How to Prepare for a Potential Layoff

February 22, 2023

I recently spoke to a friend who was scared of getting laid off. She asked me how she could prepare for a layoff. The following was the guidance I gave her:

 

Stop paying extra on debts and start stockpiling cash.

 

I know this may sound counter-intuitive to many people, but if you are facing a layoff, you need as much cash to live on as possible while you look for work, especially if you have less than three months of expenses saved. Consider paying your credit card debt minimum and funneling as much cash as possible to a savings account. Also, consider earmarking any tax refunds to savings.

 

Review the budget and trim the fat.

 

This fat can be a cable or cell phone package with all the bells and whistles. You can ask for a cheaper cable plan or cut the cable cord altogether. You can choose a more affordable cell phone carrier or cancel a rarely-used subscription.

 

Contact creditors in advance to let them know of a potential layoff.

 

If you talk to your creditors before there is a problem, they can be more willing to work with you. Then, take full advantage of your potential layoff and ask your creditors for a reduced interest rate.

 

Review workplace benefits.

 

If you have accrued vacation or sick leave, ask if your company will pay you for unused time if you leave involuntarily. Have you had your annual checkup or been putting off dental work? Now is the time to take care of all your medical needs. See which benefits such as life insurance, long-term care insurance, and even some legal benefits are portable, meaning you can continue them after you separate from service.

If you have outstanding 401(k) plan loans, ask your plan provider how they handle loans during a layoff. Some companies will give you a short period to pay it back, and then the remaining balance counts as taxable income with a potential 10% penalty if you are under 59 ½. Other companies allow you to continue to pay your loan balance from your checking or savings account. In addition, medical saving plans such as HSAs can go with you, and you can use the funds for healthcare premiums while receiving unemployment benefits.

 

The key is to prepare in advance. If you are laid off, you have done the legwork to be financially prepared. If the layoff does not happen, you have built up savings and are in a great position to start re-attacking debt.

 

How to Manage Money in a Financial Crisis

April 25, 2017

Murphy’s Law is that anything that can go wrong will go wrong. I used to laugh when I heard this until Murphy and his entire family decided to park themselves in my life. In about a 3 month period, we experienced a dramatic drop in income, had a head-on collision and wrecked our other car. (If you read my other posts, Murphy seems to sit on top of our cars).

The accident sent me to the ER and resulted in weeks of physical therapy.  Our heating and air systems went out in our homes a few weeks later. It seemed like there was a permanent rain cloud over our family that we could not get out of – but we did. It was not easy, but the steps we took early in the process made everything smoother.

Accept our new reality. As crazy as it sounds, the first step was accepting that our finances had changed. Even after the drop in income, we still spent as if we had our full salaries. This just got us deeper into debt.

Create a budget based on our new income with a focus on the essentials. As we started filling in budget categories, we first focused on the categories that were essential – food, shelter and transportation. Next, we focused on the things that we considered important but would not cause us to be homeless, starving or jobless –Internet service (if your work from home, ask about being reimbursed for Internet services), cell phones, credit card bills, student loans, etc. At the bottom was entertainment, travel, and eating out.

Contact our creditors BEFORE we had problems paying our bills. I cannot overstate that the most important thing to do during a crisis is to communicate. Talking to our creditors – the mortgage, student loan and credit card companies – created a record.

I learned later that the record was two folds. One is that we stated we had a crisis in advance and the second is that we are committed to paying our bills on time and will work with our creditors. You will also know which department to call and the process for getting help if you cannot pay.

Eventually, we got to a point where we could not pay all of our bills. When we called, we knew to call the hardship department, state our situation, explain our budget and ask for help. We were able to get help from all the creditors we contacted. If you are facing a financial crisis, even if  can currently pay your bills, consider contacting your creditors to inform them of your circumstances. We learned the earlier you contact them, the more likely they are to work with you.

