6 Ways To Deal If Your Wedding Goes Over Budget

July 23, 2018

If you’re in the midst of planning your wedding and things have come to a screeching halt because you realize that the wedding of your dreams has gone over budget, hang in there. There is still hope.

It’s important to make sure your dream wedding doesn’t break the bank and leave you financially stressed. Many women spend a lot on a wedding dress they may never wear again. (I’m guilty: I can’t fit into mine anymore – though I have tried! – but even if I could, I’m not sure I’d actually wear it again.)

Ask yourself, once the excitement of the day is over, will we be happy if the price tag of this one day puts us over budget?

Here are some tips you can take to get back on budget and avoid paying off debt long after your wedding day.

1) Revisit your budget and determine where you went over. You have a budget, right? Go back and see where you maybe underestimated. Was it the flowers? Cake? Gifts for the wedding party?

2) Consider what’s most important to you and cut back on the rest. Don’t feel like you HAVE to have anything just because “it’s tradition.” People got married all the time back in the day without a limo or an aisle runner.

  • Spend on the stuff that will last, like a good photographer, and skimp on the fleeting stuff like transportation.
  • If you’re a foodie allocate more funds towards catering, but consider cutting back on entertainment.
  • If you couldn’t care less about alcoholic beverages, you might choose a less expensive alternative to an open bar.
  • Do you really need a parting gift for guests?
  • Will anyone really know if you cut back on flowers?

3) Leave “what’s her name” and “what’s his name” off the guest list. One quick and effective way to cut back is to simply invite less people.

  • Consider not inviting guests you really don’t have a rapport with.
  • Discourage your single friends from finding a random date by leaving the “and Guest” off invitations.
  • The “A-list” and “B-list” are a thing because it’s real — send your invites out to the most important people a little early so you can have a better idea of numbers, then invite B-listers only if there’s room.

4) Embark on a DIY (Do It Yourself) journey. This is where Pinterest comes in handy, although proceed with caution that it doesn’t derail you further.

  • Engage your creative side or ask a friend with a knack for decorating to help you with DIY décor.
  • You can save buckets of money by making things like your invitations, doing your own flowers or even making your own bridesmaid gifts.
  • Even better, consider asking a crafty friend to help out with one of these items as his/her gift to you.

5) Ditch that expensive venue. Barns became popular venues partly because they were cheaper, although nowadays the farmers have caught on. Let your love create the atmosphere rather than paying for a fancy location.

  • Search for a place that still has some bells and whistles, but is lighter on the wallet.
  • Try to find a place that’s all-inclusive rather than paying additional rent for things like chairs, a dance floor or even centerpieces. No one will know if the centerpieces aren’t unique to you, and nobody REALLY wants to take them home (besides maybe your mom).

6) Opt for a Friday or Sunday wedding when it’s less expensive. Many venues charge less for events on days of the week when they tend to be less busy.

The point is that your special day can still be amazing without breaking the bank or leaving you in an amount of debt that scares you. Staying true to what’s most important to you will keep you on track. Be sure you haven’t set yourself up for financial stress when all the excitement is over.

Beware Of This Unnecessary College Expense

July 17, 2018

We are quickly approaching that time of year when thousands of college students head off to school and the joys of communal living in dorms across the country. Perhaps you’ve noticed all the store fliers for big box stores that are filled with colorful images of hip looking dorm rooms.

It can be easy to go overboard when helping your child prepare for their first time away from home, but I’m here to remind you that college is expensive enough (I know, newsflash), and adding thousands of dollars in dorm shopping is really just adding insult to injury after tuition and books.

7 tips to minimize expenses when setting up a dorm room

Be careful where you shop

Shopping at high-end stores or your favorite store (where you love everything they make) is a bad idea. Does your young scholar really need a $250 bedding set? Assuming you don’t have extra bedding laying around your house that they can use, stores like Marshalls and TJ Maxx sell comfortable bedding sets for as low as $40-$60 dollars. If your young adult was like me in college, the bed will never get made anyway unless a parent visit is expected, so save your money.

You may also find deals online at sites like Overstock and Amazon.

Make a list and have a budget

Having a list will keep you focused while shopping and help you avoid buying things you don’t really need (trust me, your daughter doesn’t really need a faux-fur throw rug). There are a lot of lists online to use as a guide if you are not sure what you need for college, and your child’s university probably also has a list of necessary items.

Setting a budget of total spending ahead of time will also help you to resist those impulse purchases, although you may want to give a little bit of wiggle room for one or two things.

Check in with any roommates

Coordinate with any roommates to avoid having two microwaves or mini fridges. This is also an opportunity to discuss what items you think you need and what you can live without.

Look around your home for supplies

Before investing in color-coordinated folders, notebooks and pens, check around your home office and basement. A lot of people find they have leftover folders, notebooks, and pens/pencils at home from the high school years. Plus, your kid may not even need this stuff like you did in college – many students just use their laptop for notes.

You may even have things like coffee makers, clothes hampers, shower caddies and other goodies that can save you some money in supplies. That stuff adds up!

Take advantage of sales and coupons

Many retailers offer good sales and coupons this time of year for college stuff. Keep in mind though that those sales are often just ways for them to get you in the door so you can splurge on other stuff as well. Again, stick to your list and wait for those sales and coupons to save some money on the items you plan to buy anyway.

Talk to other people in college and use hand-me-downs

If you have older kids or friends with kids already in college, talk to them about what things they really needed and what things they took, but didn’t use. You may find you don’t need to buy that microwave or small TV after all.

They may also have some items they don’t need any more that they can give you or sell to you on the cheap.

Know the dimensions of the room

Knowing how much space you have is key before buying furniture for your room, if any. There are creative ways to save space like having elevated bed frames built – but make sure you are not buying furniture that doesn’t fit in the room.

The bottom line is that having the hippest, best-decorated room on campus is not going to be what helps your child excel in college, so be reasonable about what’s really needed, versus what just feels like a need. Going off to college is an exciting time for students and parents. Hopefully these hacks will help you prepare your child for a happy dorm life and save some money in the process!

 

3 Fast Fixes To Get Your Finances In Shape

July 11, 2018

Feeling less than happy with your finances these days? If you are like me, it’s not enough to know that you feel bad about your financial choices. I also want to know why I made those dumb money decisions in the first place.

Getting out of your own head

Some psychologists suggest that our critical inner voice may be one of the culprits. It’s that internal self-chatter that sometimes tells you it’s okay to spend because you deserve that next shiny object and in the next instant berates you for spending like an idiot. Other researchers point to our internal money scripts; the programming in our heads attributed to past experiences with money.

Whatever the reason, it couldn’t hurt to examine our own stinkin’ thinkin’ now and then and give ourselves a positive pep talk instead.

Fixing your finances (and your head)

With almost 3 out of every 4 Americans walking around feeling anxious about money every month, is that any way to enjoy your life? Let’s put an end to this ugly behavior once and for all. We live in the land of fast food, fast cars, and instant gratification after all. Let’s fix our finances, and let’s do it now! Here’s how to make a fast start:

