3 Times You Should Avoid Using Your Debit Card

February 20, 2018

One way to make sure you don’t spend more than you make is by sticking to cash only by using our good old debit card. That helps you make sure that you’re only spending what’s available in your checking account and can be an easy way to budget, as long as you’re setting money aside outside of your checking account for emergencies and other goals.

However, there are some instances where you may not want to whip out that debit card. Here they are, along with a hack to make sure you’re still basically using cash.

1. When checking in to a hotel

What’s the point?

These days most hotels have a disclaimer at their check-in desk about using a debit card to check in. What is the deal with the “extra hold on funds” or “pre-authorized” holds on your debit card or credit card when you check into a hotel? Since they aren’t actually charging you, and it’s a hold that will likely fall off, it doesn’t really matter, right?

That depends. From what I’ve seen, the range of the hold can be anywhere from $50-$200 per day in addition to the actual cost of the room, including tax. The hotel is essentially protecting themselves in case you decide to destroy the room and is establishing a line of credit for expenses you might charge to your room. And as long as that hold is in place, your bank considers that money spent.

For some, this is no big deal. For others who might be traveling on a tight budget and don’t have extra money just laying around in their checking account to be held up as temporary holds, this could pose a problem. Trying to spend those held dollars before the hotel releases it could lead to an overdraft in your account, even though the hold eventually goes away. As you may know, overdraft charges when money is tight often become like a snowball where the fees lead to further overdrafts and further fees. Ugh, what a way to ruin a trip.

What can you do instead?

You can still use your debit card to pay for your room, just make sure you use a credit card to check into the hotel instead. Yes, I said your credit card. When you check out, make sure you go to the front desk and use your debit card to actually pay for your hotel stay and let the hold fall off your credit card.

2. When shopping online

What’s the point?

Sometimes it seems like the internet is just one big hackathon with thieves stealing your info no matter how hard you work to protect it. Simply put, when entering payment information online for a purchase, there’s too much risk of your debit card number being stolen. Someone could literally wipe out your bank account and send your account into a spiral of bounced checks, returned items, and those pesky overdraft fees.

Also, the rules around debit cards and fraudulent transactions add in a time restriction, typically 60 days. If you’re late at realizing someone made unauthorized transactions on your account and you don’t report it within the allotted time frame, you could be out the money for good.

What can you do instead?

You might think I’m crazy for suggesting this, especially if the reason you’re sticking to cash is because you’re prone to overspending online, but… you probably should use your credit card when shopping online since it’s much easier to get things resolved if your account number is stolen. An important difference is that a fraudulent transaction on your credit card does not deplete your funds in your checking account.

The transaction won’t eat up money you’ve budgeted for important items like your mortgage, rent, your kids’ daycare expenses, etc. Credit card companies are also much quicker with crediting your account back to make you whole from unauthorized transactions.

To stick to the cash-only plan, just take an extra step after completing an online purchase to log onto your credit card and make a payment from your checking account in the amount of your charge. Voila, you’re basically still spending cash, but without the risk to the rest of your balance.

3. When making a big purchase

What’s the point?

Most credit cards offer purchase protection, so if your new washer bites the dust and the manufacturer won’t help, you can put your card company to work for you. It’s much cheaper than an added warranty and usually just as effective.

What can you do instead?

Use a credit card to gain that protection, then immediately pay the balance with cash in your account, just like shopping online.

Of course, for those who are simply not comfortable with credit cards or feel your financial situation is much better off leaving credit cards out of your life, just make sure that you pay close attention to your checking account, so you can address unauthorized transactions ASAP. I suggest checking in each morning as part of your smart phone routine — after checking email, Facebook and Instagram, make a quick check to your bank account to make sure there are no surprises.

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How To Make The Most Of Your Tax Refund

February 19, 2018

Ah yes, the annual tradition of gathering receipts and channeling our inner accountant! Tax Season is upon us. For millions of Americans, it also a time of great anticipation as we await the annual windfall that is our tax refund. Considering that in 2016, the average tax refund was a little over $3,000, it is easy to let our minds go to all the fun we can have with our tax refunds.

But before spending all your refund on a new TV or a car that will saddle you with high payments for the next 5-6 years, take a deep breath and think about how you can use that money to improve your current and future financial situation instead.

Option 1: Shoring up your financial foundation

If you’re still working on getting the 4 pieces of financial security in place, this can be one way to fast-track it.

  • Establish or strengthen your emergency fund – Most experts recommend having 3-6 months of expenses saved in an emergency fund to deal with unexpected expenses or even bigger events like job loss and illness/injury. Having one in place can allow you to stop using credit cards to deal with unexpected bills.
  • Pay down high interest debt – If you have credit cards or other high interest debt (north of 6% interest rate), using your refund to pay that down will save you a lot of money in interest. Once you pay off your cards, stop using them! Breaking the cycle of debt (see emergency fund above) will allow you to save for other goals and keep more of your hard-earned money.
  • Save for retirement – Using your refund to fund an IRA to help you prepare for retirement may not seem as fun as a trip to Vegas – but is a great way to get the most bang for your refund buck (and could even help you to increase your refund).

Option 2: Give your goals a boost

We all have financial goals that we are saving for, and a tax refund is a fantastic way to give those an extra boost! Here are some examples to consider:

  • Saving for college – Open or add money to the kiddos 529 plan.
  • Vacation – Set money aside for that next vacation rather than paying off the card after the fact.
  • New car fund

Option 3: A little bit of everything

It is ok to treat yourself with your tax refund, but be careful about spending all your refund on indulgences. Instead, think about splitting your refund to take care of past, present, and future you!

  • Past You – Pay off those lingering debts.
  • Present You – Treat yourself! Take 10-20% of your refund to get or do something for yourself.
  • Future You – Increase your savings for emergencies or other goals.

Making good choices with your tax refund can go a long way to improving your financial situation – now and in the future. Focusing on your priorities may not get you all the things you want right now, but it will help you get the things you want most in the long run! Happy Tax Refund Season!

 

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The 3 Most Important Accounts To Your Financial Foundation

February 15, 2018

Having total control over cash flow is a critical step toward optimal financial wellness, yet it proves to be more elusive than we’d like. Why is it that cash management seems to be so easy for some people, and yet so hard for others? Is it simply a matter of income—the more I have the less difficult it is to manage—or is it something more than that?

According to our research, 73% of employees say they have a handle on cash flow, but only 50% say they have an emergency fund. That means the other 50% are one unexpected event away from financial hardship. So how do we go from wishing nothing bad to happen to being totally confident no matter what life throws our way?

It starts by having a firm financial foundation. Here are the three most important financial accounts you will ever need:

Account #1: a checking account

It may seem odd to think of a checking account as one of the three most important accounts you will ever need, but the checking account is a fundamental building block in your financial foundation. Your checking account is where you can directly deposit your paycheck, and it should be the account used to pay all of your planned, regular monthly expenses (e.g., food, housing, utilities).

