The No-Tracking Budget

April 21, 2023

You don’t have to be a financial planner to know that one of the critical ingredients of financial security is having a budget, but knowing you need one and actually sticking to one are two different stories. We’re not here to lecture about why you should budget; let’s instead discuss a way to make it less painful. The purpose of a budget is threefold:

First, to ensure you are not spending more than you earn.
To figure out how much you can actually afford to save.
If you are spending more than you make or you’d like to save more, then it helps to figure out where you might be able to cut back.

Finding a way to stick to your budget

Putting together a budget is one thing. Sticking to it is another. Putting together is relatively simple, and while there are many tools to help, sticking to it is where most people give up. So let’s talk about that part, assuming you already know how much you need to spend each month on needs versus wants.

Stop obsessing over categories when tracking.

Confession: I can’t tell you exactly how much I spent dining out last month. And I can’t tell you how much I plan to spend on it this month. That’s because that number isn’t as important to me as first ensuring I cover all my other financial goals.

I can tell you how much I’m saving toward several small but significant financial priorities so that whatever is left over is what I can spend on things I can go without, such as sushi night, shopping, spa services, or Target. (Yes, Target is a discretionary expense for me, and don’t tell me you also haven’t discovered their magnetic carts that just attract things.)

By prioritizing the things I know I need to make happen financially, I essentially back into what I can spend on wants without any tracking beyond setting up an alert to tell me if my account dips below $100.

Make it automatic

I do this through automatic transfers set to happen each payday. I have a series of savings accounts, one for each financial priority, through an online bank that lets me set up as many different savings accounts as I want. It’s the electronic version of the envelope system.

My checking account for spending money is at a “bricks and mortar” bank, and I have a checking account for bills that’s also housed at the online bank. Here are some other accounts that you might set up:

Accounts to set up for the no-tracking budget

Monthly bills

Separating your known monthly bills into a separate account and setting them on auto-pay might revolutionize your relationship with money. This account is for things with due dates and relatively set amounts like rent/mortgage, cable, cell phone, etc. You may need to estimate for things like electricity and gas. I use the highest amount from the past year, which ensures I’m well-funded.

What isn’t this account for? Things you can pick and choose how much and when to spend each month like groceries, personal care, and even your dog walker. Yes, this is money you need to spend, but it doesn’t have a due date or a set amount, which defeats the purpose. This fixed amount would only fluctuate if you made a drastic change like moving, canceling cable, etc.

Emergency fund

Getting this account funded with three months of expenses was my top priority, so before I even opened another account, I saved as much as I could. Now it’s just there, accruing interest. I can’t over-emphasize the peace of mind this gives me.

What isn’t this account for? Things I forgot to include in my “oh crap” account, like expenses to stand up at a wedding, Christmas gifts for family, or a plane ticket for a funeral. Those are all important things, but they are not an emergency.

Car stuff

This account is for car-related things such as insurance, new tires, repairs, registration, etc. Once it’s paid off, I’ll transfer my monthly payment into this account too, so I can save to buy my next car with cash.

What isn’t this account for? Gas money – that’s discretionary and comes out of my spending account.

Pet Medical

Pet insurance can run from $10-$90 per month, and Consumer Reports found that it’s not worth the money for the average healthy pet. Instead, pay yourself the premium so that if/when an expensive injury or illness pops up, you have some money saved. It’s worth noting that most pets’ major expenses come when they’re older, so if you do this throughout their life, you should have a sizable chunk built up by the time you need blood work and x-rays to figure out what old age ailment they have.

What isn’t this account for? Pet food (spending account), pet-sitting (spending or vacation account), and routine visits unless you’re accounting for that with the amount you’re setting aside into this account.

Kid activities

If you have kids, then you know that their extracurricular activities can add up pretty quickly. Try annualizing the costs and transferring one-twelfth each month to ease the burden of sign-up and gear-up season.

What isn’t this account for? Clothing, toys, everyday family expenses – try to isolate the “extra” stuff in this account, which can be a way for spouses who may disagree about how much to spend on this stuff to keep tabs on it in an agreeable way.

Depending on what’s important to you and what you want to better control your spending on, you may have other accounts. For example, my friend with a side gig has an account where she puts 20% of her income aside to have enough at tax time.

It takes some work to set up these accounts, but it’s worth it.

Real Results

I shared this system with a colleague of mine who is a busy mom of two young children, and her email to me says it all:

“I just wanted to say thank you. I’ve separated all my fixed bills through those accounts and set up a few savings accounts for shorter-term larger dollar items – Christmas, home improvements, and travel. That way, we don’t have to either put off those things or feel guilty about spending money on them.

Plus, I set up accounts for the girls for them to earn money and use on toys or whatever, and the transition of seeing the numbers is easier for them because they are still learning math and identifying the value of the paper/coin money. So, they earn it in cash, then we add it up and deposit it into our bank, and I transfer the money to their accounts.”

If you’re having trouble sticking to your budget, why not try it? What will your accounts be? Customize it to your life, and just make sure you’re also being deliberate with any “extra” money you find by trying this process!

How to Change Your W-4 and Increase Your Take-Home Pay

February 15, 2022

Are you looking for a quick way to increase your savings or find some extra money to pay down debt? If you are like millions of other taxpayers currently overpaying your income taxes to the IRS each year, you still have time make adjustments to how much you are sending Uncle Sam. The average refund was $2,827 in 2020 with over 125 million refunds issued. This is a substantial amount of money to be loaning out to the IRS at zero percent interest. Continue reading “How to Change Your W-4 and Increase Your Take-Home Pay”

How to Better Prepare Your Kids to Manage Money in College

April 18, 2017

This is the season where I start to get invitations to friends’ and relatives’ kids’ high school graduations. It never fails to amaze me how quickly they grow up. As I start to think of these kids graduating, I realize many of them will be getting ready to go to college, completely unprepared for how they will handle money.

That was the case with me. My family never discussed money with me and when I went to college, the peer pressure of having to look a certain way and the desire to hang out friends quickly left me broke, no matter how much money I had. If I could go back to 1990, ten years ago when I graduated from high school (please allow me to remain in my mathematical delusion), I wish my parents would have better prepared me for managing my money in college by doing the following:

Give them an allowance that includes ALL of their monthly expenses. My parents gave me money as I needed or wanted. Typically, I would ask for money for the movies or to cover my expenses for being on the track team such as travel, hotel and sneakers…oh and I forgot – the money to get my hair done. I learned in college that I was high-maintenance and could not afford my own upkeep. Consider adding up how much you spend on your kids’ activities, personal care and outings and giving it to them to manage themselves.

Teach them how to think about upcoming expenses and budget the money they have. One of my favorite quotes about budgeting is from John Maxwell, “A budget is telling your money where to go before wondering where it went.” Walk your child through the budgeting process to get them thinking about upcoming expenses and how to create and stick to a budget.

A friend of mine opened a checking account for her child in high school. She deposited money into the account monthly for his expenses. She helped him create a budget using online software like Mint and she had a weekly budget meeting with him.

Her son had to show her how he spent the money for the week and how much he had left. She did this while he was in high school so the money management habits will kick in by the time he went to college. Consider doing something similar with your child to help create the habit of budgeting and thinking through their financial needs.

Teach your kids about credit. When I was in college, it seemed like every credit card company known to man was on my college campus. Even though it has gotten better, credit card companies still market to college students who have no idea what they are signing up for.

Luckily, the CARD Act of 2009 provided some level of protection to college students. The act cracked down on giving credit cards to students under the age of 21. Generally, a jobless student cannot get a credit card without proof of income or a co-signer, but eventually, they will be eligible for a credit card.