Start slashing our expenses. I will admit, drastically reducing our expenses felt like the Band-Aid dilemma of our childhoods. Do we take it off quickly or slowly? No matter what you choose, it will hurt so just do it quickly.

The same goes with expenses. Just start slashing. We completely got rid of cable, went to a cheaper cell phone plan, cut out all eating out and got rid of our gym memberships. I listened to just about every YouTube video on healthy eating on a budget and we cut our grocery bill in half.

We did a staycation instead of traveling. Our kids still say it was one of their favorite vacations. We became Craiglist and Ebay pros and started selling stuff around the house we did not use anyway (old, unused wedding gifts and toys were our first targets) as well as taking the kids’ old clothes and toys to consignment shops.

When things stabilize, do not make up for lost spending time. When your life returns to normal, do not immediately start adding expenses. We learned our lesson about the importance of having some money set aside for emergencies so the first thing we did was to build a small emergency fund of about $1,000.

Then we used calculators like the Debtblaster calculator to come up with a strategy to get rid of the debt. It took a few years, but we were able to pay off all of our debts. The key for us was to keep our frugal lifestyle until the debts were paid. As our incomes went up, we did not increase our lifestyle so in a weird way, our financial crisis led us to getting out of debt.

The biggest takeaway we got from our experience is to never assume your financial situation will not change. We are all one car accident, layoff or family emergency away from a crisis. Living below your means, paying off high interest credit debt and having an emergency fund are the greatest barriers to keep Murphy and his family from becoming uninvited guests in your life.

 

Why a Roth IRA is a Great Graduation Gift

March 20, 2017

Are you bored with giving your teenage child gift cards and electronics for presents? Do you have a graduation gift to offer but don’t just want to give cash? This year, instead of something they’ll spend right away, consider giving the teenager in your life a contribution to a Roth IRA.

A Roth IRA is an after-tax retirement account which can be used for much more than retirement. As long as the account has been open for at least 5 years, earnings and withdrawals are tax-free after age 59 ½.  Anyone who has earned income below certain limits ($118,000 for a single filer) can contribute the lesser of their total income or $5,500 in 2017.

Does your teenager work?

The key is that your teenager has to have earned income. A teenager with a part-time job could contribute their total earnings to a Roth. Gifts don’t count, but you and other friends and family can make gifts to your teenager to cover the allowable Roth contribution.

For example, if your teenager earned $1,500 working at a restaurant, she is eligible to contribute up to $1,500 to her Roth for that year. Remember — you can gift your teenager the money for the contribution, though. In fact, you could even write a check directly to their Roth account.

A W-2 from an employer is proof of income. However, if your teenager’s income comes from sources like babysitting or moving lawns, keep careful records of how much they’ve made. FYI, your teenager does not have to file a tax return in order to make a Roth IRA contribution but does need to keep a record of that contribution. If they have paid income taxes through payroll deduction, they may want to file, though.

Why give a teenager a retirement account?

1. Tax-free growth can help make them rich.

Let’s say you gift your teenager $500 for their Roth IRA as a high school graduation present. Those funds are invested in a diversified, low fee index fund which earns 8% per year. In fifty years, thanks to the value of compounding, that investment would be worth $23,451. (See calculation.)

Do that every year instead of giving a wrapped gift (or until they can take over contributing on their own). After 50 years, your $25,000 worth of gifts would be worth $310,336. (See calculation.) That’s much better than a new telephone, isn’t it?

2. They can withdraw contributions at any time without taxes or penalty.

A Roth IRA account holder can withdraw their original contributions – but not the growth – in their account at any time without taxes or penalty. If needed, they can withdraw those contributions later on to pay for graduate school, fund the down payment on a home, cover expenses while on maternity leave or even handle an emergency. The growth on the investments could stay in the account, continuing to grow tax-free for retirement. For more explanation of the withdrawal benefits, see this post.