Which checking account is right for you? Check out these blog posts for ideas.

Account #2: a savings account

If you thought a checking account was a silly example of a critical account, then you’re probably thinking a savings account is even more silly—but hear me out. I agree, a savings account is a silly place to save money, but it is a FANTASTIC place to spend money. In other words, don’t treat it as a savings account; treat it as a spending account.

Your checking account is a great place for money you know you’re going to spend every month, but what about the money you know you’re going to spend three months from now; or six months from now; or nine months from now? (You get the picture.) Your savings account is the perfect place to put money aside that you know will get spent soon, just not necessarily this month. That’s why we like to refer to it as a Planned Spending Account, because it is money you’re planning to spend. (Yes, we are very creative.) Others refer to it as “lump sum” savings. Whatever you call it, it’s probably one of the most overlooked accounts, but it can be very powerful when it comes to managing cash flow over the course of a year.

Account #3: an emergency fund

Well, if you have a checking account for planned, regular monthly expenses, and a savings account for planned, irregular, nonmonthly expenses, then what do you think this third magical account would be used for? You got it: UNPLANNED expenses.

Most of us know we should have an emergency fund for unplanned expenses, but what exactly would qualify as an “unplanned” expense? That’s a good question, and the best I can answer is to suggest that an unplanned expense is any expense that we would typically NOT plan for. (I told you we were creative.)

For example, I do NOT plan to crash my car into a tree, but I know that if I do I’ll have to pay a deductible on my auto insurance. I do NOT plan for my children to get sick and have to stay home from school, but I know that if they do I may have to miss work or find a last-minute care taker. I do NOT, necessarily, plan to lose my job, but I know that if I do I’ll still have mouths to feed until I find work again.

It’s important not to confuse “urgent” with “unplanned.” Fixing the car when it breaks down can be urgent, but no matter how old or new your car is you should save for car repairs and maintenance. Losing income due to illness or injury can be urgent, but you should carry adequate disability insurance to protect against such risk. Visiting the emergency room can be urgent, but you should save for health insurance deductibles in a planned spending or health savings account (HSA).

Financial experts don’t always agree on exactly how much you should have in your emergency fund, which is why I often tell people it’s really just a matter of how big of an emergency you want to be prepared for. That said, here’s a calculator that might help you determine the right amount for you.

Where’s the best place to keep an emergency fund? Check out these blog posts for ideas.

When it comes to building a structure that can withstand the forces of nature, triangles are the strongest shape. Why should building a financial foundation be any different?

 

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How We Avoid Money Fights In My Marriage

February 14, 2018

Many years ago while attending a wedding, I overheard the couple’s accountant (it was a HUGE wedding where literally everyone the couple knew was invited) tell them that the best way for them to manage their money was to just, “go all in, combine it from day 1.” The couple looked skeptical, and for good reason — what works for one couple when it comes to money very rarely works for the next.

The truth is that there is no right or wrong way to manage money in a marriage — the perfect way is the way that works for your specific relationship. And what works will most likely evolve over the years as your marriage changes. However, there are basically three different ways to do it, each with its own pros and cons. Here they are:

Method 1: Go “all in” and combine everything

Plenty of couples choose to do this and it works great. For others, putting everything in one pot leads to endless fights about differing spending and saving priorities. Regardless, the most important key to success if you choose this method is that both partners know what’s going on with the money and that you agree on your financial goals.

My husband and I were in our late 30’s when we married, so this was not even something we considered at the outset. However, as we are celebrating our third anniversary, we are definitely getting closer than when we first married.

Pros of going “all in”

  • No worrying about who pays for what
  • Easier to budget
  • Could save a “spender” from him/herself
  • Easiest to manage — if one person likes handling the money more than the other
  • Harder to hide financial issues from each other — forces honesty
  • Forces you to get on the same page with financial goals

Cons of going “all in”

  • No autonomy — you can’t surprise each other with gifts
  • Potential for fights about perceived over-spending or differing priorities
  • Could put one person in a power position if the other person doesn’t get involved in the finances
  • Can lead to resentment if one partner brings a lot of debt into the relationship

Who it works best for

  • Younger couples who haven’t yet had a chance to establish habits and mindsets
  • Families with one working spouse and one spouse who cares for the family — no need for an “allowance”
  • Couples with nearly identical money personalities, especially if both are savers
  • Situations where money is tight — no room for over-spending, so you feel like you’re ‘in this together’
  • Couples where a spender requests that a saver help him/her to be a better saver (not so much if the spender isn’t on board)

Method 2: Keep everything separate

There are people out there who will tell you that couples who keep all their money separate are headed for failure and that they must have something fundamentally wrong with their relationship. My parents, however, are a testament to just how untrue that is — for 45 years they have kept their finances separate, divvying up the household expenses according to who has the financial capacity to handle it. The key to this method’s success is that they still have shared goals and they never go into big purchasing decisions without consulting each other.

Pros of keeping it separate

  • Complete autonomy
  • No need to justify spending (or saving)
  • Helps ensure both partners know how to handle cash flow
  • Avoids fights for couples who have opposite money personalities
  • Can prevent issues surrounding debt that’s brought into the marriage

Cons of keeping it separate

  • Allows for money secrets — could lead to trust issues
  • Potential for resentment if there is a large income disparity
  • More challenging to work toward common financial goals
  • Shared expenses can be complicated

Who it works best for

  • Couples with kids from prior relationships
  • Couples who have established financial habits and don’t want to change
  • Dual career couples with ample income

Method 3: Hybrid using three accounts

This is probably the most common method I see these days among peers, and also the method my husband and I use. We have a joint checking account where we pay all of our shared expenses, including the obvious things like housing and utilities, but also food and entertainment, as long as we are both benefiting. We contribute proportionately to this account, which can be a little complicated to figure, but once the numbers are set, we only have to adjust them when there’s a big change to income or expenses. For example, I carry my husband on my health insurance through work, including contributing to a Health Savings Account, so he puts more into our bills account to make up for the reduction in my paycheck for covering our healthcare.