I thought credit cards offer “free” money that I could take my time paying back. I had no idea that in addition to paying for the items I bought, I was paying an additional 25% in interest. Help your children understand that the money is not free and that the less they pay on their credit card, the more money they will pay in the long run.

If you decide to give your child a credit card, first make she has good money management skills. Control the credit limit and check in weekly at first to make sure the credit card is being used wisely. Then switch to monthly meetings.

The last thing you want is for your child to walk out of college in credit card debt and with bad money management skills. Teach them good money management habits now to help them build a good financial future. What better graduation gift is there?

Hiding Purchases From Your Husband is So 1950

March 29, 2017

When I was a little girl, I remember my great aunt sending my mom money with a note that simply said, “Please don’t send a thank you note. I don’t want my husband to know.” My great uncle was a bit of a curmudgeon and my aunt would have suffered for her generosity. I also remember my grandmother taking me shopping for back-to-school clothes but telling me to leave everything in the car when we went back to her house so my grandpa wouldn’t know she was spending money. Sound familiar?

A lot of us grew up with this example and continue to exhibit similar behavior in our lives today. Have you ever rushed to put purchases away in the closet before your husband could see or stuffed your Lululemon purchases into your purse before walking into the house to avoid a potential fight about overspending on perceived wants versus needs? How about hiding a Target splurge on stuff for your kids?

While these actions may have been slightly justified back in our grandma’s day, these are all examples of financial infidelity. Just like if you were deleting texts between you and a male coworker to avoid a fight with your husband, hiding purchases from him is the same behavior. It’s a violation of trust. What do you really have to hide?

Back then, women didn’t have as many choices when it came to careers and having their own money or even sometimes in choosing a life partner. I will never forget the day I nervously broke the news that my first marriage was ending to my grandmother. Her response surprised me.

She said, “Good for you. You will do just fine. If I’d had a career and options like you, neither one of my marriages would have lasted.” And while I didn’t relish the thought of anyone I love feeling “stuck” with someone else I love, I understood what she meant and she was right. The big difference between back when my grandmother had to sneak spending behind my grandpa’s back and today is that if you find yourself in a marriage where you truly don’t have economic power, you have the choice to work it out or leave.

I’m not saying you shouldn’t have the autonomy to make your own purchasing decisions – quite the opposite. You may never get on the same page with your spouse about the value of spending on certain things like clothes or wine or electronics or name the thing that causes money fights in your marriage. But there are ways to solve that without hiding purchases such as having separate spending accounts where you agree that you each can do whatever you want with that money with no judgment and no arguing. The kicker is that you both have to stick to the agreement where you only spend that money and not other money that’s allocated towards your family’s goals.

It may be a challenge to arrive at an amount you both agree on for your spending money. When a spender marries a saver, the saver will always want to spend less, but there are logical ways to arrive at that number. Start with your shared goals like retirement, paying off debt, saving for college, etc. Assign a number to those goals and calculate what it will take to get there and agree together whether that amount is reasonable or if you need to modify the goal. Getting on the same page about this helps you both feel responsible for your part in achieving that goal and should help the saver partner relax a little bit about spending on things they don’t perceive as necessary.

Kelley Long is a resident financial planner with Financial Finesse, the leading provider of unbiased workplace financial wellness programs in the US. For more posts by Kelley or to sign up to have her weekly post delivered to your inbox each Wednesday, please visit the main blog page and sign up today.

Why and How to Have Weekly Money Talks

March 28, 2017

When I first got married, money talks in my home looked something like this: I brought out my spreadsheet and the four other programs I was working on to have a financial summit with my husband. He mentally tuned out the second he saw the first version of the budget and was in another place (I suspect it was at a college football game) by the time the meeting was over. Over the years, I learned to simplify my budgets and my husband brought both his mind and body to the meeting. My colleague Steve offers great insight into how to make couple money meetings work that I wish I knew from the beginning:

I have a confession to make. For over a decade in my professional career, I was the pot calling the kettle black. Almost 20 years ago, I followed the advice of a fellow CFP® professional and started advising clients to schedule a weekly 30 minute money meeting to focus on their finances, but I wasn’t doing these myself. Then about 7 years ago, I started having those meetings with my spouse and guess what? They work.

The basic idea is this. Many of us can go a month or longer and not spend any time thinking about our investments or whether we are spending our money on what is important to us instead of where we have always spent it. We pay our bills but don’t think about our spending plan.

On a side note, I hate the word “budget.” It sounds like “diet” to me. They both are limiting and negative.

A friend of mine told me “Steve, you’re a financial planner. Don’t think of it as a diet. Think of it as an eating plan.”

That works for me. I don’t think of my spending as a budget. I think of it as a spending plan.

The ideal time to have a conversation about money is not when you’re late for work, trying to get the kids off to school and have a deadline that is consuming all of your mental energy – been there done that. The Weekly 30 Minute Money Meeting can either be with yourself or with your partner. The rules are the same:

1.You cannot change the past. It is a waste of time to argue about or beat yourself up about things that have already happened. Learn from your mistakes (we have all made them) so you don’t repeat them in the future.

2. Be thoughtful and focus on the future. With my eating plan, if I choose to have a 1,500 calorie breakfast (which is delicious), I’d better plan on eating a lot of salad with little dressing for the rest of the day. If I choose to spend my future paychecks now (think credit cards), I’d better plan on not spending any other money.

3. Hold yourself accountable. Notice I didn’t say hold your partner accountable. We are adults and need to hold ourselves accountable. If you make a mistake, own it and try hard not to repeat it.

4. Schedule the meetings when your energy is high. I am an early morning person. I wake up at 5:30 am every day no matter the time zone or if it’s a weekend.

The ideal time for me would be 6:00 to 6:30 on Saturday morning. My wife’s response to this suggestion is not fit for publication. We meet from 11:00 to 11:30.

These are some tricks to make the most out of your meetings:

Put them on your calendar and if you think about something, pull your phone out and add a note to this week’s meeting. That way you don’t forget it.
Use the meetings to develop a spending plan. Your spending plan needs to get you, not the other way around. Look at your bank’s online tools, other online tools like Mint, our Easy Spending Plan, a custom made Excel spreadsheet or paper and pencil. Try different ones until you find the one that gets you.
Find an item in your spending plan that you buy because you have to but don’t enjoy spending money on and see if you can cut that cost. Think of auto insurance and electricity. Any money you can free up from those is money you can save or use for something you want.
Run a retirement estimator calculator and make sure you are on pace to retire. Update this at least once a year.
Run a DebtBlaster calculator and make sure you are paying off your debt as efficiently as possible. Update this every 6 months or when you pay something off.
Review your investments at least once a quarter and make sure you are taking an appropriate amount of risk.

As someone who has done this for a while, the benefits of these meetings include reduced financial stress, you and your partner having a plan and fostering honest, direct and sincere conversations about money. Start now. Don’t wait a decade…like some people.

Why Is Your Budget Failing?

February 21, 2017

Why is my budget failing? My friend asked me this question a few days ago. She has been trying to budget for the last few years and just can’t seem to stay on track. I told her that I have found that there are some common reasons why budgets fail and if she addressed the following common reasons why budgets fail, she can become a successful budgeter:

1. Budget categories bursting at the seams. Years ago, I worked with a woman who was diligent about creating and tracking a budget but struggled to handle emergencies. When I looked at her expenses, I saw that over 50% of her spending was her mortgage and 30% was a car payment. There was no wiggle room to handle emergencies. Luckily, she was able to get a roommate and downsize her car. Consider reviewing articles like this one as a starting point as to how much to spend in each budget category.