  1. Put your savings on autopilot. You do use online banking, right? If not, stop reading, contact your bank or credit union, and enroll in online banking. While you’re at it, go ahead and download the app for your bank as well. The service is free, and if it isn’t, go shopping for a new banking institution. You also participate in your employer’s retirement savings plan (401(k), 403(b), etc.) at work, right? Here’s how to become a regular saver:
    • Set up an automatic transfer in your online banking app to happen every payday. Use this feature to automatically transfer a set amount of cash ($20, $50, $100, whatever you can swing) from your checking account to a savings account. Specifically, transfer this cash to a savings account you will use for emergencies. You are now building and maintaining an emergency fund. Set up separate savings accounts for vacations, new cars, etc. Making it automatic is key — don’t wait to see if the money is available at the end of the pay period.
    • If you are not already contributing to your retirement plan at work, enroll in that plan ASAP. Contribute at least as much as your employer will match, and more if you are not setting aside 10% – 12% (or more) each paycheck. If your retirement plan has a contribution rate escalator feature, turn that on, too. 
  1. Stop trying to budget. Budgets are for suckers (Not really, but work with me here; I’m trying to stick with a theme). Few people stick with them anyway (including more than a few experienced financial planners). Instead, consider the “no-tracking budget” approach that my colleague Kelley Long wrote about on our blog page not too long ago.
    • Keep your spending plan simple. You’re already saving on autopilot (see #1 above), and you probably have a good idea about how much your regular fixed expenses are each month for mortgage/rent, utilities, car payment, debt payments, etc.
    • Use automatic bill pay through your online banking service to put those on autopilot, too. That just leaves the variable expenses, such as dining out, entertainment, frivolous spending, and the like. For these spending categories, give yourself a good old fashioned cash allowance. When the cash is gone, the fun stops until the next payday.
  1. Pay off debt as fast as possible. Use the debt blaster. Some say pay off the smaller balances first. I say no; we’re in a hurry, remember? The first order of business is to stop the bleeding, and it’s those high interest rate cards and loans that are bleeding your bank account dry the fastest. Pay those off first. Better still, if you can roll over some of your balances to zero interest rate cards first, do that (stop the bleeding). Keep all payments current by paying minimums via online bill pay (see #1 above). Commit the largest amount you can to the highest rate loan on your books, and blast away at it until it evaporates. As your shampoo bottle says, lather, rinse, repeat all the way down the list until you are debt free.

If we are being brutally honest with ourselves, there are no quick fixes to our financial woes. Discipline, dedication, and hard work are what it takes, as with any worthwhile goal. There are, however, plenty of fixes we can quickly begin doing. Which one will you commit to first?

Common Mistakes To Avoid When Starting A New Job

July 10, 2018

This month marks my 2-year anniversary of joining Financial Finesse. Prior to making the move, I was with my previous employer for 17 years. It was my first change in employer since college. While I am a seasoned veteran at my job, I was a rookie at changing companies.

Transitioning from one company to another can be an exciting time but it also presents many opportunities for costly financial mistakes. Here are some areas you will want to focus on if you recently made a change of employer.

Common mistake: lack of budgeting for new cash flow

There is nothing more fundamental to your finances than your cash flow. Understanding the method in which you are paid is essential to your budgeting habits. While most job changes are made to increase cash flow, you have to plan for how it may differ from the previous employer.

You may be switching from a company that paid biweekly to now getting paid bimonthly. Or there may be a lag between your starting date and your first paycheck. In my case I went from a job that was primarily salary based compensation to a job that had a larger performance based component.

We had to readjust our monthly budget to accommodate for those changes. We adjusted to using the performance based compensation to save for our “big wants” like vacations, which freed up the regular compensation for our week-to-week needs.

How to avoid it

If you’re fortunate enough to receive a signing bonus, don’t “pre-spend” it, but instead keep it on hand for the first couple months in case you need to adjust to a change in cash flow. If you don’t receive a signing bonus, try to cut back on spending for a few weeks leading up to your job switch so that you’ll have an extra cushion.

Common mistake: choosing the wrong health insurance

When changing jobs mid-year, you have an opportunity to re-enroll for health care. Even if the coverages are administered by the same provider, the coverage options can still differ greatly. In our case the insurance company remained the same so there were a lot of similarities all the way down to the insurance cards looking the same, but when we looked under the hood the coverage was different.

How to avoid it

Be sure to download your coverage details from your former employer and compare it to your new company’s offerings. Get the information from your new plan options to make sure your preferred doctors and hospitals are available in the plan you are choosing, even if you are staying with the same insurance company.

Common mistake: keeping your retirement planning on auto-pilot

Not all retirement planning benefits are equal, so it is not safe to assume you should contribute to your retirement plan the same anywhere you go. Before you just go with the default at your new company, take some time to understand how the new retirement plan works.

How to avoid it

Get the match – At the most fundamental level, you need to understand if your new employer offers a match and when you are eligible to start receiving that match. This ensures you are not leaving free money on the table.

Pick your investment – Next up review your investment options and choose one. I have seen cases where no investment choice was made and the default option wasn’t the best fit. If you are unsure which investment is the best fit, many plans offer several hands-off investment options.

Pre-tax or Roth – Your new plan may also offer options that may not have been available at your previous employer like Roth 401k and after-tax savings. There are resources that can help you determine which option may work best.

Common mistake: missing out on unique benefits

Perform a deep dive into your benefits beyond the basics. Sometimes you can find hundreds of dollars of savings in your employee benefits, but you have to take some time to read up and maybe do some digging.

Here are some examples of unique benefits you may want to explore:

Student loan assistance – Some employers aid with managing your student loans. Some programs offer to pay a portion of your loan after a reaching a certain level of tenure. Other companies offer student loan experts to help you refinance.

Legal benefits – If getting a solid estate plan in place is one of your goals, investigate your new company’s Employee Assistance Program or EAP. These programs sometimes offer free legal document preparation software. They also may offer discounts on local attorney services.

Your company may also offer a pre-paid legal program that will allow you to have the cost of will or a trust covered by you making small monthly payments. In many cases you can enroll in the program with a single year’s commitment and have a large amount of legal work done at a significant discount than you would pay otherwise.

Financial wellness benefits – Last but certainly not least, your company may offer financial wellness benefits. I spoke to someone recently who said they were having a hard time finding a financial advisor that would help them with their plan to pay off debt but had just learned that their company added a Financial Wellness benefit. She was excited because her family has likely saved hundreds of dollars because of her company’s benefit.

How to avoid it:

Take some time in your first 60 days or so to peruse your company’s benefits website and/or brochure. Ask around to see what benefits your colleagues value the most. Finally, when the annual enrollment period rolls around, don’t just go on auto-pilot — it’s a great chance to assess whether you made the best choices and to switch things up as necessary. Your employee benefits are a valuable part of your compensation, so make the most of them.

What Financial Independence Means To Me

July 03, 2018

As we celebrate our Nation’s Independence, I find myself reflecting on the notion of financial independence. I want to share some of my personal journey to financial independence, not to define financial independence, but to share my personal feelings on what it means to me.

A journey, not a destination

Several years ago, I found myself at a crossroads. While I was making decent money as a financial planner, I found myself struggling to support my growing family. We were living check-to-check, not saving for retirement (or any other financial goals), and using credit cards to pay for routine expenses like food and gas.

Not exactly a model of how to manage money, which is not a good place for a financial planner to find themselves! I knew I had to take control of my finances and live the strategies I educated others about. While this is still evolving as our goals and life changes, I remember very clearly declaring financial independence in the spring of 2013!

The changes I made

Financial Independence looks different for everyone, but I laid out several goals that I considered essential to claim my own financial freedom.

  • Adopt AND stick to a budget (aka spending plan) – Understanding where we were spending our money was the first step for me. That allowed us to sit down and decide where we could cut back, make sure we were saving into our emergency fund, retirement accounts, and paying off credit card debt as aggressively as possible. We still use a spending plan (and will forever) because it is the most valuable tool to make sure we live below our means. Everything else builds off the idea of spending less than we bring in!
  • Build an emergency fund – By living below our means each month, we could build 6 months of expenses into a savings account. These two accomplishments got us off the cycle of living check-to-check. Seeing that account grow over time encouraged us that we were on the right track – and the confidence to keep going.
  • Save for retirement – We started contributing to our retirement accounts. To start, we did enough to make sure we received the full match for our employers. We had to tweak our budget to do this, but found the things we cut back on were not essential and it was easier than we expected.
  • Pay off credit card debt – This was my personal nemesis! I could never feel like I was financially independent if I owed a lot of money to credit card companies. After making minimum payments for several years and paying insane amounts of interest, we began to attack the highest interest card first with every extra dollar we could find. This only happened because our spending plan allowed us to make sure we stopped using the credit cards first. Once the highest balance was paid off, we shifted to the next higher rate with even more zeal. In 32 months, we were totally out of credit card debt. The day we made that last credit card payment was an awesome day!

It’s important to see the connection your goals share – especially recognizing how the spending plan is the foundation for taking control of your finances. Living below our means was the first step in our journey to financial independence.

If I can do it, you can too (I promise)

Once I started this journey, real change happened quickly. I quickly noticed my attitude shifted from feeling like I was destined to be in debt forever and never be in control, to a determination I could live within a budget and become financially independent. This mindset is important if you feel like you are “bad with money” or just not meant to get ahead. Recognize that financial independence is intentional, and has very little to do with how much money you make. We can all decide to live with our means – which is the most important step!