3. It’s not counted on the FAFSA.

The Free Financial Application for Student Aid (FAFSA) does not consider a Roth IRA account as an asset the student (or a parent) is expected to spend. However, if your student takes a withdrawal of earnings from their Roth, those earnings are counted as income for the next year’s FAFSA. If you need to access earnings to pay college expenses, the key is to wait until the student’s final year to take the withdrawal. For more tips on how assets and income affect financial aid, see this blog post.

Are you convinced? The next step is to open a Roth IRA at a reputable, low fee financial services firm. (See suggestions here on how to choose one). If your teenager isn’t 18 yet, you’ll need to open the account for them. When your teenager is about to turn 18, make sure to share this guidance with them – and keep helping them contribute to their Roth IRA if you can!

 

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 Do You Really Need?

February 24, 2017

I try to maintain a calm demeanor in most circumstances. Even-keeled would typically be a good descriptor for me. But some things are worth really getting excited about.

When I saw the headline “Nation’s Bacon Reserves Hit 50 Year Low as Prices Rise”, I was no longer so calm, cool and collected. “ARE YOU KIDDING ME??? WHAT THE ***??? YOU CAN NOT BE SERIOUS!!!” That’s just a small and sanitized version of the words that came out of my mouth.

Bacon is good! Most things are better with bacon. (I’m part of the crispy bacon fan club. I don’t like it under-cooked.) But…I digress (which bacon always makes me do).

The good news is that we are in no danger of running out of bacon, which the article points out toward the end. It just took a wee bit of calm to come over me to process that little tidbit. I can’t imagine a world without bacon, and I’m glad that I won’t be forced to live in it. The thought of that, if only a fleeting thought, made me ponder the concept of living without things…and living with too many things.

For most of the developed world, we live in abundance. We don’t have to stalk our prey and kill it in order to eat. We head to the grocery store and come home with bags or we hop on our phones and order take-out. We sit on furniture and have to figure out which of the many articles of clothing in our closets we want to wear on any given day. Painting with a broad brush, we in the United States live in abundance right now.

Yet, that abundance creates some issues. Our near constant state of abundance helps create an instant gratification society, which leads many people to live above their means and incur a fairly sizeable amount of debt. It’s through over-spending that I see far too many people with near-crippling levels of credit card debt. 

When someone really wants to reverse that trend and get serious about paying off their debt and building wealth, I sometimes steer the conversation into the concepts of abundance vs. scarcity. The “what do we REALLY need?” question is a fun one to ask. It helps to re-frame the conversation.

In an effort to see if someone is receptive to a radical life change, I will ask (when the person seems like they are willing to engage in the discussion) if they’ve ever considered moving into a very low cost housing situation, selling most of their possessions and trying to live like a minimalist. Most people won’t ever consider that lifestyle, but for my deep debt conversations, it’s a starting point for things that they are willing to live without. (Bacon is NEVER one of the things I suggest living without.)

I know a lot of the personal financial press will talk about small ways to save money (give up Starbucks and pack your lunch), and I talk about that stuff too. But I like to start with the two biggest areas of spending in most people’s lives – housing and transportation. Most of the people I’ve met with who have large credit card balances (except those who incurred the debt because of job loss or medical expenses) pay 60-70% of their monthly income on mortgage/rent plus car payment and car insurance. I’m a big fan of keeping housing costs below 25-30% of take home pay and transportation costs below 10-15%.

If those expenses can be trimmed, progress can happen quickly.  Cutting back on some of the small things can add fuel to the fire. Going slightly minimalist and selling “things” at a yard sale or on eBay can simplify life and raise funds to pay off debt. It all adds up. But for me, starting the conversation with the biggest expenses creates the opportunity for the biggest results.

If you’re in debt and looking to get out, think about the things that you REALLY need and the things you could live without.  Start big! Look at the biggest expenses in your budget and challenge yourself to reduce them. And if you try to take my bacon, prepare to lose a limb!  

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!