2. Not sticking to your budget. A budget only works if you actually follow it. I always tell people that there are two parts to a budget. One is forecasting what your spending needs are for the month and the other is tracking. If you are not doing both then it will be hard to stick your budget.

3. Using the wrong budgeting system. Using the wrong budgeting can make budgeting feel like a dreaded chore. If you hate technology, use a budgeting worksheet and either a notebook to write down expenses or keep receipts in an envelope. If you are comfortable with spreadsheets then use Excel, which can do the math for you. If you want more features then explore the various online budgeting software programs and find out which best matches how you want to budget.

4. Unrealistic Budgets. My friend had a family of seven that wanted to budget $350 a month for food. Considering she had five very tall teenage boys to feed, we decided that her budget was not realistic. If you find that you are constantly going over certain budget categories, consider increasing your budget and maybe using cash for purchases in that category. Also be honest with yourself. If a Mocha latte or a manicure keeps calling your name, just put the expense in your budget.

5. Not changing the budget with life changes. It’s rare that your spending is the same every month. As gas prices, food prices and your utility bills change, so will your budget. Be flexible and adjust your budget to accommodate changes in your expenses.

Now, these aren’t all of the reasons why budgets fail. But if you are struggling with your budget, the list above gives you a good starting point. With a few tweaks, most people can become budgeting gurus in no time!

How an Argument on Valentine’s Day Made Our Marriage Stronger

February 14, 2017

When I think of Valentine’s Day, I always think of my first Valentine’s Day after I got married. We were new homeowners undecided as to how to decorate our home. I am a saver and I wanted to bargain shop and slowly decorate. My husband is a spender who was tired of walking around empty rooms and wanted to start buying furniture without looking for a deal (gasp). Our discussion, or rather argument, about how we would buy furniture was the first dose of reality that we had very different thoughts about money.

Now, I am sure some of you are asking yourselves why she is talking about an argument on Valentine’s Day. Trust me. I am going somewhere with this. It was not easy, but after we both stopped pouting, our argument made us realize that in order to have peace, we needed to agree on how we will spend money as a couple so over the next few months we came up with a plan to manage our finances together. The following is how we were able to do it without strangling each other:

1. We had money meetings a few times a month. We had a meeting a few days before the new month began to discuss what expenses were coming up during the month and a shorter meeting before each pay period to make sure nothing changed or was forgotten. The longer we did this, the shorter the meetings became. This went a long way to prevent arguments about last minute unexpected spending. Consider using a budget worksheet as a tool to map out your spending plan as a couple.

2. We set up communication ground rules for the meeting. First, we agreed to obey the principle my kids learned in kindergarten that if you have nothing nice to say, then say nothing at all. We established the budget meeting as a no nagging, judging, and cursing zone with no sarcastic remarks allowed. We also had to give one compliment about how our spouse managed their money. Work with your partner to come up budget meeting ground rules.

3. I agreed to keep the meeting short and my husband agreed to bring his body and mind to the meeting. I also agreed to be flexible on the meeting times if important events arise, such as my husband’s favorite team playing. Agree on a meeting date and time where both of you can be mentally as well as physically present.

4. We set up 4 accounts: a joint checking account where both of our paychecks initially went into for the household bills, separate checking accounts where money was transferred from the joint checking account for personal spending that we did not have to consult each other on, and a joint savings account. We agreed on how much each of us would get to spend every pay period. Every couple is different, so discuss the best opton for the both of you.

5. We also came up with spending ground rules. For us, it was that we would not spend anything over $100 from our joint account without discussing the purchase with each other. We also agreed that we would not discuss money spent in our personal accounts. I deliberately mentioned this twice because for some couples, it’s important to have personal money you can spend freely.

So as odd as it sounds, our argument on Valentine’s Day was one of the best things that could have happened to us. It led us to getting on the same page about money, which brought us closer together as a couple. As you celebrate Valentine’s Day, consider using the day to go over ideas on how to help you and your partner manage money better together.

Is Spending $2 Million per Month a Bad Thing?

February 10, 2017

Well, if you’re Johnny Depp, the answer appears to be a resounding…YES! In a case where Johnny Depp and his former agents are making claims against each other (I have no idea which side’s arguments have merit), there are unconfirmed reports that his spending habits are rather lavish, averaging about $2,000,000 per month. He reportedly paid $3,000,000 for a party that ended with firing the ashes of Hunter S. Thompson from a cannon. Sadly, I missed that party. His prior firm is now suing him for an unpaid loan and he’s suing them for mismanagement of his finances.

This will be an interesting case to watch, and if he needs to generate cash, we may see a lot of Johnny Depp in roles that he wouldn’t have previously taken..or he could sell some islands. For those of us who have never spent close to $2,000,000 in a month, the numbers here seem completely absurd. It’s easy for us to roll our eyes at yet another celebrity who spent money on a lifestyle that isn’t sustainable in the long term.

How many times have we seen this? (Answer: A LOT) How can they not know that this is how the story unfolds? (Answer: It’s THEIR first time handling this much money.)

The interesting thing, at least interesting to me, is that I see this same thing happening on a daily basis, just with much smaller numbers, all over America. Here’s a story of someone I’ve had the pleasure to get to know over the last few years. He works for a big company that is one of our clients and is now, at age 50, ready to make progress in his financial life. He has a great job, a great family, great friends…and about $30,000 in credit card debt that is killing him! He is now struggling to make just the minimum payments on all of his cards.

During a conversation recently, we laughed at how we each made less than $20,000 per year in our first jobs out of college and at that time, we felt like we had more than enough money to live a great lifestyle! Fast forward a couple decades and now he’s earning just over $100,000 and feels like he has less discretionary income than when he was 22 and new to the workforce. As his income went up, so did his lifestyle and spending level.

It’s not quite the reported Johnny Depp level of spending, but it’s not tough to see how that happens. We somehow spend as much as we make, no matter how large the income gets. When that income stops, which we see in sports and entertainment, or slows down – that’s when we see headlines about famous people being broke.

It just happens more slowly and without the press when you aren’t famous. While Mr. Depp owes millions, a normal everyday guy owes $30,000 in credit card debt and it’s incredibly burdensome. Some of it was for vacations, some for car or home repairs, and some was books for college for his son, but it all has added up and become close to unmanageable.

We developed a plan to get him out of debt, which involved cutting back on some spending while increasing income for a 6-9 month window. He and his wife have ideas on how to generate some income thru “gig work” and will use every dollar to pay down credit card debt. Between Uber, Lyft, some handyman work and some graphic design, they will laser focus and work themselves hard for a fixed period of time. The reason I tell their story isn’t for the solution, but more for the parallel that I see between them and Johnny Depp. The numbers may be smaller, but the problem stems from the same behavioral pattern.

What can we learn? As your income goes up, pretend that it doesn’t! Rather than increasing your level of spending, how about increasing your savings rate FIRST!

Get to the IRS limit on your 401(k). Max out your health savings account. Contribute to an IRA. Build a serious emergency fund (a year’s worth of expenses). Once you are there, then allow yourself to increase your lifestyle to meet your income.

Should You Use an Escrow Service?

February 06, 2017

If you are taking out a mortgage for the first time, one of the important decisions you’ll face is whether or not to establish an escrow account. My colleague Cyrus Purnell, CFP® and I were discussing this recently. Here’s what we decided are the essential FAQs for homeowners:

What is a mortgage escrow service?