Pros to the hybrid method

  • Still gives autonomy while allowing shared expenses to be shared
  • Feels fair — we both have about the same left over each month to spend on what we want
  • Avoids fights about differences in spending — I like to spend money on wine and Athleta clothing, my husband prefers to spend his on bourbon and concerts
  • Keeps us both engaged in the household finances

Cons to the hybrid method

  • Can get complicated figuring out how much you each contribute to shared stuff, especially if there’s an income disparity
  • Expenses outside the norm such as vacations or home maintenance require discussion about who will pitch in extra to cover
  • Doesn’t necessarily solve for common fight areas, like gifts — we agreed that gifts for family would be a joint expense, but we have differing ideas of how much to spend
  • Could lead to resentment if one partner tends to save all his/her “extra,” while the other partner spends
  • Still have to designate one person to be “in charge” of the joint expenses to ensure you’re not making double payments

Who it works best for

  • Dual income couples where income is pretty equal
  • Couples who want to ease in to combining finances
  • Couples who just can’t get on the same page about discretionary spending, although they are on the same page about what they can afford with shared expenses

Non-negotiables for everyone

Regardless of which method you choose, it’s essential that you both have a clue what’s going on with all the money coming in and out of your house. I’ve seen too many situations where the “non-money” spouse ends up in a panic trying to figure things out because the “money spouse” is gone, either due to death, divorce or even just a traumatic accident. It’s up to both of you to make sure that should something happen to one of you, the other would be able to quickly get up to speed and manage the household expenses.

One final way we avoid money fights

The only money fights that we’ve ever had have been when I’ve sprung a financial question or decision on my husband over breakfast or in the car — he wasn’t prepared to discuss it at that point, and therefore tended to react negatively regardless of the question. We quickly learned to designate what we call “office hours” to discuss stuff like this. It’s a standing appointment on our shared iCalendar, and we keep a running agenda of what we need to discuss in the notes.

Setting aside time to specifically discuss financial issues gets us both in an open and trusting mindset and that has made all the difference. Currently on our agenda: taxes, planning an international trip, adopting a dog and completing some household repairs. These may not be specifically about money, but they all involve money and are areas we may have differing ideas or opinions.

 

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Why Tax Refund Anticipation Loans Are A Bad Deal

January 17, 2018

It might sound like a great deal to get your hands on your refund money today versus waiting until you’ve not only filed your taxes, but the IRS has issued the check, but it’s a bad deal all around. The storefront tax preparation companies that offer these deals are no longer allowed to charge the outrageous interest rates of prior years, but they still make a great deal of money off of these by charging fees that, when added up, can total a significant portion of your refund.

Back when we all mailed our returns in and had to wait for the IRS to send us a check, sometimes months later, these loans maybe made more sense for people. These days though, they are really just a way to make money off of less-informed people, which is what really gets my goat.

Rather than using a refund anticipation loan charged by a preparer, try one of these options:

  • File online for yourself. If you make less than $66,000, you qualify for free online filing and should take advantage rather than paying a storefront to do it for you. Planning point: if you qualify for the Earned Income Credit, the IRS is required to hold your refund until mid-February. This is not a reason to take out a loan though — just don’t count on that money yet!
  • Have your refund direct deposited. Rather than waiting for a check to come in the mail then having to take it to the bank, have the IRS deposit the money straight into your bank account. This will really speed up your refund – the IRS says that most people should have their direct deposit within 3 weeks or less of filing. Plus, no more worrying about your check being stolen or lost.
  • Consider same as cash deals, with caution. If you’re planning to use your refund to make a big purchase such as an appliance or furniture, check to see if the store is offering any type of “same as cash” deal, where you have a certain period of time to make payments interest free, usually 90 days or more. The key to this working is that you actually pay the store credit off with your refund before the interest-free period expires. Otherwise, it can be just as bad of a deal as a refund anticipation loan.

The bottom line is that paying any type of fee or interest to a bank or business in order to get part of your tax refund early is almost always a bad deal. Before you sign up for one, make sure you fully understand what it’s costing you and consider waiting to just get the money from the IRS if at all possible.

 

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How To Make The Most Of Your Tax Refund

January 16, 2018

I was hanging out with a friend last week when I noticed that she had an unusual amount of magazines and sales ads around her. Knowing that she is one receipt away from being a shopaholic, I asked her what was going on.

She told me that in anticipation of her the tax refund she thought she was going to get, she had started creating a list of the things she was going to buy. I mentioned her New Year’s Resolution to save more money and pay off debt and reminded her that the refund can serve a greater purpose than buying stilettos. Maybe she needed to put the catalogs away, but let’s not go to extremes.

There are ways to use your tax refund to achieve your goals while also having some fun. Here’s what I suggested to her:

  1. Give yourself permission to spend (with limits). I told her to give herself permission to spend a percentage of her tax refund. Because she had practically nothing in savings, I suggested limiting her spending to only 10% of her refund.
  2. Save some. I know it may seem counter-intuitive to someone paying off debt, but put some of the money in savings. When I talk to people who cannot seem to get out of the cycle of debt, I find this is the stumbling block. If you do not have at least $1,000 in emergency savings, you are just one unexpected financial need away from getting kicked back into debt.
  3. Pay off debt. Finally, yes, you should use some of it to jettison debt a little faster. What’s the best way to pay off debt? The best answer I have to offer is the method that you will stick to until you are debt free. If you feel defeated and need quick wins to stay motivated, pay off the lowest balance first (an exception to this is taxes – always pay past due taxes first). If you want to save the most money on interest, pay off the highest interest rate first. Use a Debt Repayment Calculator to come up with a debt repayment game plan.

Taking a balanced approach to spending an anticipated refund gives you some wiggle room to enjoy the refund, but still gives you the ability to meet your other financial goals.

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How To Be A Skating & Hockey Mom Without Going Broke

January 15, 2018

If you’re reading this, chances are you are you can relate to the way I spend many of my weekends: bundled up, bad cup of coffee in hand, watching your child skate at a ridiculously early hour of the morning. You’ve just paid a coach $80 for a private lesson and the rink more for the ice time. The team fees, tournament fees, lessons, extra ice time, skates, travel costs, equipment and apparel for your hockey player or figure skater are growing more expensive by the day.

Many of our rink friends are like us, juggling hockey and skating schedules for multiple children. Realistically, can you pay for all of this and still have enough to retire or send the kids to college? Here’s how we do it.

Buy used

Consignment and resale websites are the rink parent’s secret weapon in managing the high costs of their children’s sports.

  • I buy many of my daughter’s figure skating dresses from other skate moms whose kids have outgrown them. We find them from her coach, or at competitions for her synchronized skating team.
  • Skating tights can run $18-$25 per pair at the skate shop – but only $15 on BrokeSkateMom.com.
  • I’ve purchased much of my son’s hockey equipment on consignment. I use two local stores but you can find used equipment online at sites like Sideline Swap.
  • Look for hand-me-downs. Your child needs good skates ($300-$500) but they are growing out of them every six months! Find a parent with a child 1-2 years older and buy their used skates or hockey equipment. You’ll save hundreds. “Have three children that play and pass down equipment,” quipped the hockey mom of three, Kirsten Bennett Neville.
  • Buy helmets new though, recommended hockey parent Alison Cafferty. “I always get the best because the concussion rate is so high.”

Take advantage of public skating and open stick time

The more time your child has on the ice the more powerful of a skater they become. Both hockey players and figure skaters can benefit from unstructured practice time, independent of games or freestyle sessions. Public skating sessions ($6-$15) and open stick time ($15 – $25) are inexpensive ways to boost ice time. I skate with both my kids and my husband Steve goes to open stick time with my son so we get lots of family time on the ice as well.