Don’t Pay a Multiple of a Car’s Sticker Price

February 17, 2017

Anyone who has ever been a passenger in my car knows that I am not a big fan of buying new cars very often. My last two cars got to 250,000 and 300,000 miles before I sold them for parts. My current car is a 2002 with over 150,000 miles on it and I’m hoping to get this one to 300,000 miles.

Living on the East Coast, with all the snow and salt, bay/ocean water and sand, the exterior of cars can take quite a beating.  Mine certainly has. That doesn’t even count the kid who rode his bike directly into my driver’s side rear door, leaving a gigantic dent and paint scrape. Needless to say, my car isn’t going to win any beauty contests, but I haven’t had a car payment in a decade or so. I’m not much of a “car guy.”

That’s why when I read this article about negative equity in car loans reaching an all time high, I found it very alarming. Negative equity, for those who are unfamiliar with the term, is not a wonderful thing. If you owe $10,000 on a car that’s worth only $7,500, you have $2,500 in negative equity. Just about 1/3 of all new car purchases in the first three quarters of 2016 had trade-ins with negative equity and that negative equity was, on average, just over $4,800. That’s nearly $5,000 on top of an already fairly expensive purchase.

To me, this is a huge warning sign about how we think (painting with a broad brush here) about the value of a car. To me, a car is just a way to get from Point A to Point B quickly without needing to walk in the rain. To a lot of people, the type of car they drive is a reflection on who they are as people and they are willing to make questionable financial choices in order to have their car reflect the values that are important to them.

If I owned a coffee shop (I’ve been watching Friends episodes with my kids, so Central Perk is stuck in my head) and would sell you a cup of coffee for $3 but would charge you $8 if you drank half and asked for a new cup, how many new cups do you think I’d sell? I’d hope ZERO! But that’s what we do with cars. We (the folks with negative equity) drive them for a while and before we are finished with them (like getting to 300,000 miles), we trade them in for a much more expensive but shinier model and we add to the cost with that troublesome negative equity.

If a person repeats this pattern a few times, they might end up paying almost twice the sticker price for a car. If you add in the cost of interest on a car loan, it could be 3 or 4 times the sticker price. There’s not a car in the world that I’d pay that much for.

I wrote a while ago about how to save money when buying a car, and I still very much believe in that philosophy when buying a car. If you use it, or something similar, you can avoid the ever-growing problem of negative equity in your next car purchase. As pricey as cars are today, don’t let yourself pay a multiple of the sticker price.

 

 

Questions Your Future Self Wants to Ask You

February 13, 2017

Have you spoken to your future self lately? According to UCLA Professor Hal Hershfield, we often feel disconnected from the people we will become in the future. In essence, our future selves are strangers to us. Envisioning ourselves in the future, says Hershfield, helps us save more money and make better financial decisions.

In Hershfield’s research, participants were shown computer-aged avatars of their current selves. Then they were asked to make a choice of how to spend $1,000: buying a gift for a friend/family member, investing in a retirement fund, planning a fun event, or saving money at the bank. Participants who had seen the vivid digital image of their future selves were twice as likely to put money into the retirement fund.

I am guessing that if you had a conversation with Future You right now, he or she might have some pretty challenging questions for you. Here are some things Future You might ask you. How would you answer?

  • Have I turned out the way you thought I would?
  • How did you manage to save so much for retirement? Tell me how you did it.
  • I’ve got more money now than I need to live comfortably. How should I put it to the best use?
  • That was a great investment! Tell me how you chose it.
  • Who was your financial role model?
  • How did you decide to choose our career?

Future You could also have some recriminations, such as:

  • When are you going to pay me back all the money you borrowed from me?
  • Were those student loans worth it?
  • He/she didn’t turn out to be a great financial life partner. What were you thinking?
  • You spent that much on shoes/cocktails/gambling? Why?!!

Does having a frank conversation with your future self sound like just the thing you need to get you motivated to change your financial behaviors? Hershfield’s digital avatar creator isn’t available for public use. However, you can create an aged photo of yourself with age progression apps such as In 20 Years, Age Me, or Hour Face.