Maybe the 4th of July is the day you decide to start your own journey to financial independence. Believe you can get there, then take small steps to start your journey. Before long, you will be on your way. When you reach your goal, celebrate your success and use that to renew your conviction.

I’m not saying it will be easy, but I promise you it is worth it!

5 Ways You May Be Sabotaging Your Financial Independence

July 02, 2018

Take a moment to think about what you would do if you were financially independent. Would you travel, volunteer, spend more time with family or friends and “treat” them or yourself more often? Is financial independence something you want to achieve and life keeps getting in the way?

This month, take a stand and start choosing the financial lifestyle you want. When the people who founded the United States of America declared the nation’s independence, their biggest interest was in achieving each individual’s freedom to determine his or her own financial destiny. Here are some things you may be doing wrong, and the keys to setting yourself up for financial independence:

  1. NOT writing down your financial goals or action plan. It’s easy to procrastinate your way to financial mediocrity or even financial ruin, but studies show that people who just write down their goals and action plans are significantly more likely to achieve them. You’ll be thanking yourself later. Create a S.M.A.R.T. (Specific, Measurable, Attainable, Relevant, and Timely) goal plan using the S.M.A.R.T. Goals worksheet, and use online calculators to figure out the savings or payment rates you’ll need.
  2. NOT using a spending plan to guide your financial decisions. Look at your transactions over the first six months of the year, and compare them to the plans you made. Can you see where you need to reign some things in, and where you’ve done a good job sticking to your plan? Keep up the good habits, and change the ones that aren’t working now.
  3. NOT paying off debts quickly and wisely. Include a plan to pay off credit cards every month, automate the payment of low interest debt, and eliminate high interest debt.
  4. NOT keeping an emergency fund. Lacking a cushion of funds to pay for the occasional car repair or veterinary bill can repeatedly sabotage the best of financial plans. Use a separate savings account or a Roth IRA, whatever works best for you, to stash some cash that you will not touch unless it’s for an emergency.
  5. Making poor investment choices. Don’t leave your financial dreams to chance! Invest for the long run and not like a day trader (unless you ARE a day trader). Take advantage of the tax benefits offered by retirement accounts to set up a diversified, long range portfolio. Then put money into those accounts consistently and generously to accelerate your achievement.

It’s never too early, or too late, to start matching your financial decisions up to your goal of financial independence. You might even enlist your friends to help you stick to the plan and avoid poor choices that will sabotage your success. Keep with it and soon you will be enjoying your financial freedom.

Alternatives To Co-Signing

June 29, 2018

You’ve probably figured out that I am not a big fan of cosigning on loans – too much risk and no benefits. But we all want to help those we care about, so what else can we do? Here are a few ideas:

  • Help with a down payment: If you’re being asked to co-sign a mortgage or car loan, perhaps just helping with a down payment is enough, assuming you have the cash available. That could help them qualify for the loan on their own, with no need for you to sign as well. You can do this as a gift (make sure to understand the IRS rules on gifts) or set up a private loan agreement where you will eventually be paid back.
  • Lend the money directly: If you can do it, you can act as the bank and set up a private loan agreement with the borrower and let them use the funds to make the purchase. It’s important to be clear about the agreement and expectations and definitely put it in writing so that you can write it off on your taxes if you don’t get paid back.
    • Potential downside: This could make a relationship awkward, and you take the risk of the borrower missing payments. But, it does protect your credit and spare you any possible legal action.
  • Take out the loan yourself: Since co-signing puts you on the hook for payments but without control, another idea would be for you to put the entire agreement in your name, then create a separate agreement with the borrower to re-pay you. That way you can ensure that payments are made, and if the borrower misses a payment, you have legal rights to the thing it paid for (like the car, apartment, etc.). This obviously doesn’t help the borrower to build their credit, but it puts the protection of yours squarely on your shoulders.
    • Potential downside: This strategy won’t work for student loans, unless you’re the parent, in which case you can take out PLUS loans, but proceed with caution.
  • Help them find a better offer: Rather than just rejecting the request outright, offer to help the borrower find a more affordable option that they can qualify for on their own. Perhaps they need to shop for a less expensive car or different loan terms. If it’s a student loan, you might suggest they take classes at a community college until they can get their credit up – this will save them money over the long haul anyway.

Remember that saying yes to co-signing can lead to a lost relationship and definitely makes it harder to say no in the future. While it might be tough in the short run, it will probably be better in the long run for everyone if the person asking looks for other options or waits until he or she can qualify without help.

What Makes An ‘Ideal’ Credit Score?

June 27, 2018

Besides knowing what counts and doesn’t count toward your credit score, what is the ideal situation that earns you that coveted high-700’s rating and all the low interest rates and amazing credit offers that come along with it? Here’s how it works:

 

What makes your ideal credit score:

  • 3 – 4 revolving credit cards each with high lines of credit ($10,000 or more) with a low balance carried on one. (note that you can – and SHOULD – pay this balance off each month!)
  • All types of credit on your report are at least 6 months old, with at least one that is 3 years old or more.
  • NO delinquent items on your report.
  • 1 – 3 or less hard inquiries over the past 6 months
  • All other loans are in good standing (car, mortgage, student loans, etc.)

Working to get there

As you can see, a lot of these criteria really have to do with letting time pass, and all are the result of consistent “good” money behavior — paying bills on time and using credit responsibly. If you’re planning to buy a house or take out some other type of loan in the future and you don’t have all of these conditions in place, it’s best to start ASAP with working toward it.

For example, if you only have 2 cards in your name, open another one then also call the other two and see if they will increase your limit to $10,000 or more – these are all actions that will result in “hard” inquiries, so you’ll want to do this at least 6 months before applying for your loan.

You don’t have to actually use that new card, or your increased limit (in fact, you shouldn’t if your goal is to get a higher score), although using one card to pay some of your regularly occurring expenses and then paying it off each month will demonstrate that you are able to use credit in the way its intended.

Beyond that, if you’re just looking for the best score you can get, remember that there’s more to financial success than just a high credit score – try not to get too obsessed. Don’t forget the other, more important number to your overall financial security.

Are You Prepared For An Emergency Evacuation?

June 26, 2018

It’s officially hurricane and wildfire season again, and if the past couple years are any indication, we’re likely to see a few natural disasters this summer. Hopefully you’re not impacted, but rather than wait until one is imminent in the news, we all need to take some time to make sure we are ready if we find ourselves in an evacuation situation.

My family was impacted directly a few years ago due to wildfires in Colorado, and it can be an overwhelming scenario. There are many emergencies that may result in the need to evacuate – sometimes you have time to prepare and sometimes you may need to evacuate immediately. Having a plan ahead of time can help ensure you are able to react quickly and evacuate safely.

Before an evacuation

  • Understand what types of disasters are most likely to occur where you live (hurricanes, tornadoes, blizzards, wildfires, earthquakes, etc.) and what the local response plans entail. This includes local places to be used as shelters. We are less worried about earthquakes here in Colorado, but you can be sure we are ready for blizzards around here, even in June!
  • Identify several places you could go if forced to evacuate, perhaps available shelters, or a friend’s home in another town or a motel. Have several options in different directions.
  • Have a communication plan for your family so you can stay in communication and re-unite if separated.
  • Assemble supplies you will need like clothes, food, and water. Include an Emergency Supply Kit and an Emergency Financial First Aid Kit. Store supplies in a place that is safe and accessible so you can get to them quickly if necessary.
  • If evacuation seems likely, have a full tank of gas in your car and keep an emergency kit in the car.
  • It’s a good idea to keep cash on hand as well, perhaps inside your emergency kit. Try to have smaller bills on hand, in case you find yourself in a situation where you can’t change a twenty dollar bill.
  • If your workplace has an emergency phone line, program that in to your phone. If not, make sure you have your supervisor’s contact information stored in your contacts so that you can be in touch with work if needed.