Put the math to your sacrifice

I won’t kid you: hockey and figure skating are expensive sports. A fellow synchro parent wrote me recently that they had spent nearly $8,000 last year on individual figure skating and team costs – and their daughter’s only been skating for a few years. “Be realistic about how far your kid will go. Put the math to your sacrifice,” suggested fellow planner Brian Kelly, who coaches and plays hockey. “What percent make it to the NHL or to professional figure skating?”

It’s difficult to keep the cost of hockey down,” says veteran hockey mom Wendy Wippert Klein. “This is due to the fact that the biggest cost is ice time.” The same goes for figure skating, where competitive skaters practice in “freestyle” ice sessions ($12-30/hour), which is ice time devoted to more advanced skaters who can use the full rink for jumps and spins.

My friend Michelle York, whose son is a promising goalie at the AAA Squirt level, said she has “dished out approximately $10k this season in membership fees, tournament costs, hotel and gas.” Michelle sets a budget for the year and has these tips:

  • Choose an organization that has complementary clinics. (That’s a side benefit, too, of my daughter’s synchro team.)
  • Book semi-private instead of private lessons. Sometimes your child will be the only one who shows up to that semi-private slot!
  • Weigh the pros and cons of playing at an elite level when your child is young. It’s a lot of money and pressure.

Beyond that, a few more things to consider:

Skip the pictures

Hockey tournaments and figure skating competitions always seem to have a photography service, taking individual photos and video of all the athletes. Skip the $100 packages and take your own photos and video.

Accept that you may not be going to Disney anytime soon

If your child is dedicated to an ice sport, there are going to be some financial trade-offs. Make sure your child understands that you can’t have it all. Your family may have to choose a less expensive vacation or car so that the kids can play what they love  Show them your sports budget and discuss the trade-offs it entails.

Follow your child’s lead

Follow your child’s lead on the level participation they are ready to handle. Don’t be the Crazy Sports Parent, as tempting as it is! My teenager, for example, skates for herself – not to make her parents happy. She is compelled to practice daily if she fit it around school. My primary school son plays for fun, but he’s not ready to skate every day – and may not ever be.

Remember the benefits of ice sports

There are wonderful benefits to ice sports, though. Cafferty and Klein say it’s been worth every penny. “My son’s commitment and love of the game keep him on the straight and narrow, off all social media, good grades and incredibly health conscious,” she shared. Klein agreed, “Our out of town tournaments are our vacations. I wouldn’t have it any other way.” As someone who spends most early mornings, evenings and weekends at the rink watching at least one child skate, I agree.

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How One Couple Got (& Stayed) On The Same Page About Money

January 12, 2018

The new year is a perfect time to take a look back at the progress you made in your financial life last year and kick it up a notch for this year. So many New Year’s resolutions fall by the wayside by St. Patrick’s Day (eating less ice cream and calling old friends always makes my list – and by April there’s ice cream in the freezer & old buddies still get the occasional “like” on Facebook but not the catch-up phone call). There are some resolutions though, that are not only good for you but sustainable. And maybe a bit more realistic than my ice cream resolution too. Here’s one of those examples.

When the splurges add up

I recall talking with an acquaintance this time last year and she was having some financial difficulty. She and her husband had just bought a new car because their old one had over 250,000 miles on it. They paid about $4,000 more than they had budgeted after they fell in love with one particular car.

They had also renovated a bathroom, and the costs ran higher than expected. Finally, they went “a little overboard” (her words) on Christmas shopping (using credit cards). In isolation, none of these issues would have been an issue. The combination of all 3 things made them feel very constrained — almost overwhelmed — once the dust settled and they looked at the monthly expenses after their winter spending spree.

A difference in principles

She made a New Year’s Resolution to get her spending under control and, for the first time in her life, to understand where her money went — she wanted to see her financial “big picture.” Until that point, her guiding principle had always been, “I have a good job and make enough money to spend what I want to spend and I’m not extravagant, so it’s not a problem.” Her husband was more fiscally conservative and this difference was starting to put stress on their marriage.

Figuring out the big picture

After some conversation with both of them, we sat down together with the goal of organizing their financial life. We used this financial organizer in order to help them see the big picture – what they own vs. what they owe.

They had never put everything on one page before, so this was enlightening for them and probably not in a good way. They thought they were much further ahead than they actually were. We also used a combination of this expense tracker and Mint.com to help them get a firm understanding of where their money was going each month.

Setting a team goal

Upon having this “aha moment,” they made a promise to each other, and a New Year’s resolution, to work as a team this year. Their goals were to:

  • reduce their debt
  • maintain spending discipline
  • update their financial worksheets on the 1st weekend of each month

Teamwork makes the dream work

I saw them in the grocery store recently and asked how their resolution from last year is going. They smiled! Putting it on paper and choosing a sustainable “resolution” made it so they could stick to the plan and even create some healthy new money habits. Now they hold their monthly “financial meeting” at a local breakfast hot-spot, and it’s become a no-kids breakfast date that they look forward to. I have never seen them look happier.

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Why One Couple Decided To Pay Off Student Loans Before Investing

January 11, 2018

There are three kinds of questions when it comes to personal finance.

  1. The first are those with objective answers like what tax bracket you’re in or whether you would be subject to a penalty for withdrawing from your retirement account.
  2. The second are those with a pretty strong consensus among financial planners. For example, most would say that you should generally build up an emergency fund, contribute at least enough to your employer’s retirement plan to get the match, and pay off high-interest debt like credit cards.
  3. Then there are the questions whose answer depends on you.

When the answer isn’t clear cut

For example, I was recently talking to a young couple who had all their financial basics covered. They had sufficient emergency savings, no high interest debt, and were contributing enough to their retirement plans not only to get their employer matches but also to be on track for retirement. They still had enough savings to either pay off their student loans, contribute more to their retirement plans, or save for a down payment on a rental property. Their best option wasn’t so clear here. Let’s take a look at each option:

Option 1: Paying off the student loans

This is the most conservative choice. Since the interest rate was 4.375%, they were essentially earning a guaranteed 4.375% on any savings they put towards the loans. Try getting that rate at the bank or anywhere else for that matter. Paying off the debt would also provide an emotional benefit of not having the burden of the loan payments and would improve their debt/income ratio, which would help qualify for a better rate on a mortgage for the rental property.

Option 2: Contributing more to their retirement plans

This option would reduce their taxes now and probably overall since they’re likely to be in a lower tax bracket when they retire. They’re also likely to earn more in their retirement accounts than what they would save in interest by paying down the student loans. However, the money would be relatively tied up until retirement (which wouldn’t normally be a problem but they’re already saving enough to be on track to their goal) and there’s no guarantee their investments will earn more than the 4.375% they would save in interest by paying down the loans.