The Future Self in my blog photo? That’s our CEO’s son Jay, age 7, who is envisioning himself at 100. You know he’ll make some great financial decisions. Will you?

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.

 

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.

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!

 

 

Should You Be Making Catch-Up Contributions?

February 01, 2017

Turning age 50 is definitely a milestone – one that some people celebrate and some mourn while others remain ambivalent. No matter how you may feel about it, there’s at least one minor thing to celebrate from a financial planning perspective: 50 is the age when the annual contribution limits to retirement savings accounts is increased for savers via what’s called “catch-up contributions.” Here’s how they work.

Each type of retirement savings account has an annual limit that savers can contribute to each year. Catch-up contributions are intended to allow people who perhaps got a late start to “catch up” by giving them the ability to save above and beyond those annual limits:

catch up contributions 2017

So someone with a workplace retirement plan and a Roth IRA over the age of 50 could conceivably tuck $30,500 away after age 50 versus the lower $23,500 that younger workers are limited to. Even if you’re right on track with your retirement goal, the catch-up contributions can help to lower your taxable income and accelerate that financial independence day.

A strategy for 401(k) and 403(b) savers

For workers who are contributing to 401(k) or 403(b) accounts via payroll deductions at work, the catch-up contribution is typically a separate election that must be made in dollar amounts versus the regular contributions where you must elect a percentage of income. For workers whose pay varies due to hourly wages or commissions, it can be challenging to budget for these contributions or ensure that a certain amount is going in each pay period. The good news is that you don’t have to be maxing out your regular contributions in order to elect catch-up contributions.

So if you’re looking to bump your contributions up by a certain dollar amount and don’t feel like doing the math to figure out what percentage that is, you can just enter it as a catch-up amount. A small consolation for hitting that half-century mark? I think so.

Of course, I would always recommend trying to get the maximum amount into your retirement account each year, but that’s not always realistic for lower income workers or people with competing priorities like family needs or high interest debt. If you’re over 50 and thinking about making catch-up contributions, run a retirement estimate to see how they can help you get to your retirement goal sooner. Then start catching up today!

 

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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 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!

 

 

How to Make 2017 the Year of Financial Security

December 28, 2016

According to Fidelity’s annual study on New Year’s resolutions, the number of Americans considering a financial resolution for 2017 increased significantly over last year. If you are one of those who are hoping that 2017 will be the Year of Financial Security, I suggest a quick review of 2016 as a starting point. Ask yourself four questions to get started:

1. How much did you save? Before you start on a mission to save more money next year, take a look at how you did over the past year. Are you better off this year than last? Could you have saved more money? Were your expectations of how much you could save realistic?

Don’t let a small balance in your savings account discourage you from continuing your efforts. Make saving automatic by scheduling a recurring transfer on payday so you never miss the money. If you don’t yet have 6 months of your expenses tucked away in a savings account, that’s a good goal to start with.

2. How is your 401(k) or IRA doing? If you haven’t checked on your retirement account lately, this is a good time to log in and check your asset allocation. If nothing else, you should make sure you’re re-balancing your investments to account for changes in the stock market.

But you should also make changes to your allocation as you approach retirement. Someone who only has 5 years until retirement will have a lot more of their assets invested in fixed income funds versus someone with 30 years to go. It’s also a good time to run a retirement calculator to see if you’re on track to retire when you want to.

3. Did you reduce debt? Raise your hand if your financial resolution includes reducing or eliminating debt. Extenuating circumstances aside, if your total amount of debt increased or stayed the same in 2016, then it’s time to take a look at how you are going to make that number go down for the coming year. The first step in eliminating credit card debt is to stop using credit cards, so start thinking now about how you will shift your spending to cash only while you tackle your debt. Then make a plan and stick with it.