During an evacuation

  • Take all supplies prepared above and a radio. A portable charger for your devices may come in handy as well.
  • Follow evacuation instructions and use recommended evacuation routes to not impede emergency responders. Avoid flooded areas.
  • Take your pets with you and learn how to Plan For Your Pets in an emergency.
  • If you have time, email friends and family and let them know where you are going.
  • Secure your home and unplug electrical equipment.
  • Take one car per family to minimize congestion and leave as early as possible.
  • Check with your neighbors that may need a ride.

Keeping your supplies current

Remember to rethink your supply kits and family needs at least once a year and replace items as needed. As we have heard from local officials after previous events, stuff can be replaced and homes rebuilt, so focus on your safety and the safety of your neighbors should you be forced to evacuate.

For all the ways to be prepared financially, check out the American Red Cross guide on Disasters and Financial Planning.

 

What To Do When You Can’t Pay Your Bills

June 25, 2018

Many years ago, when we were just starting our family and wrestling with a host of competing financial obligations – a mortgage, car payments, large credit card balances, insurance, switching from two incomes down to one after our first baby arrived – my mind began to flirt with thoughts of the blissful financial freedom that declaring bankruptcy might bring. How refreshing it would be to make those pesky credit card bills (and the annoying bill collectors) all just go away.

Looking beyond bankruptcy

In retrospect, I’m glad I didn’t pull the trigger on that particular choice. Among other things, the Certified Financial Planner™ Board of Standards doesn’t look kindly on that sort of thing for my profession. There would also have been the consequences of living a cash-only lifestyle for several years, paying more for insurance, possibly missing out on some job opportunities, and personal guilt over failing to successfully manage my family’s finances.

Personal bankruptcy was also a bit easier to claim back then (too easy some might say). Although I probably could have taken that route, I’m glad I elected instead to find other, better solutions to our money woes at the time. In my case, a combination of some moonlighting and working with a nonprofit consumer credit counselor to negotiate some friendlier terms with my creditors did the trick. That, and putting my credit cards on ice for a while.

Here are some other ways to get those bills paid without having to go to court.

401(k) mayday – proceed with caution

When there is more month than money at the end of the month as the saying goes, we have a cash flow problem. In this stressful moment, it can be tempting to send up a mental flare and reach out for a financial lifeline. Asking for help from friends or family is often just too uncomfortable for most of us.

However, our retirement plans at work (401(k), 403(b), etc.) can offer an enticing band-aid to patch up the immediate problem by taking out a retirement plan loan. As a one-time, temporary solution, this can be an okay solution, but much caution is advised. My colleague Cynthia Meyer writes extensively about this temptation – including how to do it and why you probably shouldn’t – in this article:  Should You Pay Off Credit Cards with a 401(k) Loan?

If at all possible, it’s best to let our retirement money do its job as retirement money and not take on the confused role of a personal financial bailout. If bankruptcy truly is the only alternative, perhaps then it is time to tap into your 401(k) piggy bank for a short term loan, although ONLY if that will keep you from going into bankruptcy — retirement plan loans are not forgiven in bankruptcy!

When you just don’t have the money to pay

Prioritize the important stuff

If you don’t have retirement assets to borrow or helpful family and friends to lean on, then it’s time to make some very hard choices. Take a look at your budget (you have one, right?) and identify the bills that must be paid – those that affect your health, welfare, and safety: rent/mortgage, transportation (so you can get to work and earn money), food, and utilities.

Letting some things slide if you have to

Everything else can slide for now, but not forever. Keep the roof over your head, along with the utilities and your transportation, and look into postponing or canceling things like cable, cell phones, memberships, even debt payments, etc. Then you focus on how to improve your cash flow situation.

When your cash flow is so tight that it is just impossible to pay all the bills, there are several resources to draw upon that can help you when things seem truly desperate:

  • Talk to your creditors; you might be surprised at how much is negotiable, particularly if your debt consists of medical bills
  • Your employer’s employee assistance program (EAP)
  • United Way and other charitable organizations (churches, Salvation Army, etc.)
  • Non-profit consumer credit counseling services (National Foundation for Credit Counseling, etc.)
  • Look into these other places to get cash in a pinch (and where not to!)
  • Your employer’s financial wellness program (especially if that program includes education and guidance from a team of unbiased Certified Financial Planner™ professionals)

Take time to breathe

Even though it might feel as if bills and late notices are raining down upon you nonstop, there is often another way to approach them so you can find a workable solution. As I was (eventually) happy to discover, the easy way out may not always be the best way. I’m glad I considered the alternatives, even if it did take a bit more work and endurance.

How My Wife & I Keep Our Finances Organized Through Life Changes

June 22, 2018

There are certain things in life that, without regular attention, will eventually cause serious issues for you. I call these thing self -care. If you neglect your personal health, it will eventually hijack all your time and energy to get well again. If you do not nourish your personal relationships, you will ultimately have to spend much more time trying to sew them back together again (or finding new ones). Organizing and maintaining your family’s finances also falls into that category.

Five years ago, my family’s finances were cruising along after making substantial changes a couple years before. My wife and I had gotten on the same page and were working as a team. We were debt free except for our home, and surpassing our savings goals. We were in the best financial shape of our lives. It felt great! Then my wife made a conscious career shift and things changed.

Re-thinking our financial organization

It sure would have been nice to throw our finances into cruise control and concentrate on the new undertaking, but life doesn’t allow for that. In the case of changes like career shifts, personal health challenges, aging parents, and family additions, you must consciously decide to revisit your financial organization.

How to re-organize your finances after a major life shift

Examine it

A few months in to her career change, we felt the turbulence of our autopilot budget. Spending areas like dining and transportation started to creep up. The need for childcare increased. The old habits that had put us in a great financial position before were no longer working now that my wife’s company had been added to the mix. It was time to re-visit our plan.

What worked before?

To get on track to being debt free the first time, we sat down for a series of family meetings to get on the same page. We decided that it was time to return to the kitchen table and get back on track. We had to question everything again.

We asked ourselves the following:

  • What things were mainstays in our family’s finances that we needed to change?
  • Should we still be dining out at the same rate?
  • Do we want to maintain the same entertainment subscriptions?
  • Is our cell phone plan still the right one?

Making time for Family Money Meetings

Since we are equal partners in the decision-making of our finances, we had to make time to come together and agree on the plan. This article goes through the steps to have your own Family Money Meeting. Even if you are the sole financial decision-maker in your household, it still makes sense to set aside time to examine your financial foundation. Our meeting focused on creating a stable financial foundation by following the steps in this list.

Set it

Once we got a new plan in place, we had to make some adjustments to the things that were occurring automatically. First we looked at our automatic savings plans and 401k contributions — since we had some business debt we wanted to pay off, we had decide whether automatic savings was still the best strategy for the time being. Automating your finances can be very convenient, and it worked when we were cruising along, but you must remember to adjust as your family’s situation changes.

Once we adjust to our “new normal,” we were able to go back to automatic savings, just at different levels til we had that debt gone.

But don’t forget it

Once the plan was in place, we had to keep an eye on whether it was having the desired effect for awhile. We looked at things like whether the new budget categories were staying within range and made sure our savings were growing at the desired rate. Until you can get back to cruising along, it’s important to continue having regular family meetings to make sure you remain on track, while adjusting as circumstances change.

Once we took the time to re-organize our family’s finances it gave us back the time to focus on and prepare for the future. Take the time to give yourself financial organization check-up. If you already have a plan in place, take the time to examine your plan to make sure it still works.

 

 

Is It A Good Idea To Co-Sign A Loan?

June 21, 2018

Have you ever been approached by a friend or family member asking you to cosign on a loan for them? They will most likely promise you that they are good for the monthly payments and just need some help getting approved for the loan. You want to help them out, but is this a smart thing to do? What are the risks to you as a cosigner? These are important questions to ask yourself before you commit to cosigning on a loan.

What’s the big deal?

A lender requires a cosigner when they are not confident a borrower can meet the obligations of the loan. This should be your first warning sign – if a professional lender isn’t sold on the borrower, why would you be?

As a cosigner, you are committing to the lender that you will make all payments on the debt if the primary borrower does not. You become 100% responsible for the debt. If the primary borrower stops making payments, you are expected to make payments on-time to the lender – including any late fees and penalties.