Option 3: Saving for a rental property

A rental property can help them achieve their goal of passive income and the ability to use leverage can provide a higher return on their investment than even investing in stocks. This makes it the most aggressive choice, almost like starting a business. But like a business, real estate is complicated, time consuming, and extremely risky. After all, you can lose more than what you originally put in due to maintenance costs and having to make mortgage, tax, and insurance payments while the property may be vacant.

What they decided to do

Given that they have adequate emergency savings and are currently contributing enough to their retirement plans to hit their goals, I personally probably would have focused on saving for the rental property (which is pretty much what I’ve actually been doing with my savings). However, they decided to knock out the student loans first while contributing extra to their retirement accounts. There isn’t always one right answer. Sometimes the best decision is a personal one.

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How To Repair Your Credit On Your Own

January 09, 2018

As we embark on a new year, one of the top goals I am hearing about is improving one’s credit. If this is one of your goals, just remember that as you look for help with this goal, that all that glitters is not gold.

One of my cousins came to see me excited over a meeting she recently had. She was excited because she had just met with a credit repair company that promised that they could get all of the negative credit items taken off her credit report and could get her score high enough so she could buy a home.

Owning your credit mistakes

Knowing that my cousin was not the most fiscally responsible person in the world, I suspected most of the negative information on her report was hers. I told her under most circumstances, no one can remove negative information that is accurate — if you did the deed, you owe the money.

A shady plan

So I asked her how the credit repair agency was going to do this. She outlined the plan they gave her, which is almost a textbook example of how to know when you should run from a credit repair agency. Here’s what told me that this plan was a scam:

The red flag that should send you running

In order to have the negative items removed from my cousin’s report, they told her that they were going to report her negative debt as fraud. Which is ironic, because by doing this they are committing fraud. I told her that this is a lie, it’s illegal and all a creditor would have to do to disprove the fraud claim is to go into her closet, which looks like an exclusive shopping mall, to know that she is responsible for every purchase.

Red flag #2

She was also told to get an Employer Identification Number from the IRS and to use the Employer Identification number instead of her Social Security number when applying for credit. This is also fraudulent. I told her that unless she wanted to live the “Orange is the New Black” life, she probably shouldn’t try that move either.

Once she realized that she was basically being asked to lie, which she knows is wrong, she asked if there are credit repair companies that aren’t scams. I told her that yes, there are legitimate credit repair agencies out there, but there is nothing that they can do for you, if you aware willing to put in the effort, that you can’t do for yourself.

How proper credit repair works

Obtain your credit report. The first step is to review your credit report from the three main credit reporting agencies. You can obtain your credit reports for free from all three credit agencies by visiting annualcreditreport.com

Look for inaccuracies or errors. Review each of your reports for information that is inaccurate, incomplete or contains information that should not be reported. Check out Nolo’s credit report checklist for information that should not be on your credit report.

Dispute actual items that are incorrect. If you do find something wrong, you can dispute those items yourself online at each of the major credit reporting agencies’ websites. Experts recommend also sending a detailed letter to the credit bureau with the error, as well as the creditor listed, telling why the information is wrong with the evidence to back up your claim. Under the Fair Credit Reporting Act, a credit reporting agency has to respond to every dispute it receives within 30 days.

Check your benefits for help. Consider contacting your EAP or legal benefit program at work to see if you are eligible for free legal services to help you clean up your credit.

Take care of other detrimental items. If your credit is bad due to legitimate items like past-due bills or high credit card balances, then the solution won’t be as simple and will require a little more discipline and follow-up.

For past-due accounts and items in collection. Once you’ve verified you actually owe the money in collection, follow the CFPB’s guidance on what steps to take to negotiate a settlement.

For high credit card balances. First, call your card company and ask for a limit increase. BUT DON’T USE IT. What you’re trying to do is decrease your credit utilization, which will give your score an immediate boost. If you’re maxed out, an increase probably won’t going to get you all the way to where you need to be for your best score, so it’s time to make a plan to pay down the cards, starting with the accounts that have the highest utilization. Then stick to it.

It won’t be easy, and it will take time, but with a little bit of work you can clean up your credit report on your own, without having to worry about scams.

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What Losing 30 Pounds Taught Me About Achieving Goals

January 04, 2018

Last week, I wrote about setting goals. Let’s face it. That’s the easy part. What about actually achieving them?

Losing 30 pounds last year

Two of the most common topics for New Year’s resolutions are weight loss and finances. At the beginning of last year, I set a goal to go from 222 pounds to 185 pounds and 8-10% body fat. I knew this would be a stretch goal but also doable because that’s what I was about 10 years ago. I haven’t quite hit my goal yet, but I have lost 30 pounds to get to 192 and 11% body fat. Here’s what I learned along the way and how it can apply to achieving financial goals:

1. Track your progress. Measuring my weight every day was probably the most important factor for me in staying motivated. If the number went down, I was encouraged to keep going. If the number went up, I was jolted back on track.

Find similar ways to measure your financial progress. It could be your debt or savings levels, credit score, retirement projections, or overall financial wellness. (Just realize that many of these financial metrics require a longer time interval to see progress than my daily weigh ins.)

I realize that weight isn’t the best metric for measuring fitness. (I also did more comprehensive full body composition tests at my gym every couple of weeks) However, it was the only one I could measure every day, which was important for my motivation. Something is often better than nothing. This bring me to…

2. Don’t make the perfect the enemy of the good. This can happen in several ways. If you’re like me, you may find yourself paralyzed into inaction by analysis paralysis of the “perfect” diet and exercise routine. When you inevitably fall off the horse, you may also feel discouraged to keep going. I had to accept that pursuing “perfection” is an ongoing process with many ups and downs and the key was to focus on doing the best I could at the time.

Your financial progress will likely be the same way. You will have unexpected expenses that will bust your budget. Your investments will decline from time to time. There will be moments when you make financial decisions you regret. Just stay focused on what you can do now to get back on track.

3. Get help. About halfway through the year, I hit a plateau and decided to join a boot camp style gym. I quickly discovered that my previous workouts weren’t as diverse and my form often needed correcting. I also found myself enjoying the workouts more and probably pushed myself harder than I would have on my own. As a result, I started making progress again.

A good financial planner can be like a personal trainer for your money. They can help you set reasonable goals and find the best way to accomplish them. At the very least, they can help hold you accountable for doing what you know you should do anyway.

Like hiring a personal trainer, a financial planner can be expensive. Many also sell overpriced financial products and services like the many dubious supplements and exercise gadgets out there. Fortunately, financial wellness is becoming as common an employee benefit as physical wellness programs. See if your workplace offers access to free financial education and guidance through an unbiased workplace financial wellness program.