4. Has your financial outlook changed? Perhaps 2016 was a year of change for you. Perhaps you got married, got a raise, switched careers, etc. As you prepare your plans for 2017, cover these questions to set you up for financial success in the coming year:

  • What are your greatest concerns? What keeps you up at night about your life and money? It might be something totally different from last year. This will affect your financial goals.
  • Is there specific financial guidance you need? Perhaps you received a promotion and have a lot more money to throw around so you finally need investing help or maybe now you’re caring for a relative. Does that affect your taxes? Consider seeking out a professional to help you with any big changes you’ve encountered. Your workplace financial wellness program is a great place to start.
  • Have your goals changed? Did you get married, have a baby, move to a new city, or decide to go back to grad school? All of these will affect your long-term goals. Hopefully, you’ve already examined how these changes affect your finances, but if not, now is the time to take a look and make any changes needed.
  • Do you need to revise your budget? If you did have any major life events in 2016 or if you’re setting a “stretch goal” for yourself for 2017, you probably need to revise your budget. Take a look at those expenditures that have become routine such as stops at Starbucks or taking Uber home from work and decide whether you need to reconsider those activities. For me, I have a renewed focus on my health after a rough 2016. I’m planning to spend more money on fitness activities like specialty classes and less money dining out.

Goal-setting for the New Year can be overwhelming. Make sure you give yourself some time and head space so that you are able to mindfully set goals that are realistic, achievable and motivational! Happy New Year!

 

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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 1st – 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.

 

 

How to Financially Survive the Holiday Season

November 08, 2016

I love the fall – the changing colors of the leaves and the beginning of the holiday season. For many, this gives us time to spend with family, but for a lot of us, the holidays create a black hole in our wallets. I am sure that it comes as no surprise that Thanksgiving and Christmas are two of the most expensive holidays of the year, but with some planning, these holidays do not have to wipe out your accounts:

1. Review your spending to determine a realistic budget. Before you get caught up in the non-stop “Black Friday” sales that seems to start right after Halloween season, take some time and realistically assess your budget to come up with a total dollar amount you can spend on family gifts. Consider using your bank’s software or websites like, Mint to help you create a budget.

2. Come up with a game plan for who will and who will not get gifts. I have a HUGE family: 5 brothers and sisters and close to 20 aunts and uncles between both my parents. (Don’t get me started on first cousins, much less second and even third cousins.)

I limit gifts to immediate family members, and I give either a family photo or a photo of the kids in an inexpensive frame for family gifts. Decide who will get gifts and come up with a game plan for other family members. Remember, gifts can be more than something you purchase- yummy desserts or an offer to babysit or do another needed service for a family member are great gifts.

3. Start shopping now for great gifts in inexpensive stores. The best time to hunt for gifts in inexpensive stores is now. Also, start searching consignment shops, particularly for kid’s gifts. A few years ago, we got an expensive all wooden dollhouse filled with wooden furniture and dolls for under $25 at a local consignment shop. Start slowly going to local stores to find some great deals.

The holidays can be financially stressful. However, they do not have to be if you take the time to plan ahead. Start planning now so you can save later.

 

 

 

Are You Disheartened By This Election Season?

October 28, 2016

After watching all of the political debates, I am both disheartened and encouraged. As much as I am disheartened at this point, I’ve always been a big fan of finding reasons for hope and optimism. Don’t let obstacles outside of your control impact your life. Here’s why:

Stock markets rise. Stock markets fall. We know this (or we should).

Yet every time the stock market has a rough week, I field calls from nervous investors. People who see their 401(k) balance go down every day for a week or two tend to want answers. We talk with them about their long term goals and their current asset allocation. At times, they are invested in a way that is either way too aggressive for their stage of life and their goals and at other times (and fewer in frequency), they are invested more conservatively than their stage of life and goals would indicate is appropriate.

Most of the time, though, they are invested in a way that is perfectly suitable. In those cases, we talk about patience and allowing the market to do the rising and falling that it always does without getting too emotionally invested. They can’t control the markets, but they can control how they react to changes in the markets.