You take on all the risk, without any of the benefits since you have no ownership rights to the property being purchased.

Know the risks

Helping someone get a loan is a generous thing to do, but it is important to understand the risks before signing on the dotted line.

  • Damage to your credit score: Anytime you’re a co-signor on a loan, it is detrimental to your credit score to a certain degree. If the person you co-signed for is late with a payment, your credit will also take the hit. This could mean you won’t qualify for loans you need to take out in the future.
  • Can you afford the payments? You are agreeing to make payments on the loan, so the lender will come to you if the borrower isn’t making the payments. It doesn’t matter why the borrower is missing payments, you should be prepared to step in and start making payments if need be. Setting some money aside in a savings account is a smart step to make sure you have the money if need be.
  • Legal judgments could lead to garnishments: If you do not make payments, you may be hit with legal action (after all the fun of collection letters and phone calls). These could even go as far as wage garnishments or funds pulled from your bank account if you don’t pay.
  • Your ability to borrow may be compromised: Cosigned loans appear on your credit report, so even if the borrower is making the payments, lenders will view the loan as your obligation. This reduces your monthly cash flow in the lender’s eyes, so it can make it harder to qualify for a car loan or mortgage.

Beyond the money

In addition to the possible damage to your finances, cosigning agreements that go bad can damage personal relationships. I have seen people cosign for kids, boyfriend/girlfriends, friends, and spouses, but when someone leaves you with their debt and mess, feelings get hurt and relationships damaged.

Making sure you understand the risks of cosigning can spare you some major headaches down the road. Wanting to help people out is a good thing, but cosigning a loan for someone may not be the best option to provide that help.

Why We Avoid Paying Our Bills (And How To Fix It)

June 19, 2018

There it is. The dreaded stack of unpaid bills. The “I’ll get to that later” pile. The pile that occupies a prominent spot on my desk so it can grab my attention, yet it still sits there unpaid day after day pile.

You’re not alone

If you also have a pile like this, you’re in good company. I’m an experienced Certified Financial Planner™ professional, and I have one, too.

That doesn’t get either one of us off the hook, however. The bills still need to be paid; we both know that. Otherwise, ugly things begin to happen to our credit scores and the phone begins to ring with urgent calls from strangers demanding money. We both know that, too.

Miscellaneous bills are my kryptonite

In my own defense, these are “miscellaneous” bills. Oddities that occur sometimes, like the occasional medical co-pay from that dermatologist visit a couple of months ago. Or the bill for that awesome discount I got by subscribing to Florida Sportsman and checking the “bill me later” box. Or my annual Certified Financial Planner™ credentials renewal fee.

The critical bills however, those that take care of life’s necessities — food, shelter, clothing, transportation, insurance, and debt payments – those are set up on electronic bill pay with my credit union so they are paid like clockwork every payday and never missed. I find that putting as much of my financial life on autopilot as possible avoids quite a few financial stressors.

Why do we put off paying bills?

As an informal yet long time student of human behavior, I often ask myself why we sometimes let our unpaid bills stack up? Why don’t we just pick up the check book (or fire up the bill pay app on our smart phones) and pay the silly things? There are a few obvious reasons:

  1. Something more urgent (or enjoyable) demands our attention or our money or both.
  2. It’s an out-of-the-ordinary expense, and we will have to break from our usual routine to pay it.
  3. We don’t have the cash to cover it just yet (this is a biggie; I’ll cover it in a future blog post).

There are also some not-so-obvious reasons too

Some psychologists suggest that humans may be predisposed to naturally avoid unpleasant experiences. For example, our hunter/gatherer ancestors were served quite well by their instinctive avoidance of unpleasant experiences, such as poisonous reptiles, animals with large claws and teeth, and fellow humans sporting angry facial expressions and spears.

Unfortunately, our brain development hasn’t yet caught up to the modern world, and it still tells us to avoid some unpleasantries that we really should stare in the face, grab by the ears, and deal with right away. Like that pile of unpaid bills. In the deepest recesses of our brains, however, we react to that bill the same way our ancestors reacted to rattlesnakes – Put that down! Stay away!

Is it just your money beliefs rearing up again?

Like everything else in our lives, our budgets, bills, and retirement balances are driven by the choices and actions we choose or fail to choose. Dr. Bradley Klontz and several of his colleagues have conducted extensive research into the various beliefs people hold about money and how it affects their behavior. In Are Your Money Beliefs Holding You Back?, my colleague Dr. Scott Spann summarizes many of Dr. Klontz’s findings and discusses how we can go about modifying our long held money beliefs and train them to work for us rather than against us.

Or is it a budgeting issue?

The central issue is often a budget that is out of whack. You do have a budget, right?  No? Again, you have plenty of company. We talk to people almost every day about budgets. One of my other colleagues, Tania Brown, shares some great budgeting tips in  Why Your Budget is Failing and How to Fix It.

Baby steps to get the bills paid

Even though it might feel as if your financial world is not as good as it could be, things are rarely as unpleasant as our minds lead us to believe. A sense of perspective and some baby steps along the way can help us adjust our perspective and get back on track.

Psychologists remind us that a good way to overcome this type of avoidance behavior is to break it down into smaller pieces:

  • Day 1) open the envelope.
  • Day 2) Take out the bill and look at it.
  • Day 3) Pay the bill, then congratulate yourself and celebrate your success.

As comedic actor Bill Murray reminds us in What About Bob with baby steps, we can do anything. It sounds a little silly. It looks way too simple. And it really works.

Take it one at a time

There’s no rush to change all of our money habits all at once. Pick one and work on that one for a while. Give yourself permission to take some baby steps.

Now, if you’ll excuse me for a bit, I have some unpaid bills I need to open.

 

How To Best Prepare Your Kids To Manage Money After High School

June 15, 2018

When I went away to college, I was completely unprepared to handle my own money. My family never discussed it with me, so when I went away to school, the peer pressure of having to look a certain way and the desire to hang out with friends quickly left me broke, no matter how much money I had.

If I could go back to 1990 when I graduated from high school (don’t do the math, I can’t believe it’s been that long either), I wish my parents would have better prepared me for managing my money in college by doing the following:

Give an allowance that includes ALL monthly expenses

How it went wrong for me: My parents gave me money as I needed or wanted while I was in college, which was a mistake. 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.

Do this instead: Add up how much you spend on your kids’ activities, personal care and outings and giving it to them to manage themselves in the months before they move out. If you’ll be continuing to support them in college, stick to that amount. Then if they run out, it’s up to them to figure it out.

Teach them to plan for upcoming expenses and budget the money they have

How it went wrong for me: 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.” My way of budgeting in college was more like my money telling me where it wanted to go as soon as I got it. I had no concept of planning ahead and therefore was always feeling like I didn’t have enough.

Do this instead: 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 when he was in high school.

She deposited money into the account monthly for his expenses, then helped him to create a budget using online software like Mint. To stay on top of it, she had a weekly budget meeting with him where her son had to show her how he spent his money for the past week and how much he had left.

She did this while he was in high school so that the money management habits would 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.

Don’t forget to teach about credit

How it went wrong for me: When I was in college, it seemed like every credit card company known to man was on my college campus, and I took full advantage. (you can read more about that here) 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 provides some level of protection to college students by cracking down on granting credit cards to students under the age of 21, 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.

Do this instead: 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 start life out buried in avoidable credit card debt and with bad money management skills. Help your children understand that the money is not free and that the less they pay each month toward their credit card balance, the more money they will pay in the long run.

A long-term pay-off

Nobody wants their kids still relying on them financially once they’ve flew the nest. By investing some time before they head off into the real world to make sure they are clear, you could save yourself years of stress. Not to mention, having financially responsible adult children saves you money! Who knows, by helping to teach them better, you may learn something about yourself as well.

 

Is Pet Insurance Worth It?

June 08, 2018

My parents adopted a puppy this summer and as part of their preparation for her arrival, we discussed whether they need to invest in pet insurance. In fact, many companies even offer discounted pet insurance for employees. But do you really need it? It depends. On one hand, it’s heart-breaking to have to make decisions about your beloved pet’s life solely for financial reasons, but on the other hand, it’s often not worth it. Here are the things to consider.