4. Do what works for you. I read a lot about diet and exercise and talked to several friends about what they did. But in the end, everyone is different. Through trial and error (see #1 and #2 above), I had to find the right balance between doing the “right things” and what I could actually tolerate/stick with. For example, I try to be super strict with my diet during the day so I can be a bit looser (but still within reason) when I go out on evenings, weekends, holidays, and vacations.

Just like the best exercise or diet is the one you’ll actually do, the same is true for the best money management strategy. Experiment with different ways to manage your money and then make adjustments. (This is why measuring your progress is so important.) Some people keep detailed spreadsheets of their spending, some use apps like Mint, and some give themselves a fixed cash allowance. They’re all different paths to the same place.

Every day is a new day

Whether your resolution for 2018 is to pay off debt, save more or simply be more mindful of spending, I wish you much success. Be kind to yourself and remember that even if you fall away from your intentions, each day is a new day to start again.

Happy New Year!

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How To Do A Spending Cleanse

January 03, 2018

After the gluttony of the holidays, it’s no surprise that the word “cleanse” is floating around my world. While my waistline wouldn’t mind a little food cleanse, I’m more apt to try a spending cleanse after the spend-y days of December.

You don’t have to go cold turkey

Going on a spending cleanse doesn’t mean you don’t get to buy anything, it just means you’re limiting financial outlays to the bare necessities. There’s a difference — buying is picking up the things you need, like groceries, transportation, paying bills, etc. Spending is a choice to purchase something you don’t really need at that exact moment.

Examples of ‘spending’

  • Going to Home Depot to purchase replacement blinds for the ones in your bedroom that broke, then taking a detour down the clearance aisle to see if you can score any deals on holiday items after wandering through the succulents and picking out a few cute ones for the living room — that’s spending.
  • Heading to Costco fill up on gas, then stopping into the store and stocking up on that shirt your husband’s mom got you for Christmas that you’ve literally been living in ever since — that’s spending.
  • Stopping by the pet store to buy cat food and walking out with a new bed and toys for said cat — that’s spending.
  • Bagging the plan to make the meal you planned for dinner and ordering sushi instead — that’s spending.

The bottom line is that mindless spending is a habit. It’s not to say that I’ll never buy myself anything fun again, I’m just trying to reign in the stuff collecting and instead set that money aside for my bigger 2018 goals.

The rules of a spending cleanse

  1. Timeline: one week.
  2. Make sure you have necessities taken care of, like gas in the car, bills paid, etc. It’s not about not buying anything, it’s about avoiding unneeded spending to break a habit.
  3. For that week, when you leave the house, take just your ID and twenty dollars max. You can tuck a card away somewhere in case of emergency, but the point is not to use it unless you’re literally stranded or starving.
  4. If you have to dine out for work, that’s fine, just make sure you stick to any per diem rules you have so that you’ll be reimbursed.
  5. No online shopping or in-app purchases.

It’s supposed to feel extreme

If it feels weird to go out without any real money, that’s the point — it’s supposed to be a bit extreme, just like drinking juice for three days makes it feel like three months since you’ve last chewed anything. I’m going to try it — I’ll be traveling for work, which will actually increase the challenge as I tend to engage in retail therapy when I’m stressed. Obviously I’ll have to take my credit card with me in order to rent a car, pay for my room and eat, but beyond that, I’ll be keeping it in my wallet.

Join me?

 

How To Get Started On Your 2018 Goals

January 02, 2018

Last year Business Insider reported that 80% of News Years resolutions fail by February. If you are a gym rat like me, you see it all the time: in December you have your pick of gym equipment. Then by the second week of January, the gyms are so packed that you are lucky to get one 3-lb. dumbbell. Fast forward to February and you once again, have your pick of gym equipment. I don’t know about you, but I am determined not to be a statistic. So how are we going to do this?

How do you eat an elephant? One bite at a time…

To paraphrase a famous quote, we do this one bite at a time. Instead of tackling everything at once, start slowly. Consistency, not perfection, is key. Find one small way, no matter how small, to be consistent in your goals. Commit to sticking to it for at least 21 days so it becomes habit. Here are some ideas, no matter what your 2018 goals might be.

If your goal is to…

Manage money better

Try this: I find that most people know the area they tend to overspend. Choose one area — clothing, entertainment, eating out, etc. — and commit to using cash only in that one area.

Eat healthier

Try this: My nephew told me that it’s too expensive to eat healthy. Keep in mind he said this sipping on his second Venti Pike Roast. I told him that water is free. Commit for 21 days to drinking only water (to answer a question from my friend, no, Scotch with water does not count).

Make kids’ lunches easier

Try this: I stole this awesome idea from Pinterest. One mother made a bunch of peanut butter and jelly sandwiches, froze them, then placed a frozen sandwich in her kid’s lunchbox  each day. (She says it’s thawed by her son’s lunch time). What if your kids hate sandwiches? As crazy as this sounds, try flattening the bread with a roller pin, then putting PB&J in the middle of the bread, rolling the bread, then cut into PB&J sushi rolls — I had a friend that tried this and she said it works.

Save more money

Try this: First, use your bank’s programs to help you save money. This may range from budgeting and savings software to programs that round up your purchases to the nearest dollar with the difference automatically transferred to savings. You can also use savings apps to painlessly save money. Remember, saving money initially is about consistency. Choose an amount, no matter how small, that you are committed to saving for at least a month, then increase.

The key is to start small — it’s typically the small steps that help you to build the momentum you need in to reach your goals. Now I’m off to the gym!

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How Technology Has Helped Me Keep Closer Tabs On My Goals

December 29, 2017

Note from the editor: As we round out 2017, many people will be setting goals and intentions for the year ahead. To help with that, our blog team will be sharing their take on goals throughout the week — we all have a different opinion! We hope you enjoy hearing how each of us approaches the idea of goal-setting and New Year’s resolutions. From Michael:

You’ve probably heard the old expression about the cobbler’s children not having shoes. As a financial planner, I have to admit that looking at my own finances is sometimes a chore. After talking with people about financial issues all day long, the last thing I want to do at night is look at my own situation. I’d much rather turn on some music or podcast or a news channel or even clean a bathroom or read a good book. If keeping better tabs on your daily money is on your list of goals, perhaps my experience can help.

Tracking the day-to-day

What I have found lately is that it isn’t always a chore to keep an eye on my budget, which is great. Technology has allowed me to get a quick look at my financial life at a glance and it’s not all that intrusive. I use an online budgeting tool (there are lots of them to choose from now) to keep track of my spending, and to set monthly targets. When I reach or go over budget in a category, I get an email or a text message. This tool also has an app, so I can take a quick peek at my daily financial life as I’m waiting for coffee to brew (or popcorn to be ready in the microwave).