Similarly, whether the economy is great (remember when that used to happen?) or lousy or just muddling along like it has for the last 7-8 years, no one individual (not even Janet Yellen) can control the overall US economy.  Even less control can be exerted over the global economy. The one thing that we can control to a large extent is our “personal economy.”

How much are you contributing to your 401(k)? How much are you saving in other accounts on a regular, automatic basis? What’s your level of spending in relation to your income? These are things we can totally control.  

Those who examine their financial habits and lifestyle will find that their personal choices control a great deal of their financial life. The great thing about choices is that they aren’t permanent (kinda like elections) so if we’ve chosen to spend 102% of our income over the last few years, we can decide to spend less, move to lower cost housing, drive a lower cost car, cut the cable cord, etc. If we haven’t saved enough in our 401(k), we can increase our contribution every year. If we don’t have a solid emergency fund, we can direct deposit $5, $10, $20 or more to our savings account with each paycheck. The amount isn’t as important as the momentum.

So let’s use this season of disheartening political shenanigans to focus on our own personal economies and make progress on our goals. My challenge to you is to pick one area in your financial life, one where you DO have control, and before election day, make one change to your current habits. We can’t change the national economy, but we can change our own.

Don’t Ignore Your Symptoms

October 10, 2016

“…the upside of painful knowledge is so much greater than the downside of blissful ignorance.”― Sheryl Sandberg

Do you ever get that nagging feeling that something isn’t right with your finances? Should you brush it off or dive deeper? On the blog today, my fellow planner Cyrus Purnell, CFP writes an intriguing guest post about the importance of not ignoring your financial symptoms:

Are you getting that nudge that things are not working the way they should in your finances? Don’t wait until a problem shows in your credit report or as a shortage in your checking account. Take the time now to diagnose where that nagging feeling is coming from.

I came into 2016 not feeling my best. I was tired all of the time. I was always cranky. My kids were walking on eggshells. I was sick more often.

I went in for my annual physical and there was no sign of anything wrong in all of my tests. But the way I felt told me something was wrong. When I would talk to my doctor and peers about it, their answer was pretty simple, “Oh Cyrus, you are just getting older.”

Thankfully, that answer was not good enough for me. I took steps to investigate why I was not feeling well. I began looking into everything from what I was eating to what time of day I was eating it. I started tracking my sleep. I plunged into reading blogs and listening to podcasts about health.

I finally figured out the culprits and gradually felt several years younger. I am convinced that if I stayed on the road I was on, the way I felt would eventually show up in the form of a bad diagnosis. While I did not enjoy feeling the way I was feeling, the discomfort probably saved me a lifetime of issues.

On paper, you may not be financially sick. Your income may be more than your bills, your credit score may qualify you for anything you want to purchase and when you compare your financial situation with your friends and family, your circumstances may look fine. In spite of all of this, you may still have anxiety about where you are financially. You may be experiencing financial stress.

In our own 2016 Financial Stress Research, we uncovered that 85% of us are experiencing some financial stress. Our research also showed that unmanaged financial stress can result in problems like depression, hours of lost sleep, and overeating. It is at the onset of financial stress, before it becomes unmanageable, that you want to take steps to do something about it. You can start to alleviate financial stress by taking a C.A.L.M.™ approach to cash management:

Create a plan. Create a new plan to manage your cash, calculating necessary expenses and establishing a way to track them. A financial coach, such as a CERTIFIED FINANCIAL PLANNER™ professional, a financial or credit counselor, or an employee assistance program counselor, can provide assistance as needed.

Automate bill payment and savings. Put everything you can on autopilot, setting up automatic bill payments for monthly expenses and transfers to emergency and other savings.

Lower nonessential spending and debt. Track expenses for several months, looking for opportunities to reduce spending on nonessential items and to make extra payments on debt.

Make progress. Make progress by focusing on small, achievable goals, accomplishing one before moving on to the next.