You’re more of a dog person

Reasons you may want to buy it

  • The policy covers things like annual dental cleanings and required vaccines and costs less than your vet charges for that stuff.
  • You have a big breed that may be prone to problems (although that risk could be factored in to the price of the policy).
  • You live in a busy area where it’s more likely for your dog to have an accident.
  • You’re adopting a younger dog with no known issues.
  • You’re conservative with your money and prefer to protect against all potential risks.

Reasons you might not buy it

  • You’re adopting an older dog — if you’re even able to get coverage, the cost may exceed any possible benefit.
  • Your dog has already been diagnosed with an issue — just like you probably won’t qualify for long-term care insurance once you’ve started showing signs of dementia, a pet insurance policy is unlikely to cover a pre-existing condition.
  • You have a robust emergency fund that could pay for any type of expensive procedure.
  • Paying the premium would require you to take on credit card debt or compromise other goals like saving for retirement.

If cats are more your bag

Reasons may want to buy it

  • If it covers dental and you have a breed that has teeth issues (like a flat-faced Persian), assuming the cost of the premiums is less than your vet would charge out-of-pocket.
  • Your cat goes outdoors.
  • You’re conservative with your money and prefer to protect against all potential risks.

Reasons you might not buy it

  • You have indoor cats who aren’t exposed to other pets.
  • If, like me, you don’t believe in subjecting cats to extreme treatments like chemotherapy — from what I understand, once we figure out a cat has cancer, it’s usually too late because they have such little bodies. Putting them through stressful treatments is unlikely to cure them, and really only prolongs the possibility of pain.
  • You have a robust emergency fund that could pay for any type of expensive procedure.
  • Paying the premium would require you to take on credit card debt or compromise other goals like saving for retirement.

Make sure you know what’s covered and more importantly, what’s not

A common complaint about pet insurance is that the things that it covers are limiting to the point of the policy being relatively useless when the big dollars are due. Before purchasing a policy, make sure you’re clear on what’s covered but also what instances it wouldn’t pay out. Nothing is more frustrating than keeping an insurance policy in place for years, only to find that it doesn’t pay for what you need.

My personal preference

I personally wouldn’t purchase pet insurance for anything besides a care plan that would provide me with discounted routine care, but I do set aside money to cover my cats in case of emergency. One suggestion I often make is to find out how much an insurance policy would cost per month, then just set up a separate account where you automatically save that amount each month toward future bills.

For example, according to this site, the average monthly cost is about $27 for cats and $43 for dogs. If I were to save that amount each month into a savings account from the day I adopted a kitten, I’d have over $4,500 saved by the time my cat turned 12, which is the age that a lot of health issues pop up for cats. Of course this doesn’t factor in the routine visits to the vet, but pet owners really should be factoring that into their ongoing spending plan.

You Probably Need A ‘Senior Year Fund’ In Addition To College Savings

June 07, 2018

While my friend Tania wrote about the surprise costs of senior year and my buddy Michael wrote about the wisdom of not having all your eggs in a 529 basket, the graduation of my oldest daughter Kate this month got me thinking, especially since my second daughter Rachel is going to be a junior. Parents of recent grads, I know you feel my pain — graduating from high school is expensive! I’m wondering if we don’t need to start also suggesting that parents save up a “Senior Year Fund.”

How much should you set aside for senior year?

In retrospect, having a fund for Kate’s senior year would have been extremely helpful to avoid busting the budget or even needing to dip into savings (luckily we didn’t have to go into debt, but some parents do) for those senior year costs. I’m going to be starting one ASAP for Rachel.

Post-high school plans matter

As I started to calculate what we’ll need for Rachel, I realized I’ll need even more than Kate. Kate is planning to major in Elementary Education, so her costs were a bit lower as she only looked at in-state schools. Rachel, on the other hand, is leaning towards majoring in business and is exploring private and out of state options – even though she will be getting the same 4 years of in-state cost assistance from us, the actual costs of applying will be higher.

Here is what my costs looked like for Kate and what I expect them to be for Rachel.

COST Kate (in-state) Rachel (out-of-state/private)
College entrance exam fees $46 $120
Kate just needed the standard ACT, whereas Rachel will need to take both the ACT and SAT, including the writing portions on both.
College entrance exam prep classes $600 $600
Kate didn’t need a great score, but she has test anxiety so extra prep was a big help. Rachel is a natural test taker but to get out of state tuition waived at a couple of her top choices she will need to score at least a 28, probably closer to a 30, on her ACT.
College application fees $85 $450
Again, Kate was looking at the two in-state options that excel at Elementary Ed. Rachel is looking at one in-state school, four private schools and five out of state public universities. Hopefully by the time of applications she will have it down to five but just in case…
High school tchotchkes $300 $100
Kate lettered in both softball and choir and she wanted her letter jacket ASAP. Rachel couldn’t care less about a letter jacket even though she could get one. There are still items that are “bundled” with the ordering of announcements that will add $50 – $100 to this total.
Senior trip $300 $300
We didn’t actually pay any cash for Kate’s trip to the west coast with a friend and her family but I used up airline points for a $300 flight. Rachel will probably get about the same. The total trip cost was at least double that, but those costs are on the kid in our house. If you plan to pay for a trip without your kid’s help – at least double that figure.
Official school events $400 $400
For prom we got a steal on Kate’s dress at a great local store but still easily spent $250 on that night. The “Project Graduation” party after graduation was about $50 and we spent $100 on reserved seating at the graduation ceremony. That would be frivolous for most people but it was the best way to get my parents into comfortable seats and near the elevator to be handicap accessible.
Graduation party $850 $850
The sad thing is that this was a low-key party and it still cost almost a grand. We hosted a reception for her guests and served dessert, but no meal. We did rent a room at a community center to reduce stress which cost about $80. We also had a family cook-out after the reception which was just grilling burgers, etc., but that isn’t cheap for 25 – 30 people. Plus, we hosted family at our home for several days, which meant more meals out to celebrate and more trips to the grocery store. Many of our friends had parties at home, but they served a meal so their total costs were similar.
Gift for the grad $475 $475
This is probably the most personal number of all, but we wanted to make sure that she had a new laptop heading off to school so we combined with grandparents to get her a new laptop. Thanks Mom and Dad!!
College deposits $400 $400
Just for the privilege of taking our money by the bushel over the next few years, we had to cut a couple of checks for admissions and reserving a dorm room months in advance.
Yearbook $50 $50
This was so early in the year that I don’t recall exactly how much, but this is about how much.
Yearbook ad $125 $125
Yes, in the brave new world of parenting, raising your child to adulthood isn’t enough. To prove that you love them, you must now buy an ad in the dang yearbook that they will probably only look at once, that I didn’t even remember writing by the time they were distributed. (can you tell I feel like this may be a little much?)
Senior pictures $200 $300
Kate has a friend who does photography, so we got a little bit of a price break. The good news is that with digital you can now get all the pictures and have more options, but then if you want to have a permanent keepsake… more $…
Gifts for friends $250 $250
We are blessed to have a great group of friends… and four of them have kids the same age as ours! So, with gifts for those kids and smaller gifts for the close friends or our daughter, it adds up.
College visits $400 $3,500
Again, Kate knowing she would stay in-state saved big bucks. Rachel will be a different story: we have 3 short drives, one medium drive and flights to NY, TX and CA on deck. Fortunately, I have hotel and airline points to cut those total costs, but then I won’t be able to use them for a family vacation, so it still counts in my book.
TOTAL $4,481 $7,920

So again, every grad and every family is different, but use my experience as guide to at least plan on the type of expenses you may run into.

Where should you keep this account?

I’d say that it’s best to just set up a separate savings account in your (the parent’s) name. This way it won’t be counted by college aid calculations as being as readily available to pay college costs, plus if your kid decides she wants to take off and backpack across Europe, you still have the savings to support other goals.

When should you start planning?

As soon as you can adequately estimate costs, I’d say start saving. Since Rachel is just finishing up her sophomore year, I only have about 5 months until the first costs start kicking in, but about 15 months til the actual senior year costs come up. If I want to have that account fully funded by the first day of her senior year, I need to start setting aside $528 per month today. Not to mention our continuing plan to provide her with some college funding assistance while also paying for Kate. The bottom line: date nights are about to get real cheap around the Spencer house!