There’s an app for that

A recurring bill is due? I get a text message to let me know that the statement has been generated and a link to the website so I can schedule a payment. Need to check out if the stock market has gone up or down? A quick look at one of the apps on my phone can give me specific stock quotes, a look at the overall markets, big news items. Wondering what’s going on in the financial world? There’s an app for that too.

Information overload

Whether it’s the world at large or my own personal day-to-day financial management, it’s getting easier to keep track of your financial life without a big investment of time and effort. Is there a downside to this? Absolutely: information overload. At one point I got so many notifications on my phone each day that I stopped paying attention to them & eventually turned them off. I had to unsubscribe from all but a few of the most useful email lists. These apps only work if you work them into your daily routine.

The missing app 

Here’s where my 2018 goal comes into play: I have only been able to find useful ways to manage my day to day; my long term financial picture is something I still visit only periodically. I know my long term goals, and use technology to manage the short term items in a way that is consistent with my long term goals, but I wish there was a way for me to check my progress at a glance for the big picture stuff without having to crunch all the numbers and look at several different accounts first.

If I can find a technologically simple way to view my long term financial goals, then I will consider my 2018 money goals a success — after all, I’m doing all the day to day stuff, so they should, in theory, lead to achievement of the long term. But having a way to check that regularly would help to ensure that outcome.

When used in the appropriate amount, technology can add a great deal of structure and clarity to your financial life and goal setting.

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3 Tips For Setting Goals You Can Actually Achieve

December 28, 2017

Note from the editor: As we round out 2017, many people will be setting goals and intentions for the year ahead. To help with that, our blog team will be sharing their take on goals throughout the week — we all have a different opinion! We hope you enjoy hearing how each of us approaches the idea of goal-setting and New Year’s resolutions. From Erik:

It’s that time of year again when many people make New Year’s resolutions only to see them become a source of disappointment and disillusionment. Is there anything you can do to set goals that you’re more likely to achieve? Here are 3 tips that I’ve seen work for financial goals and can be applied to other goals as well:

1. Set the right goals. Make sure the goal you’re setting is actually important to you and not just something that you’re “supposed” to do. Otherwise you won’t feel motivated enough to take action.

  • What are the things that most bother or worry you?
  • What would bring you the greatest amount of happiness?

Focus on the outcome that you want rather than what it will take to get there. For example, one of my top financial goals is to spend less eating out in order to achieve financial independence earlier. The goal is financial independence, not just spending less eating out.

2. Break each goal into achievable action steps. We often start with an ambitious, exciting goal and then feel too overwhelmed to take action. For the goal of financial independence, don’t just calculate how much money it will take. Break that number down into how much you need to save per year and per month. It will look a lot more doable that way.

3. Figure out the price you’re willing to pay. My grandmother used to say that you can have anything you want as long as you’re willing to pay the price. While not literally true, almost every goal does have its price.

Once you’ve broken it down into the action steps, ask yourself what price you’d have to pay and whether you’re willing to pay it. If not, don’t just give up. Instead adjust your goal until the price is right. If the price of financial independence at 50 isn’t worth it, try 60. Otherwise, you may end up waiting until 70 by default.

The 3 important questions

So what goals are most important to you? What steps do you need to take to make them happen? Finally, what price are you willing to pay?

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The 5 Things I’m Not Going To Do In 2018 To Keep My Sanity (& My Money)

December 26, 2017

Note from the editor: As we round out 2017, many people will be setting goals and intentions for the year ahead. To help with that, our blog team will be sharing their take on goals throughout the week — we all have a different opinion! We hope you enjoy hearing how each of us approaches the idea of goal-setting and New Year’s resolutions. From Tania:

It’s confession time. I started off the year awesome. I entered 2017 as a “woman with a plan.” I had everything planned from my meals to kids’ chores, house cleaning and workout schedules. I walked into 2017 with my head held high.

Fast forward to December and our meal yesterday was courtesy of a fast food drive thru, our home looks like a tornado hit it, and the only thing I have done with my gym membership over the last few weeks was to use my membership card to scrape ice off my car windshield.

Down but not defeated

I am down, but I am not defeated. I will rise again above last minute fast food runs, climbing over piles of laundry and my quickly expanding waistline. Our recent home purchase and move (at least this is the excuse I am using), coupled with several family emergencies, spiraled my plans into non-existence. So now that the dust has settled, I am working on getting back on track.

Taking time to reflect

As I looked at the shattered ruins of my 2017 goals (I gotta admit, I forgot how amazing Hershey Sundae pies taste), I immediately started reflecting on what happened. When I looked at my schedule over the past 11 months, I started to see how over-scheduled I was and my goal for 2018 became clear.

Making a ‘do-not-do’ list

For 2018, my goal is a more of an “un-do” list than a to-do list. It is a list of those things that I am not going to do to help me stop setting unrealistic expectations around the following:

1. Feeling bad about eating out. One night when I could not sleep, I binged on “perfect mom” YouTube channels. You know what I mean — the ones who never eat out, cook every meal from scratch, all organic, on a budget of five dollars. I initially thought, “if they can do it, I can do it.”

No, I can’t. I have good days and I have lazy days, and I have a life. So, for 2018 I am budgeting a few nights a week of eating out on our busiest days. For the other days, I am going back to meal planning using websites like Emeals, TheFresh20, or even using meal kit delivery. The lesson I learned from 2017 is that when things get crazy, maintaining my mental sanity trumps the spending on eating out a few times a week.

2. Wasting energy on emotional vampires. I know this is not a financial one, but all the money I spend on chocolate after talking to an emotional vampire (my drug of choice when overwhelmed, although Starbucks is a close second) puts this into a finance-related category. My lesson learned for 2017 is that I cannot want someone else’s happiness, success or goals more than they do. My 2018 goal is to release people (stop talking to them and/or enabling them) so they can experience the consequences of their life choices.

3. Volunteering for everything. The problem is that I want to be actively involved in just about everything, but I have to officially wave the white flag of surrender — I give up. I just can’t do it all. My plan for 2018 is to limit my volunteering and giving to those causes that are the most meaningful to me in order to keep my sanity and my funds straight.

If this is also something you struggle with, think through your year — if you have periods of major activity such as a busy work schedule, that’s when you have to say no to volunteering for additional activities. I tell my kids hearing the word “no” (which is a complete sentence) is character building. If you are like me and struggle to say no, tell yourself you are helping that person build character by getting them used to hearing the sentence, “No.”

4. Overly complicating money management. Believe it or not, this was an area that was unnecessarily complicated for me. I always say to choose the easiest way to do things in order to stick to your goals. So I finally took my own advice and started using my bank’s financial budgeting tools, instead of the budgeting system I was using. This small step has saved me so much time — I no longer have to reconcile my bank account with the budgeting website I was using.

If you struggle to do something, such as exercising or budgeting, look for the simplest way to get it done. For working out it may be downloading an app with workouts you can do anywhere; for budgeting it may be starting with your local bank. Struggle to get groceries? Use grocery pickup services like the ones at Walmart or delivery services like Amazon Fresh to make buying groceries a breeze.