An escrow account, in the case of a mortgage, functions as a middleman between a homeowner, tax entities, insurance companies, and anyone else whom the homeowner designates to pay with the funds saved in it. It is typically a mandatory savings account attached to the larger mortgage payment. Mortgage escrow services are popular with mortgage lenders because they prevent foreclosures due to the lack of payment of property taxes.

Advantages and disadvantages

One of the major advantages of an escrow is convenience. Rather than making individual arrangements to separately save for property taxes and insurance, these expenses are included in one payment. It’s the same principle as automating your monthly bills and 401(k) plan savings. A mortgage escrow service offers you a way to save for large bills monthly. That way the money is already there when you need it.

Another benefit is that you may get a slight reduction in your mortgage rate for maintaining an escrow account. Escrow accounts can function as an unintentional buffer to reality as well. If property taxes or insurance rates go up, you may delay action to shop for less expensive coverage or dispute a property tax appraisal because the escrow covers it. The lender benefits by having an escrow in place for taxes and insurance because it protects against the risk of the collateral for their loan (your home) being auctioned off by the county if those expenses are not paid. It also reduces the uncertainty of the property not being insured against catastrophe.

However, when purchasing a home, the up-front funding for the escrow account can add several thousands to the closing costs. The escrow generally has to maintain a minimum balance, and if taxes and fees come in higher than estimated, your escrow payment may grow to replace that minimum balance. This can cause uncertainty for your housing budget year-to-year. Another disadvantage is that some escrow accounts do not earn the account holder any interest. If you have a substantial amount to pay in property taxes, imagine an account holding thousands of dollars earning no interest.

Whose responsibility is to pay the taxes and insurance?

It’s your lender’s responsibility to pay your taxes and insurance. Generally, that happens without a hitch. However, keep in mind that it’s your responsibility to make sure that it has been done. If the lender didn’t pay, you could experience a lien against your property for unpaid taxes and/or a cancellation of your homeowners’ insurance policy. You should receive an escrow statement at least once per year that shows what has been collected and paid out.

Problems do happen, luckily rarely. When we first bought our home in NJ, our supposedly reputable national mortgage lender collected funds in an escrow account but didn’t pay our property taxes. We got a past due notice from our town, and it took some sleuthing to discover what the lender had done or not done.

Our town assessor’s office was very helpful once they saw our escrow statement and gave us a grace period until we could get it worked out with the lender. Although the lender apologized for their mix-up, it won’t surprise you to learn that we refinanced with another lender soon after that. We haven’t had any problems since.

Can you avoid using an escrow service?

Yes, but not always. Some mortgages require escrow accounts, especially for first-time home buyers or home buyers putting less than 20% down. If you pay your home down below 80% loan-to-value, you may be able to request removal of the escrow account, but there may be a fee for doing so.

Keep in mind that the escrow is not in place to protect the lender only. If you choose not to escrow, you will need to be very confident in your ability to save for the property taxes separately. You may also want to look into having the insurance premiums auto-debited as well.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

What It’s Like to Work With a Credit Counselor

February 03, 2017

One of the things that our financial planning team talks about with people in distress about their debt level is the concept of using a non-profit credit counseling service to help them work their way out of debt. This usually happens after someone has had a few failed attempts at different “do it yourself” debt reduction strategies, like the “debt snowball” (pay off lowest balance first and when it’s gone, roll that payment into the next lowest balance debt and repeat till debt free) or “debt blaster” (pay off highest interest debt and then roll that payment into the next highest interest debt, etc.). After trying those and making very little progress, no progress or actually incurring more debt, people can be incredibly frustrated and feel like they need to take their efforts up a notch and get help from an external source.

When considering using an external source for help in getting out of debt, the number of options out there can be a bit daunting. There has also been enough fraud perpetrated by nefarious players who hold themselves out as debt reduction experts to make the landscape a little bit scary. Given that there is a great deal of uncertainty about how this vague concept of “credit counseling” actually works, I figured it would make sense to talk to a few people who have gone through the process to get their perspective. Based on those conversations, here are some observations and things I learned that might be helpful for people who are ready to take that step to help their financial lives.

What did the process look like? The first step was a phone call with a counselor to talk about my situation and they pulled up a credit report. From there, we built a budget worksheet for me and my life.

They contacted my credit card companies, got my rates reduced down to a really low interest rate and sent me a proposal that showed how much I’d pay each month and how many months I’d be paying. I’d pay them once per month and then they pay my credit card bill. If I sent in extra money, they’d apply that to each of my cards.

I’d get statements monthly and they charged a small fee ($25-$35 per month), which I wasn’t crazy about, but I paid it because I was seeing actual progress. While they are non-profit, they aren’t free and that was something I didn’t fully grasp at first. By the time I made my last payment, I had changed my spending habits, I was debt free and my credit score (after the initial drop) was higher than it had ever been.

What surprised you? In order to qualify for the DMP, I had to complete a budget sheet and I had never done that. It helped them structure a plan that I could stick to with payments that I could actually handle. The closing of all the cards was also a surprise, but it makes sense. Once you’ve dug a hole and want to get out, it makes sense to put down the shovel.

What’s the best thing about using a credit counseling service? They helped me get out of debt and I had a schedule that made sense. Before entering into the DMP (debt management program), I was very scattered and would pay a bit extra on some cards but end up using others. It took 4 ½ years, but I went from over $30,000 in credit card debt to $0.

What’s the worst thing? Finding the right provider. My first shot at it, I used a company that called me. I ended up paying them for 6 months, they informed me to stop paying my credit card bills, and they never paid the bills. I feel like I got robbed, but I didn’t do my homework on them, so I take some of the responsibility for that.

Once I got to a non-profit credit counselor, I was able to get into a program that worked for me. I had to close every credit card except for one emergency card. My credit score dropped a lot when I stopped paying the credit cards and it took a while to recover, but once I got all the debt paid off, the initial pain was a distant memory so it probably wasn’t all that bad.

What warnings could you give to people considering working with a non-profit credit counselor? Be VERY careful with who you choose to work with! The non-profit credit counselors at debtadvice.org have a much better reputation than the for-profit wild wild west approach where you don’t know who is legit and who isn’t.

Don’t get into a DMP if you aren’t 100% committed to a multiyear process. If you’re looking for a magic pill that solves your debt issues overnight, this is probably not the right path for you. If you stick to the plan, you’ll get out of debt, but I’ve know people who start and get frustrated after 6 months and bail out of the program because they aren’t seeing results fast enough.

Like any tool out there in the financial world, the world of credit counseling isn’t for everyone. There are good things, not so great things and even the unexpected thing periodically. Do your homework, ask questions until you feel comfortable and get yourself out of debt whether you do it yourself, use a credit counselor, use a debt resolution company (future blog topic) or end up filing bankruptcy. Reducing and eliminating debt is a fantastic step toward getting yourself to a place where you’d call yourself financially secure.

Don’t Spend $25k on a $10k Vacation

February 02, 2017

The winter months get many of us dreaming about our next vacation to a warm place. But would you spend $25k for a $10k vacation? My colleague, Steve White, recently wrote about how this could happen:

Everybody likes a vacation. If you could take a $10,000 vacation where would it be – Vegas, Miami, the beach, LA? If you could choose between spending $10,000 or $25,000 for the same Vegas vacation (same airfare, same hotel, same restaurants, same clubs, same blackjack losses), which would you choose? The $10,000 dollar one, right?

Let me tell you how you can spend $25,000 on that Vegas trip. Book that $10,000 trip using a credit card and make the minimum payments on it. The minimum payments would be about $175 a month and it would take you 12 years to pay if off at that rate.