Don’t ignore your symptoms. Look at the early stages of financial stress as a gift. By paying attention to the early discomfort of financial stress and following the C.A.L.M. approach, you can meet the source of your financial stress head on and save yourself from a more difficult recovery down the line.

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 at @cynthiameyer_FF.

 

How to Be Better With Money

September 16, 2016

The NFL season is underway, and I’ve seen more purple in Baltimore recently than I have in months. Everywhere I go, I’m seeing enthusiastic fans getting ready for the upcoming season. Before the first game of the season, fans of every team believe that THIS is the year that their team is going to win the Super Bowl. 31 of 32 fan bases will ultimately be disappointed. But at this time of year, hope springs eternal everywhere (except maybe Cleveland!)

I see the same “Let’s Get Started” level of enthusiasm from people who tell me that they have been a bit of a mess financially in the past but are ready to make progress now. I’ve heard countless people say “I’m bad with money” or “I have no clue what I’m doing financially.” I refuse to believe that they can’t, in a few quick and easy steps, develop lifelong habits that will take them to a place of financial security. I refuse to allow them to speak poorly of their financial habits.

I ask if they have ever played an instrument or a sport or any type of art. Almost everyone has tried something like that at some point in their life. I ask them to go back to their very first day of playing the clarinet or saxophone or whatever it is, and they laugh at just how terrible they were on that first day.

After I get them to talk about how they went from horrific to actually having a clue about what they’re doing, they understand that managing money is merely a skill that they haven’t practiced yet, and today is day 1 of their new talent coming to the surface. At that point, there is an enthusiasm that tells me they are ready. When I see and hear that level of enthusiasm, I know that they are serious about making progress.

The secret to building a foundation of financial success is keeping things simple and automating as much of it as possible. With automation, simplicity and just a little bit of work, managing your personal finances is rather easy.  Here are some steps to take:

Step 1: Get some basic facts together so that you have a starting point. 

  • This financial organizer will help you see the aerial overview of your financial life on one page.  What do you own vs. what do you owe?
  • This expense tracker can help you see how much money comes in during the month and how much goes out. With these two worksheets, you have a lot of useful data, and if you update these quarterly, you will start to see progress.

Step 2: Automate things.  

  • Contribute to your 401(k) at an amount at least up to the company match. Then, enroll in the rate escalator feature to increase your contribution by 1% annually – either on 1/1 or on your anniversary or your birthday. Just pick a day and enroll in it.
  • Open a savings account at a credit union or online bank, one that is NOT where your checking account is and get a direct deposit going there. The amount isn’t important. A $5, $10, or $20/pay deposit will suffice. It’s the momentum that’s important and the speed bump! When you have your savings account at the same bank as your checking account, it’s way too easy to log in and slide money from one account to the other.
  • A great tool for “accidental savings” is the Acorns phone app. It rounds your transactions up to the next dollar (so if pay $1.86 for a coffee, it adds $.14 and slides it over to Acorns, where you can invest in a very conservative portfolio). I “accidentally saved” a couple thousand dollars that were used as a part of my down payment on the house I just bought.

Step 3:  Stay alert and updated.

  • For your credit score, CreditKarma.com and CreditSesame.com are great free tools to stay on top of any changes in your credit file.
  • AnnualCreditReport.com allows you to get a copy of your credit reports at no cost once/year. Make sure that everything there is actually yours!
  • Mint.com can show you on a daily basis all of the transactions in all of your accounts from the prior day. (I launch that app from my phone every morning while I’m still half asleep and before I hop out of bed.) This is a great way to make sure that no one is accessing your accounts without your knowledge.
  • The financial organizer and expense tracker above are excellent tracking tools. Keep a binder full of reports that you can look back on in the future to see where you started and where you are. You’ll be shocked at the progress, and when you see it, you’ll want more of it.

For anyone who has ever said “I’m lousy with money,” I say “You are no longer allowed to say that! EVER!!!” Your new phrase is “I’m always learning to be better with my money.”   With that new phrase and these tools, you can transform your financial life in relatively short order.