It will be here before you know it

Whether your kid is a freshman or a toddler – setting up a dedicated savings account for those costs may be a real blessing by the time you see your child walk across the stage. Oh yeah, trust me, it will be here before you know it!

Rachel & Kate at Class of 2018 graduation – when did my babies grow up???

How One Financial Decision Changed Everything For This 35-Year Old Single Mom

June 06, 2018

As a financial wellness coach, I have the unique opportunity to dive deep into the finances of many different types of people with many different situations. Most financial advisors don’t have this perspective because they only work with “qualified prospects,” people with enough investable assets for them to manage. Because of our business model, we are able to deliver guidance to employees on every aspect of their finances from crisis situations to wealth building.

I want to share a recent client story about re-thinking your assumptions about the best way to handle what may appear to be a “little thing” that turns out to be a really big thing.

Borrowing from retirement to buy a car – good idea or bad?

A recent coaching relationship, Susan, originally contacted me because she was looking to take a loan from her 401(k) account to purchase a new car. Susan (35) works for a large corporation and earns around $80,000 annually plus bonuses. She is a divorced single mom with an 11 year-old daughter.

She was planning to buy a new brand Buick Enclave, which is a very nice SUV that would provide reliable, safe transportation for her and her daughter. It can carry up to 7 people, ideal for soccer carpool duty. Sticker price after trade-in: $40,000.

Susan’s plan was to take the $40,000 as a loan from her 401(k) because she would get a low interest rate, pay herself back the interest instead of to a bank, and have cash to buy the car, which would enable her to negotiate with the dealer for a better price. She had calculated the loan payment of $375 per paycheck (Susan is paid bi-weekly) for 5 years. On the surface, that sounds like a good plan. But I wanted her to dig a little deeper.

What’s your 5 year plan?

I asked Susan if we could take a step back for a minute to discuss her other financial goals and she agreed. Here’s how our conversation went:

Me: “What does your ideal financial situation look like in 5 years?”

Susan: “I haven’t really thought about it.”

Me: “Let’s break it down to make it more tangible and talk about some other common goals:

  • How much would you like to have in an account in case an emergency comes up?
  • Would you like to be debt-free besides your mortgage?
  • Do you want to put some money away for your daughter’s education?
  • You should have a plan to be on track for retirement some day.
  • How about travel or vacations?”

Setting 5 year goals

After discussing further, Susan decided to put her 5 year goals down on paper:

Me – “How does the car fit into this plan? Can you afford to be your ideal 40 year-old Susan if you buy this car?”

That got her thinking.

Financial psychology side note

As humans, we are constantly making intertemporal choices (inter – between, temporal – time periods), basically deciding to act on impulses (instant pleasure) or for the future (delayed gratification). The brain is an amazing organ. It has the ability to learn and remember, but that can work both ways. The more we make impulse decisions, the more inclined we might be to act on impulses in the future. The more we stop and think about how decisions impact our future, the stronger this part of brain gets.

The more we make impulse decisions, the more inclined we might be to act on impulses in the future. The more we stop and think about how decisions impact our future, the stronger this part of brain gets.

Why visualizing your future makes a difference in today’s choices

If we can’t visualize what we want the future to look like, we don’t have the context for what we could be giving up in the future. Susan’s car decision was impulsive — she was thinking about how it would make her feel good in the present but she wasn’t considering how it would impact her future. After understanding what she would have to give up (retirement preparedness, her daughter’s college plans, the trips she loves), her impulse turned into a thoughtful decision.

What she decided to do

So, what did Susan decide to do? After researching Consumer Reports and other publications, she purchased a 3 year-old Honda CRV for a little under $18,000. She gave up the dream car with room for the entire soccer team, but her new car rated better in safety ratings with less than half the payment.

She weighed the financing options with facts. The dealer offered her a better rate than her local bank with the option to make extra payments. Because her 401(k) loan did not allow this pre-payment option, she decided to use the dealer financing.

Now, she is able to fund her other goals. With the remaining $380 she would have paid every month, she did the following:

  • Opened an emergency fund and set up a $150 auto-deposit per month
  • Opened a separate vacation fund at the same online bank with another $150 going in each month
  • Opened up a College Savings account for her daughter with a monthly contribution of $50
  • Signed up to increase her 401(k) contributions every year by 1% to get her on track for retirement

It’s amazing how one seemingly small choice to drive a different car can make such a huge difference, but it did. What are you giving up in your future with the choices you’re making today?

Is It A Good Idea To Take A Job For Student Loan Assistance?

June 04, 2018

It is clearly graduation season — the proud parents, gowns, and decorated mortar boards are filling my social media feeds. My favorite part of the season are the inspiring commencement addresses. While the ceremonies are filled with optimism about the future, many of this group of graduates will walk away from the festivities with a burden of student loan debt. As many as 7 out 10 college graduates have student loan debt with an average balance of almost $29,000.

Employers and some government agencies recognize this burden, so there has been a rise in the variety of programs that offer everything from financial assistance to loan forgiveness in order to help graduates grapple with this debt. As you or your child venture out into the “real world” of working, paying taxes and paying your bills, you may be wondering if any of these programs could be of benefit.

Programs that help with student loan debt

Public service loan forgiveness programs

Many people have heard of these programs, although not many are clear on what it is or whether it can help them. The most widely available program has to do with working for certain organizations. If you work for any of the following types of organization, you may qualify for Public Service Loan Forgiveness or PSLF:

  • Government organizations at any level (federal, state, local, or tribal)
  • Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code, such as a charity or certain hospitals
  • Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if their primary purpose is to provide certain types of qualifying public services
  • Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program

How to qualify for PSLF

In order to qualify, your loan must meet certain requirements and you have to remain current on your payments. These programs also require 120 months of employment with a qualifying employer (aka 10 years total – you can switch jobs, but you need 120 months total with qualifying employers). It’s a good idea to certify that you meet the requirements as soon as possible (and re-certify about once a year) to make sure you’re still on track for the 120 months.

Other options besides the federal program

The federal government may not be your only resource. Local governments also offer loan forgiveness programs for professionals they deem to be a need in their region. For instance, my home state of Tennessee has programs for Math and Science teachers and graduate school for nurses. Many inner-city public school jobs qualify with slightly different requirements than the federal program. These programs can sometimes even give you the option to work for a for-profit organization, so check around to see if your job qualifies.

Employee benefit assistance programs

If working in the public sector isn’t for you, you may be able to find a job with a company that offers some type of student loan assistance as well. SHRM reports that 4% of all employers offer some type of student loan assistance program these days —  the percentage jumps to 8% for larger companies and is expected to rise according the CFPB.

How it works

Like the PSLF programs, many employers are looking for a certain level of tenure with their organization before the assistance truly kicks in. In most instances we see today, employers are offering qualifying employees matching payments on their loans up to a certain amount. In some cases, employers also provide assistance with refinancing and setting up payment plans for qualifying employees.

Check with your HR representative to see if your company offers student loan assistance and to see if you qualify.

Should I pursue a job with these benefits?

Getting help with your loans is definitely one thing to put in the “Pro” column when considering a job opportunity, but there are other things to consider as well. Ask yourself the following questions to help decide.

Is this the right profession for you?

We all know people who picked their profession just for the money — sometimes it works out, but as some of my second-career financial planner colleagues will tell you, it’s often not worth it. You will spend approximately 90,000 hours of your life at your job. By some estimations that is 1/3 of your waking hours. Work is so much easier when you enjoy it.

A lot of the jobs that will help you qualify for PSLF are rewarding if your personality is the right fit, but they can also be very demanding (I really don’t know how teachers do it — it takes a special person!). Keep in mind that to reap the loan award you will need to stick with it for 10 years – that’s a long time to stay in a job you hate! Similar rules also apply for other loan assistance programs.

One other consideration is that many of the jobs that qualify are lower paying, which means you may have some of your student loans forgiven, but you may also be giving up earning power throughout those years we well. As much as you would like the benefit of clearing up your student loan debt, be sure you are doing something you find fulfilling to make it worth it.

Are you clear on the tax ramifications of loan assistance?