$175 a month times 12 years is $25,200. Think about it. You could have taken 2 1/2 trips to Vegas for what you spent on 1 trip.

So how can you avoid this fate? One option is to simply not take vacations, but if you value your emotional and ultimately physical health and productivity, that’s probably not a good idea. In fact, spending money on experiences like a vacation generally gives a much bigger “happiness bang” for your buck.

Instead, set a goal for your vacation and estimate how much it will cost. You can even use this tool to find a trip based on your goals and budget. Once you’ve set a target, subtract any savings you’ve managed to set aside for that trip and divide the remainder by the number of months between now and when you want to take your vacation to determine how much you need to save each month. But where will you come up with that money? Steve suggests starting with a spending plan:

A spending plan allows you to focus your money on what is important to you – like a vacation. The best way to do this is to set a 30 minute weekly appointment with yourself to review your finances. I recommend scheduling this when your energy level is high and you’re able to concentrate. I am a morning person so mine is Saturday morning.

Whether you use our Easy Spending Plan, our Expense Tracker, Mint, or any other system for your spending plan doesn’t matter. What matters is that you have a spending plan. Personalize it and continually ask yourself, “I see where I am spending my money. Is this really where I want to spend it?” If the answer is no, find one area to adjust and make that the topic of the next week’s money meeting.

This isn’t about anyone lecturing you on what to spend money on but about you taking control over your own finances. Ask yourself if each expense is more important to you than your vacation. (Remember that you generally buy more happiness with experiences than with things.) If not, pay yourself first by reducing that expense and have the savings automatically transferred each month into a separate designated savings account for your vacation. Now you have a savings plan to complement your spending plan.

What if you can’t reduce your expenses enough to fund your vacation? In that case, you’ll have to adjust your goal either by postponing it or by choosing a lower cost trip. Financial planning is all about trade-offs. There’s no one right answer as long as you’re making an educated and conscious decision.

Finally, you might want to use a rewards credit card to pay for your trip. This way you can earn cash or points towards your next trip and actually come out ahead…as long as you pay the balance off in full from your savings. Do this often enough and maybe you can eventually spend $10k on a $25k vacation!

How to Have The Money Talk

January 30, 2017

Are you in a serious relationship, thinking about moving in together, engaged or even newly married? If you are contemplating sharing a household together now or at some point in the future, there’s no better time than the present to discuss your finances. “Your life partner can be your best financial friend or your worst financial enemy,” according to Financial Finesse CEO and author Liz Davidson. Marriage is an emotional and spiritual partnership, but it’s also a legal financial relationship. Money is the leading cause of stress in relationships, but it doesn’t have to be. The foundation of any successful economic partnership, including living together or marriage, is strong communication with full financial disclosure.

Ground rules

The Money Talk can sometimes bring strong emotions to the surface, so choose a place to have your discussion that will be relaxing and free of distractions to both of you. Choose a pleasant, neutral location where you have sufficient privacy. Keep these ground rules in mind:

Make sure your discussion is scheduled for a time of day that works for both partners. My husband prefers to talk money and night and I prefer the morning. Over time, we’ve learned over time to bring up financial decisions during breaks in the work day, or on weekend days is best if we’ re going to have the most productive conversations.
No alcohol! While a glass of wine could give you courage to disclose your student loan balance, each partner should have their wits about them. It will much easier to listen compassionately without judgment if you are free of cocktails. Feel free to stash a bottle of champagne in the fridge for later to celebrate this milestone in your relationship.
Set a beginning and end time for your discussion. If you don’t finish everything, set up a follow up date.
Don’t judge. Your partner has a different money story and may have different values and financial priorities than you. Refrain from expressing opinions – think of this conversation as an exercise in information-gathering.

What to discuss? Make sure that you’ve covered all your bases:

Tell each other your money stories

How did your parents handle money? What do you think of how they handled their finances? How did that impact you? If you’ve never thought through your money story, the book The Feel Rich Project, by Michael Kay, CFP® has some helpful chapters on how to assess your history.
How would you describe your financial personality? Are you a saver or a spender, or something in between? Do you like to plan carefully, or be more spontaneous? Do you collaborate, or prefer to decide independently? Are you more likely to be meet your own expectations or those of others? Consider using this framework for thinking about how you best create financial habits. If you want to dive deeper into the financial personality question, you can both take an online quiz here or here and compare notes.
What’s the biggest financial success you’ve had? What are the factors which contributed to it?
What’s the biggest financial failure you’ve had? What are the factors which contributed to it?
If you’ve been married or living together before, how did you handle money together? What worked, and what didn’t?

Take inventory – how much to you spend, what do you own and what do you owe?

Now that you’ve reviewed the emotional side of money, it’s time to get practical. Compare notes on your income and expenses:

Income

How much do you each make? Do you expect that to increase, decrease or stay the same in the short term?
Do you have other sources of income, such as rental property, business investments or trust income?

Expenses

How much and what are your “must pay” expenses every month – housing, transportation, insurance, child support, tuition, etc.
Do you track your expenses? What system do you use?

Assets

How much are you saving for retirement as a percentage of your income? How much have you saved so far in retirement accounts, such as 401(k) or 403(b), Roth and traditional IRAs?
If you own your home, what’s it worth approximately?
Do you have an emergency fund? How much do you have in cash reserves?
What other investments do you have?
Do you co-own any of your assets with someone else?

Debt

What is your mortgage balance, rate and remaining years to pay, if you have one?
How many credit cards do you have? Do any of them carry balances that don’t get paid off in full each month? How much?
Do you have outstanding student loans? Are they private or federal loans? Are you current on paying them? Are you in a loan deferral or forbearance period?
If you have non-mortgage debt, do you have a plan for paying it off? By when?

Insurance

Financial wellness means that you are prepared for unexpected and expensive events, such as a major illness or car accident.

Do you have health insurance? What kind of health care benefits are available to you at work?
Do you have short and/or long term disability income insurance?
Discuss your auto insurance. Do you have the bare minimum coverage, or are more fully protected?

Show each other your credit reports

Now comes the hard part. Show each other your credit reports. For many couples, this is the most difficult part of the conversation. Remember, regardless of your credit history, transparency here is an act of love. If you are thinking about spending your lives together you’ll have an economic and financial partnership, not just a romantic one. Full disclosure is essential, especially for engaged and married couples, who will generally be held legally responsible for debts their spouse occurs during the marriage.

Access your free credit reports from the three major credit bureaus at annualcreditreport.com or share your report from any online credit monitoring service you use, such as Credit Karma or Credit Sesame.
Review and discuss any major items, such as bankruptcy, short sales, and a history of significant late payments or charged off accounts. Do you see evidence that your partner has good financial habits, or is working to develop them after a financial mishap?
If one partner has significantly better credit than the other, how will this impact how you manage money together?

What are your financial priorities and long term goals?

Once you’ve tackled the rough part of the conversation, you can head to the fun part! A successful marriage begins with a shared vision. Ask each other:

If everything worked out exactly the way you wanted it to financially for us, what would that look like?
Where do you see us living now? In five years? In retirement?
If we plan to have children, do you think one of us should take a career break to raise them? For how long?
When would you like to be financially independent enough to have the option to retire?
Can you define “financial independence” for me?
What would happen if one of us got sick or laid off? How do you think we should handle it?
If one of you has children from a previous relationship, how do you plan to handle the costs of raising them, including sending them to college? See Financial Planning Tips for New Stepparents for ideas.
If one of you has significant debt, such as credit card balances or student loans, what is your target time to have them paid off completely?

