid eligibility and any change in family financial circumstances can change your eligibility for aid. Deadlines to apply for aid vary by school, but usually by March 1st or so.

FAFSA stands for Free Application for Federal Student Aid, and applying on http://www.fafsa.ed.gov/   will determine what federal aid you are eligible for. While in college, filling out a FAFSA each year will allow you to access federal aid. The program offers more that $150 billion in aid to students yearly through grants, loans, and work-study funds.

You will need financial information for parents and the student to complete the FAFSA, so it helps to have your taxes completed first, though you can use estimates initially.

Even if you don’t think you qualify for student aid, everyone is qualified for an unsubsidized Stafford Loan. Unsubsidized Stafford Loans are federally guaranteed loans that aren’t based on financial need. With an Unsubsidized Stafford Loan, a dependent student can borrow up to $5,500 to $7,500 per year, (depending on grade level) at a (current) fixed interest rate of 6.8%. Interest accrues from the time the loan is disbursed to the school, as opposed to the subsidized Stafford, which delays interest accruement. With either Stafford Loan, interest and/or principal payments are not due until six months after graduation, or six months after you drop below a half-time student status.

Another government site with lots of info is http://studentaid.ed.gov/ and there’s even a YouTube channel about federal financial aid.

Be aware of companies that try to trick you into thinking you have to pay to complete the FAFSA.  You don’t!  The first letter F, after all, stands for FREE!

In my area, there are local resources available to help with filling out the FAFSA, GRASP,  the GReat Aspirations Scholarship Program, Inc.  Check your local area to see if there are similar programs as well.

See this blog for more information on how to evaluate a financial aid award letter.

Paying for college can be challenging, but knowing your options can help make a college education affordable.

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3 Secrets to Get Control of Your Money

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January 21  |  budgeting, goals, home page news, saving money  |   Lisa R. Hatcher

Secret Kiss From One Boston Terrier to AnotherTo get control of your money, you have to know how much is coming in and how much is going out.  Unless you have a system in place to track your expenses, you probably aren’t really sure.

So, the 3 secrets to get control of your money are really not so secret.  In fact, they are quite available and easy to use.  The secret is in the DOING.  It doesn’t really matter which secret you choose, just that you consistently use it!

Here are 3 ways to track your expenses and gain control of your finances. Pick one that feels right for you.  Try it for a month and then evaluate your progress.  If it’s not working, try another method until you find the one that works for you.

Secret  #1.  Pen/paper/envelopes

Pros:  Easy to start – easy to understand, no worries about sharing your data online

Cons:  Difficult to summarize the information, can be time consuming if lots of transactions to record

This is old school, but for some it’s the easiest way.  Use a notebook to list out all your fixed expenses (housing, debt payments, utilities, and, hopefully, savings).  Subtract from your take-home pay to see how much is left.  Then take a couple of pages and list out your main categories of your spending – food, gas, eating out, clothes, entertainment, et cetera.  Keep a running total in each category as well as the total.  For some people, the act of writing down the expenses helps them spend less.  You can also create a template for each month of spending and make copies of it.  There are also budgeting notebooks at office supply stores.

For categories that you find hard to track or budget for, try using envelopes.  For instance, if eating out is your weakness, set aside the amount you want to spend that month on eating out.  Put that in cash in the envelope.  Only use that cash for eating out.  Once the envelope is empty, you have to wait until next month to eat out again!

Secret  #2.  Smartphone apps

Pros:  The apps summarize and categorize your spending quickly and easily.  Great for on the go tracking

Cons:  Must have a smartphone and be comfortable using it, can be a learning curve

Within apps, there are different approaches.  Some track your spending as it is linked to your bank account and credit cards, others rely on you entering the data.  See this article for suggestions on apps:

http://www.imore.com/best-income-and-expense-tracking-apps-iphone-spendee-mint-budgt-and-more

Secret #3.  Computer – either online or offline and choice of a program or your own spreadsheet

Pros:  Easier to summarize your data, get totals, and compare your spending monthly and annually

Cons: May require you to input data

You can create your own spreadsheet or go to http://office.microsoft.com/en-us/templates/excel-templates-FX102828204.aspx

Some of the online programs have apps for the smartphone as well.  A very popular free online program is www.mint.com.  This tool pulls all your transactions from the accounts you enter, like your bank and credit card, categorizes them, and lets you see at a glance how much you are spending.  There is a little bit of a learning curve, but once you get the hang of it, it is fairly easy.   Another  popular software is You Need A Budget, YNAB  http://www.youneedabudget.com/  .   It offers a free trial, then it is $60 to purchase.  Many users find it more forward looking than Mint.  There are avid supporters of each product.

TAKEAWAY:  Find the method of tracking expenses and budgeting your money that works for you.  The effort towards finding what works for you will be worth it in the end.  Having control over your money will truly help you reach your financial goals.

If you are having success with one of these methods, please comment!

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