Loan forgiveness: The notion of having your student loan forgiven is appealing, but there may be tax repercussions to consider. At this point the PSLF program does NOT treat the amount forgiven as taxable income, but other programs may. One of my colleagues had a call from a client that ran into this issue and this blog explains how she handled it.

Payment assistance: If your employer is making any payments toward your loans through a benefits program, then those payments are considered to be taxable income and will be included in your W-2. (Know that you can still deduct the interest paid on any portion of the loan your employer paid, as long as you’re eligible for the deduction)

How do the rest of the benefits of the job add up?

If you are comparing job offers and one offers loan assistance, does that make it an open and shut case? Not necessarily! Be sure to compare all the financial aspects of each offer. While one company may offer student loan assistance, the other may offer a lower cost healthcare plan that could balance out the difference in cash flow to you. Obviously, salary is a major part of the calculation but also consider comparing things like 401k and HSA contributions. Calculate how much you would save if the loan was paid off by forgiveness and compare that to the cost of how much you may miss in other perks.

When you don’t have student loan assistance available

If the career opportunity or overall benefit package is better elsewhere, then it may make sense to attack the student loan debt the traditional way. It is oftentimes helpful to have someone walk you through the different options or help with a student loan payment strategy. Your employer may offer a financial wellness benefit in which someone can walk you through the process of weighing the value of each opportunity.

How To Avoid The Number One Budget Breaker

May 30, 2018

One important step in setting financial goals is establishing or reviewing your budget. After all, how can you tell your money where to go if you don’t know where it’s been?

Pay attention to this as you look back

Notice that as you review your spending on a month by month basis, there is most likely something that negated your efforts to save – a last minute gift, celebratory dinner, travel for the holidays, a kids activity, even just a party had to bring supplies to. These things cost money and not an insignificant amount. And this is where all that extra money is going. It’s not the daily latte or ordering take-out or a splurge at Target that kills most of our budgets. It’s the happy fun things – the things that, I think, make life worth living. It’s these things that we end up spending our “extra” money on instead of putting those funds toward our financial goals.

 It’s not the daily latte or ordering take-out or a splurge at Target that kills most of our budgets.

But I’m not saying you shouldn’t spend that money. What I’m saying is you can actually plan for these expenditures so you can still stick to your savings goals. You knew that most of these expenditures were going to happen way before the money left your account. In fact, I bet you can probably predict most of them for the coming year right now.

How to better plan for upcoming expenditures

It’s easy to budget for the monthly bills — even though the electric bill may vary wildly depending on the weather, you have a general idea of how much to reserve to pay it. It’s these other things that are tough to put into a neat monthly bucket. Rather than tearing your hair out trying to stick to spending limits in different life categories, try this way of getting ahead of “life stuff.”

Instead of trying to work these things into your everyday spending, make them part of your financial plan by mapping them out in advance. Here’s how:

  1. Get out a blank calendar
  2. Get out your date book/iCalendar/house calendar
  3. Write down all the commitments you’ve already made outside your normal routine
  4. Include weddings, vacations, graduations, holidays, babies that are due, etc.
  5. Then go back and write in all the regular stuff that comes up: trips to the vet for the dog, vehicle registrations, kids’ sport fees, etc. You might want to use last year’s spending to make sure you don’t miss anything
  6. Assign an estimated dollar amount to every single thing
  7. Add it all up and divide by 12
  8. Set that amount aside each month in a separate savings account

When I did this, I realized that almost every month I had some type of travel planned already. I also realized that my dreams of spontaneous camping weekends in Wisconsin may remain dreams unless I start planning them right now. You’re busier than you think!

Things cost more than you think

This month it’s a weekend in New Orleans, which was booked on airline and hotel points, but will still require several hundred dollars in order to enjoy the culinary mecca. This is money that I might otherwise allocate toward my goal of buying a new tennis racket. Next month, it’s a trip home for Father’s Day. That’s at least $100 in gas money not to mention a gift for my dad and greens fees when I pay for us to shoot a round of golf.

While I’ve already budgeted for a trip to Oregon wine country with my mom this fall, seeing that listed along with the other little weekend things coming up was a huge financial eye-opener. And we don’t even have kids stuff to budget for! (although every trip does require a cat sitter, so there’s that) It’s these things, these happy life things, that are your biggest budget busters.

It’s these things, these happy life things, that are your biggest budget busters.

Pay attention to these seemingly financially insignificant events on your calendar and put them into your spending plan now. This process also helps you gauge whether your savings goals are realistic.

By doing this advance planning, you should still be able to achieve whatever financial goals you are working toward such as paying off debt or building up your savings – those less “fun” but still essential goals. Knowing in advance that this money will be spent anyway actually does motivate me to cut back on my wine or clothing budget in a way that just trying to “make it all work” doesn’t. Try it and let me know how it works for you.

Should You Get Divorced Before The End Of This Year?

May 24, 2018

The new tax law changes have implications for alimony payments that could help or hurt your finances if you’re in a situation to pay or collect alimony (usually called “maintenance” in divorce agreements).

Should you get divorced right now, or should you wait? Chances are, if you are wrestling with this question, taxes may not be one of the primary reasons you are pondering your options. Divorce is complicated and nerve-wracking enough without having to also think about taxes, right? Considering some recent changes to the tax code, maybe you should consider the tax angle as well.

Ordinarily, I’d be reluctant to recommend anyone rush a serious and somber process like ending a marriage, but in this case, a little thoughtful expediency might save you some serious cash in the long run. Happily married and not even contemplating divorce? The new tax law might affect you, too, if you already have a prenuptial agreement in place.

What changed?

As almost anyone will tell you, divorces and attorneys are not inexpensive; every dollar matters. In addition to attorney fees to get the deed done (undone?), ongoing costs often include years of alimony and child support payments. It is the treatment of alimony payments that has undergone some significant change.

If your divorce is finalized on or before December 31, 2018, nothing changes. Under the old tax rules, alimony payments are a tax deduction for the payor, and the alimony recipient must pay taxes on alimony dollars received (albeit at a usually lower rate than ordinary income). Child support payments are neither deductible nor taxable; they are considered a division of marital assets and that treatment will remain the same.

With the passage of the Tax Cuts and Jobs Act of 2017 (TCJA), the tax treatment of alimony payments for divorces finalized in 2019 or later switches to the same treatment as that for child support payments. Under the new law, alimony payments will no longer be deductible for the payor, nor will they be taxed as income to the recipient.

Why this tax change matters

Whether you love or hate the new tax law likely depends on which side of the alimony transaction you find yourself and how quickly or slowly you can finalize your divorce proceedings.

If you’re the recipient

If you are the future recipient of alimony payments, this tax law change could be seen as good news. Depending upon how things are negotiated in your divorce, you could count on receiving a stream of tax-free alimony income from your ex as long as your divorce is finalized in 2019 or later. There is no incentive for you to hurry divorce proceedings along prior to the end of this year (2018). Why pay income taxes on that alimony income if you don’t have to?

If you’re the payor

As the future payor of alimony payments after your divorce is finalized, time is now your potential enemy. If you can negotiate your way to a finalized divorce no later than December 31, 2018, you get to keep the current tax deduction that is in place regarding your future alimony payments. Your ex, in this case, would also be responsible for paying income tax on those future payments. While you may be in a hurry to move things along, don’t be surprised if your ex (or your ex’s attorney) pushes back to delay things in order to make those alimony payments nontaxable.

On the other hand, you (or your attorney) may be able to negotiate lower alimony payments in light of the fact that you will not be able to deduct these payments under the new tax law.

You both might be losing out

Many divorce attorneys see this tax law change as a net loss to both sides of the divorce. Under the old law, a high-income spouse may find it attractive to offer a higher amount of tax deductible alimony that results in a net lower after-tax payment for them. Subsequently, the alimony recipient is often in a lower income tax bracket and also pockets more after-tax dollars, even after paying income tax on the alimony received.

Under the new law, there is more incentive now for payors to negotiate a lower amount of nondeductible alimony, which may also lead to less net alimony for the recipient, even if the alimony can now be received tax free. Your best bet: have a frank and detailed discussion with your divorce attorney and your tax professional to find out which divorce timing strategy may be the best fit for you.