Not a one-time event

Congratulations on getting through your first “Money Talk!” We hope this will be the first of many ongoing conversations about your joint finances. Marriage can teach you a lot about money. Now that you’ve established a foundation of transparency, full disclosure and sharing your visions, set up regular “money meetings” to talk through ongoing financial business. You’ll have a better personal – and financial – relationship for doing that.

Financial Wisdom From My Grumpy Old Man Side

January 13, 2017

Sometimes I like to have some fun and adopt a “grumpy old man” persona for a bit just to keep everyone around me on their toes. My kids have started to say “OK, Grandpa…” when I get into my grumpy old man role. Sentences starting with “back in my day” or “when I was your age” or containing the words “poppycock”, “shenanigans”, and “new-fangled” are standard when I’m talking as that character.

The funny thing I noticed this morning as I was playing this part is that a lot of what I say as that person is absolutely true. The principles are valid and while I may be joking around and having some fun, there is some real timeless stuff that I wish more people in today’s world would implement as a part of their lifestyle. Here are some of the top nuggets of wisdom from my grumpy old man character:

Back in my day, if you didn’t have the cash, you didn’t buy it. I have seen more people get themselves in trouble financially through excessive use of credit cards than for any other reason. As credit card debt mounts, so do minimum payments as well as stress. I can’t count the number of divorces and therapist visits that people have attributed to credit card debt.

When I was your age, I always saved some money for a rainy day. Having an emergency fund, whether it’s a “starter emergency fund” of $1,000 – $2,500 or a 6-9 month cash cushion, is a great way to ensure that your financial life won’t get blown to smithereens in the event of a job loss, injury or illness. An emergency fund is the #1 barrier to unwanted debt.

What’s with all the shenanigans of picking all these stocks? Don’t put all your eggs in one basket. This is a time honored principle that the folks who worked at Enron or MCI WorldCom wish they had reinforced by senior management. The best way to “get rich” in the stock market is to find the next Apple or Google and put all of your money in that stock, but finding THAT stock is a lot tougher than it sounds and you’re more likely to find one that ends up going nowhere. So spreading your risk out among many different asset classes is a great way to participate in the whole stock and bond markets rather than concentrating your risk (and potential reward) in one area.

Who needs all these new-fangled gadgets that you spend so much money on? Another principle that works every time it’s tried is spending less than you bring home. So many people I talk to are very excited about the next iPhone that is coming out or 4k televisions or new and cool technologies that can make people say “wow.” Those things are fun and cool, but they can improve your quality of life only very slightly and they are usually pretty pricey.

By holding off on those purchases, along with driving lower priced cars and living in reasonably priced housing (the things Americans tend to vastly over-spend on), there will be plenty of room for savings and taking on debt will be a thing of the past. Think about the last “cool” purchase you made and how quickly the cool factor evaporated. Wouldn’t it be cooler to save that money and be able to retire a year or 5 earlier?

Part of the reason that I can act like my grandfather and use some of the phrases I heard as a kid is that the wisdom in those phrases has withstood the test of time. Just like 2+2=4 was true when I was in elementary school and is still true today (although the way it’s taught is different now), these little financial nuggets were true then, they are now, and they will be when my kids are grandparents. (This BETTER be in a long long time!)

How to Create a Budget After Divorce

January 10, 2017

It’s probably not going out on a limb to say that just about everyone knows of someone who either got divorced or is getting divorced. Over the years, I have worked with several people getting ready to divorce and I find many are unprepared for what life is like financially afterwards. Going from two incomes to one means an overhaul of your finances and for some, a readjustment of their lifestyle. If you find yourself wondering how to put all of this together after a divorce, consider using the following tips to get you on the right track:

1. Know what money is coming in. Review payments you may be getting or receiving from your divorce and adjust your total income accordingly. Typically, child support does not impact your income tax whereas alimony paid can reduce your income and alimony received counts as income. If you are getting or receiving alimony, you can use the IRS tax withholding calculator to make sure you aren’t paying too little in taxes or giving the IRS a large tax-free loan

2. Know what money is coming out. Create a spending plan to account for how much money you need to have monthly to maintain your lifestyle. Consider ALL of your expenses beyond mortgage/rent, car payments and debts. Typically, the most underestimated and forgotten are auto and home maintenance, groceries and eating out.

If you are not sure where to begin, consider using online tools at your bank to find out how much you have been spending. Most online tools will categorize your spending, so first consider adjusting the categories. Then choose a 30-90 period to see what your average spending looks like.

3. Know what the difference is. Subtract your income from your expenses to gauge if you can afford your current lifestyle. If you have a surplus, review your numbers to make sure they are realistic, you have a category for savings and you have a buffer (10% or greater) to account for unexpected expenses (better known as Murphy’s Law).

Also review how much you are spending in each category. For instance the guidance is for household expenses to take up no more than 25%-35% of your net income and auto expenses (car loan, insurance, gas and maintenance) should be no more than 20% of your take-home pay. If you are spending more in those categories, you may not have the cushion to lessen the blow of an unexpected expense. If you have a deficit, then you may not be able to afford your current lifestyle and expenses may need to be cut. This could mean downsizing to a less expensive home, a less expensive car and in some cases, a less expensive neighborhood.

Divorce is hard enough on its own. You don’t want it to cause too many financial problems as well. Taking the time to review your expenses after a divorce can go a long way into making the transition process easier.

How’s Your Financial Life?

January 06, 2017

With today being my first post of 2017, it’s a great time to spend an hour or two over this weekend looking back at the year that was and looking forward to the year that is just starting. I have an annual tradition that I started long ago and will continue for as long as I am lucid. Feel free to use my annual process as a starting point, tweak it, and make it your own.

Each year, I put together a quick “How’s my financial life?” spreadsheet. I only need a few reference sources and in less than 30 minutes, I feel like I have a much clearer understanding of where I stand financially. Along the top of the spreadsheet, I list the year and on the vertical (Column A), I list the things I want to measure annually. Here are the things I measure and where I find the information:

Total Assets – I use this Financial Organizer. The goal is for this to increase each year. Tracking the dollar and percentage increases are things I’ve added to my simple spreadsheet over time.

Total Debt – This is also found on the Financial Organizer. The goal is for this to decrease annually and eventually get to $0!

Net Worth – This is simply the total assets minus total debt. An increasing net worth is my primary financial goal each year. This is another thing I track in dollar and percentage terms.

Annual Income – I use my last pay stub of the year. This is a number that should go up each year and if it doesn’t – that could be a warning sign. Or it could mean that you’ve happily retired or downsized your work stress level.

Estimated Mortgage Payoff Date – I pay a bit of extra principal with each payment and at year end, my mortgage company can calculate when the mortgage will be paid in full at my current level of extra principal payments. You can also build this yourself with an “amortization calculator.” (If you Google that term, you’ll find a bunch of them). This is important to me because when my mortgage is paid off, I’ll consider myself financially secure. At that point, my embedded cost of living will be property taxes, insurance, utilities, food and fun.

401(k) Balance and 401(k) Contributions for the Year – For the contributions, I need my last pay stub for the year and for the balance, I can either log on to the website of my 401(k) provider or quickly check Mint for my balance. Each year, I enjoy seeing the balance go up! (I wasn’t so happy with this back in 2008, though.)

Savings Balance – This is one I like to track in order to make sure I have an adequate emergency fund. I enjoy seeing it go up, although it took a big step backward last year because I used a chunk of savings as the down payment on a house. So while I wasn’t ecstatic when I saw that the balance went down, I understand why it did and will work to build it back in short order. I can check this balance in Mint while I get my 401(k) balance, so locating the info is the easiest part of the job.

Life Insurance Death Benefit – I check this each year to ensure that should this be my last year on the planet, my mortgage can be paid off, my kids’ college can be handled without loans and there could be something left over for them to have a little head start in life, along with a few of my favorite charities getting a few bucks to do the great work that they do. I have to check a file in my desk to make sure that my information is up to date. We had a change in benefits at work and I replaced one policy with another last year so this is a data point that is in flux.

Date of Last Will Update – This is another item that I need to look in my desk drawer files to confirm. Looking at it this year, I’m probably due for an update. The last update of mine was almost 10 years ago, right after my ex-wife and I separated. (It’s amazing how quickly a decade can fly by when you’re having fun!) Hitting the 10 year mark or a significant life change are my triggers for updating this important document, along with my powers of attorney and healthcare directives.

Those are the data points that I can put together in the time that it takes me to watch one college basketball game. (Hey, it’s nice to have a pleasant distraction while working on your financial life.) So pick a game to watch and get busy.

How to Stop Hating New Year’s Resolutions

January 03, 2017

I was having a conversation with friends over my favorite dessert, which is basically anything chocolate. One of my friends mentioned New Year’s resolutions and like a symphony, I heard a range of moans and groans. I told them to consider re-framing their idea of success by focusing on consistently (not perfectly) making small changes instead of focusing only on the end goal. If they change their behavior and do it consistently, the natural byproduct is their goal. I gave them the following as a starting point to consider.

Being Healthier:

1. Replace two drinks a day with water. If you cannot stand the tastelessness of water, throw in some fruit – strawberries, lemons, etc for extra taste.

2. Fill half of your plate at lunch or dinner with vegetables. A salad is a quick and easy solution. Just minimize the dressing to 2 tablespoons or less.

3. Consider having a “walking” meeting with a colleague. Commit to a 15-minute walk during lunch. If you travel a lot, you can use workout apps with various workout programs and even a coach to keep you motivated like Aaptiv or Fitstar.

Saving money

1. Start off with an amount you are confident you can save per pay period and adjust your payroll to have the funds automatically sent from your paycheck to a savings account. You can always increase the amount.

2. Consider using the “round-up-to-the-nearest-dollar” bank savings feature or have deposits (interest, ATM usage rebate) automatically deposited into your checking account.

3. Have a “no-spend day” when you choose where you are committed to not spending any money for the day.

Becoming Debt Free

1. Stop using your credit card. The easiest way to reduce the amount you owe is not to acquire any new debt.

2. Call your creditors and ask for an interest rate reduction. Research from CreditCards.com cited that 3 out of 4 people who ask for interest rate deductions actually get it.

3. As we head into tax season, consider earmarking part of your tax return to reduce your debt.

What are your goals? Starting off with the small changes can give you the quick wins to keep you motivated to reach them by the end of 2017. Then maybe you won’t groan the next time you hear about New Year’s resolutions!

What a Financial Planner Told His Daughter After Her First Job

December 30, 2016

This week, I’m sharing a blog post from my colleague, Steve White:

My daughter is 22 and recently graduated college with a degree in human biology cum laude no less and she has a job working with a medical practice. (I’m a dad so I have to brag a little.) She has done several things that have reminded me why 1) being able to support yourself is important and 2) your kids do listen to what you say.

She called me when she got her first paycheck and said “Dad, I got a paycheck with a comma in it. Now you have to listen to me.” My father used to jokingly tell me that until I got a job with a paycheck, he didn’t have to listen to me, and yes, I jokingly told her the same (full disclosure – my dad did listen to me and I did and still do listen to my daughter). That paycheck with a comma in it meant that she now got to experience adult things that I’ve taken for granted like employee benefits. Her questions (and my answers) that we covered when she accepted her job included:

What health insurance do I sign up for? (the one that fits your situation) Should I check and see which one covers my prescriptions? (yes) If I take the high deductible plan, should I put money into the HSA? (yes) If I take the other plan, should I put money into the FSA? (yes)

How much life insurance should I get? (enough to cover your debt – see this life insurance needs worksheet) Who do I name as beneficiary? (whomever you want to – not me, name your mom) Wow, I don’t like thinking about if I die (Yeah, I know.)

Who is your beneficiary? (Mom) You need to name me as your medical power of attorney [see human biology major – cum laude] (I’ll think about it – aka no, let’s get back to your benefits.)

How do I fill out a W4? (What do the instructions say?) Will I have to file my own taxes? (yes) Can you help? (yes)

Thanks Daddy! (You’re welcome. What other benefit questions do you have?)

Do I need disability insurance? (yes) Why? (You’re statistically more likely to be disabled than die young – 24% chance of being disabled for 3 months or longer.)

Before she got her 3rd paycheck, she called me about budgeting, here’s how that one went:

Dad, I think I’m going to run out of money before I get paid again. (Oh, why is that?) I’ve got $23.42 in my bank account. (Yeah, I’d say that’s a possibility.)

I hate budgeting. (We all do sweetie.) Can you help me set up a budget? (Sure, I do it every day. That is one of the things I’m paid to do.)

(You remember when I decided to start watching what I ate?) Yeah, I remember you arguing with me about how many calories are in a fried pork chop. (Okay, besides that, when I thought about watching what I ate as a diet, I thought about in a negative light. I decided to think about it as an eating plan. That feels positive to me.)

Oh, I get it. I need to think about budgeting as a spending plan. (Yeah, just like you plan what you are going to eat, plan what you are going to spend.) Can you send me that spreadsheet thing you sent me before? (sure: Easy Spending Plan)

When she got her 3rd paycheck, our conversation went like this:

Dad, this morning at work, I was so excited that I got paid that I gave everyone a hug. (That’s nice.) I don’t think they expected that. (They have gotten a lot more paychecks. They have learned to restrain their excitement.)

I’m working on my spending plan and I’ve got a question. How much should I spend on lattes? (less than you do now) But I really like my soy double pump vanilla latte (I know), so what do I do? (Spend less on something else.)

But I need gas and food! (I know.) Dad – sometimes being an adult stinks. (I know.)

(Love ya sweetie.) Love you too Dad.

Make Retirement Great Again!

December 09, 2016

Sometimes I need to learn to not open my mouth and make smart alec comments. The other day, I was in a meeting with coworkers in which we were talking about retirement, and I joked that we needed to help people “Make Retirement Great Again.” As a result, I was given the challenge of writing a blog post with that title.

We are living in a world where pensions are being frozen or eliminated, Social Security is projecting a reduction in benefits in the next several decades and the burden of building a secure retirement is now falling on our shoulders – not the government or the employer. Today’s new graduates are a generation that is facing a mostly “build it yourself” retirement platform. So here is my absolutely non-partisan “6 step plan” for every person (from new graduates to grizzled workforce veterans) in this country to “Make Retirement Great Again”:

1. During your remaining work years, know exactly where your money goes. When you know this, you are in a position of power. You can say “I agree with where my money is going” or “I want to change this up a wee bit.” The key is that you then have the power to make informed choices. Whether it’s Mint.com, an Expense Tracker worksheet, a spending log or some other form of organized knowledge, find a tool that works for you so that you know exactly where every dollar goes.

2. Save an increasing amount each year. Many 401(k) plans have a “rate escalator” feature that allows you to increase your contribution percentage at pre-set intervals. For those who work for companies where annual pay increases are predictably timed, that is an amazing opportunity to increase your 401(k) contribution by 1% per year. Over the course of a career, this could mean hundreds of thousands or perhaps even more than a million dollars in extra retirement savings for those who are young enough. If you don’t have this feature, pick a day – either your annual increase date, your birthday, or on January 1^st – to increase your contribution every year.

I promise that you won’t notice the difference in your net paycheck after 3 pay cycles. It will become your “new normal.” However, it may enable you to retire years earlier or move to a lower stress, lower paid job late in your career or position you well in the event of a downsizing.

3. Eliminate debt. In discussing early retirement packages with many dozens of employees recently, one of the key factors enabling those who accepted an early retirement package to walk into life beyond their long term corporate job was the absence of debt. Those who still had credit card debt or a big mortgage were far less confident in their ability to accept the early retirement offer. Most of them couldn’t accept the package even if they desperately wanted to.

If you aggressively pay down debt, including your mortgage, that is a tremendous way to position yourself to go into retirement feeling secure. A zero debt level allows you to have a very low embedded cost of living. It also allows your accumulated savings and investment dollars to last a whole lot longer since they aren’t being drawn down as rapidly.

4. Know your income streams. I’ve talked to so many people who “think they know” how much they’ll get from pensions and Social Security, only to be completely surprised (mostly on the happy surprise side but sometimes on the sad side) by the level of income they can expect from these sources. Knowing your numbers is a huge way to prepare yourself for a great retirement.

If you have a pension, run multiple estimates. Know your monthly payments at age 55, 60, 62, 65, 67 or or any other age that is relevant. See how the benefit changes can help you create your retirement vision.

Do the same thing for Social Security. Use this retirement estimator to see what you can expect from Social Security. Feel free to hit the “create new estimate” button at the end and use various ages.

5. Plan for medical expenses. Fidelity prepares a health care costs for couples in retirement report annually. For a couple retiring in 2016, the estimate is $260,000 in healthcare expenses from retirement through death. This is a pretty staggering level of expenses. How will you prepare for this?

A health savings account is a great tool to build a pool of funds for future healthcare expenses. If possible, max out your HSA annually between now and retirement and try to pay for medical expenses from your regular daily cash flow so that the HSA can build up and grow. Most HSA accounts have investment options as well, so those funds can be invested for growth. In the absence of that option, save even more aggressively in your 401(k) or bank savings account or some other form of savings/investments.

6. Be the opposite of Congress and try to reduce expenses or implement a spending freeze. This goes right back to step #1 and closes the loop. When you know what your expenses are, you then have the power to make changes.

Find small ways to reduce your spending. Even if it’s a couple dollars here and a couple dollars there, it all adds up. After a few months, you won’t miss the reduced spending.

When I’m ready to go into “expense reduction mode” or “spending freeze mode,” I have a cheesy way to keep focused. Every time I pull out my wallet (or log in to an online purchasing platform), I ask “Is this something that I really NEED, or do I just WANT this?” It sounds overly simplistic, but I can’t tell you how many times it’s made me pull out of the Starbucks parking lot before I get out of my car. Give it a whirl and see if it works for you. For every dollar you don’t spend, it’s a dollar that can be added to your emergency fund, paid on debt or invested.

The Fastest Way To Pay Off Credit Card Debt

December 07, 2016

Is one of your financial goals getting out of credit card debt so that you can start directing that money toward something more fun like a new home, college education or retirement? Throwing away money on credit card interest is an incredible waste. The best way to avoid this, besides staying out of debt in the first place, is to work to lower your interest rates as much as possible while paying off your debt as quickly as possible. Here’s how I dug myself out of $8,000 worth of credit card debt after college:

I listed all of my accounts in order of interest rates, starting with the highest.
I started paying the minimum on all cards except for the one with the highest rate. I paid as much as I could afford on that account, initially starting out with a fixed $200 per month payment.
When I received an offer to open a new card with a 0% promotional interest rate on balance transfers, I applied and received a card with a $2,000 credit limit.
I transferred $2,000 from the highest rate card to the new card but kept paying the highest amount on the original card.
Once that card was paid off, I added $200 to the amount I was paying on the card with the next highest interest rate.
I marked my calendar for when the 0% promo rate was to expire and a month before, I opened a new 0% card and transferred the balance over.
I continued to pay down my other cards that charged interest with gusto.
Anytime I came across extra money such as a tax refund or a signing bonus for a new job, I sent the money straight toward my highest interest rate credit card.
Eventually, I was just left with the balance on the 0% card. I continued to pay it down aggressively, and when the promo rate expired, I continued to open new accounts at promo rates to transfer the balance.
Within about five years, I was debt free.

Now, there are a few things to consider here. First, every time I applied for and opened a new account, my credit score took a hit. This only worked for me because I had excellent credit, which I maintained through on-time payments for all my debt, including my student loans, car payment and even utilities.

Second, each balance transfer incurred a fee that was typically a percentage of the balance I was transferring. I had to make sure the interest I was saving by transferring the balance was more than I paid in a balance transfer fee. Finally, I had to actually stop using credit cards in order for this to work. Once I was out of the debt, I did go back to using credit cards, but I kept a close eye on the balance so that I was able to pay it off each month.

If your credit isn’t great, you may not qualify for low promotional rate cards. If that’s the case, then consider calling up your credit card companies and request that they lower your rate. You may even suggest that if they lower your rate, you’ll transfer other balances onto that card. Remind them of your on-time payment history and threaten to transfer your balance away if they don’t work with you.

The key to success here is never wavering on that large payment amount. Being strategic about how you pay off your cards can also trim months or even years off your debt. Use this Debt Blaster to calculate the difference it will make.

What To Teach Your Child About Money Over Winter Break

November 29, 2016

Experience is often the best teacher. My mother told me this often and like most kids, I ignored her. I thought I knew everything when I was a teenager despite my lack of a high school diploma, never having had a job or paid a bill, and being on the earth for less than 18 years.

When I went to college, she gave me an amount of money to spend monthly. I, like most kids, did a horrific job managing my money and I found myself broke within days of getting my monthly allowance. My mother refused to give me extra money. Needless to say, it was a humbling experience.

During my first major break in college, my mother pulled me aside and showed me how to budget. For those of you with kids in college who are floundering with their money, take the time to help them learn how to budget. Trust me. They will be much more receptive after they have tried and failed. The following steps can help your child manage their money better – and create less of a headache for you.

1. Work with your child to create a budget.

At the time I went to school, the Internet did not exist, so my mother helped me create a budget on paper. My budget consisted of eating out, clothes, and entertainment. To her credit, my mother did not roll her eyes over my eating out expenses but guided me into limiting my spending so my money could last. Today, your child can use websites like Mint to manage their money. Help them think through how much they should spend weekly, so they have money for the month.

2. Establish rules for overspending.

This one was easy. My mother said, “Don’t ask me for more money.” She made it clear that if I could not manage my money, she was not going to be “Bank of Mom.” Knowing that there was a limit to my spending scared me into thinking more about how I spent it. Go over the rules for overspending so you and your child are on the same page.

3. Consider a part-time job.

I complained to my mother that the money I was given was not enough. She went over the amount and then how I spent it, which I blew on pizza, clothes and movies. She then told me that her job was not to manage my social life and if I want one, I should get a job to cover the expenses. Immediately, my complaining subsided.

If your child is struggling to manage the money they have, go over their funds with them to assess if the struggle is a result of poor money management or truly a lack of funds. Depending on your child, encourage them to work a part-time job. Surprisingly, when I eventually got a job, my grades went up. The job was a wake up call as to what my life could be like without an education.

While your child is home for the holidays, take the time to review their spending. Helping your child create good money habits now will go a long way to creating a financially successful adult. They’ll thank you someday.