5. Letting my kids do too many sports/activities. It only took a few activities before I found my days crammed with kids’ events and my wallet drained. To gain balance, we will be limiting activities and using the money we’ll save to increase our college savings. This will also give us back several hours in the week that were spent in the car or sitting at practices, games, etc.

“Un-resolutions”

I guess you can look at my goals for 2018 as an “un-resolution list:” a list of things I am resolving to dump or get rid of in order to maintain my sanity so I can focus on the things that are important to me. As you think about your year ahead and what you’d like to accomplish, maybe think about whether there are things that need to come off your 2017 to-do list in 2018.

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3 Last Minute Gift Ideas

December 21, 2017

Do you have anyone left on your list that you need last minute gifts for? Without knowing who they are, I would guess that at least one of them would love to have more money. No, I don’t mean that you should give cash. How about a gift that can keep on giving for a lifetime? Here are three good financial books to consider:

For anyone who wants to be a millionaire: The Millionaire Next Door by Thomas Stanley and William Danko. If you haven’t heard of this book by now, it’s full of surprising stories about how most millionaires really live. They don’t drive new sports cars, wear the most expensive designer labels, or eat regularly at the most fancy restaurants. That’s what people do who want to look like millionaires. Real millionaires typically live very modestly, which is exactly how they became and stayed millionaires.

For anyone with a job: What Your Financial Advisor Isn’t Telling You by our CEO Liz Davidson. Despite the title, you don’t need a financial advisor to benefit from this book. It’s also not an expose into the financial advisory profession. Instead, the book covers how to make the most of your paycheck and all the other employee benefits that come with it in order to pay off debt, build wealth and eventually achieve your financial independence day.

For anyone with money to invest: Global Asset Allocation by Meb Faber. It’s been said that 90% of your investment returns is determined by your asset allocation, so which asset allocation strategy should you use? With so many conflicting opinions out there, it’s easy to feel overwhelmed. This book reviews the world’s top asset allocation strategies and reaches a shocking conclusion.

Get moving (or get clicking)

It’s not too late. You still have time to order one or more of these books and have them arrive before Christmas, but don’t wait too long or you may have to pay for overnight shipping. As they say, time is money!

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Think You’re ‘Not Good With Money?’ How To Change Your Outlook

December 20, 2017

One of the most impactful personal finance books I’ve ever read is Brent Kessel’s It’s Not About the Money. In it, he shares eight different financial archetypes — most of us embody a couple of them, but one that I see a lot in my work is the Innocent.

Innocents, whether they have money or not, have the common thread of being unable to master money. Either they weren’t taught the skills, are confused by money or their natural gifts are not economically valued in our society. Innocents aren’t necessarily against money, they just have a hard time hanging onto it and dealing with it. We probably all know someone who is an Innocent, if we aren’t one ourselves.

“Not good with money”

Many of the other financial archetypes develop their relationship to money in response to fear, anxiety or frustration. Innocents don’t have a coping strategy, so the pain they feel about their financial situation is often deeper and less obvious for others to see. They might feel like they should have the ability to be better with money, but when it comes down to trying, the response has historically been to shrug and say, “I guess I’m just not good with money.”

Living paycheck to paycheck even on a high income

Even if they earn a high income, Innocents don’t have the know-how to secure their financial futures, so at the end of the day they find themselves living paycheck to paycheck. Innocents are far more likely to be regular lottery players and fall prey to get-rich-quick schemes, looking for a quick fix. When these endeavors fail, it just adds to their lack of confidence and feelings of inadequacy when dealing with money.

Being innocent doesn’t mean you’re not guilty of hiding from the truth.

Innocents usually spend everything they have and sometimes more, without any idea where the money is going. They are often people with no earnings of their own and depend on a spouse, family members or the government for support, which further adds to their financial distress. The first step of getting their financial house in order is to look at the numbers.

Moving from innocent to empowered

If you’re an Innocent and you don’t know how to look at the numbers, get help. If you have a workplace financial wellness benefit or EAP, use it to talk to a financial coach. You may also want to start by talking with a financially savvy friend. Work on these steps to get a better grasp on your money:

  1. Find out where your money is going, then start living within your means immediately.
  2. Find ways to simplify your lifestyle so that you can become self-sufficient.
  3. Prepare a debt pay-off plan and stick with it.

It won’t be easy at first, but ignoring your financial situation won’t make it go away. By paying attention and gaining the skills necessary to be financially independent, you’ll experience a great amount of relief and empowerment. Get after it!

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7 Steps To Prepare For A Potential Layoff

December 19, 2017

Editor’s note: This post has been updated to reflect current events due to the COVID-19 pandemic.

Of late, one of the biggest questions I have gotten from friends is, “how do I prepare for a layoff?” When I ask for the reason behind the question, they tell me of a friend or a relative that recently got laid off or worse, their company has had recent layoffs and has warned that there may be more.

If you find yourself in this position, I am sorry. A layoff or even the possibility of a layoff is scary. The good news is that there is a lot you can do in advance to prepare, just get started ASAP.

1. Get your savings account fat.

You may be aggressively attacking debt or saving for a vacation, but if you are facing the possibility of not having a paycheck, keeping a roof over your head and food on the table becomes your #1 goal. You may need to temporarily pay the minimums on debt, cancel upcoming vacations and focus all extra money on fattening your savings account. Best case, you don’t get laid off and you can resume your plans. Worst case you are in a better position to pay the bills while you look for work.

The average length of time to find employment is just over 6 weeks. This can be shorter or much longer depending on your career, industry, and location. Start saving enough to cover at least at least three months of expenses, with six being a reasonable stretch goal.

2. Get your spending plan skinny.

Trimming down your spending is the easiest way to create extra money that can go towards savings. Start with the things that you’ve had to go without during the shelter-in-place orders anyway: gym memberships, entertainment expenses, dining out and shopping. Create a “Basic Needs” budget to determine how much you need monthly to survive — this includes food, shelter, transportation, your creditors and possibly childcare while interviewing for a job.

3. Prep your creditors.

I have learned from experience that the earlier you contact your creditors about a hardship, the more likely they are to work with you if later find yourself struggling to pay your bills. Even if you are paying your creditors on time, contact them to let them know about the potential layoff and ask about your options if you no longer have a paycheck. This would also be a great time to ask for a reduced interest rate! Most businesses are offering increase flexibility around hardship procedures during the pandemic, but those rules could revert back to previous rules by the time you are out of work, so be clear on how long certain provisions are in effect.

Get the name of the department, oftentimes called the hardship department, you would need to call for help. Also, ask for their procedure — do you have to write a hardship letter, produce a budget, etc. to get help? Then if you do find yourself pinched, you’ll already have a plan.

4. Understand your unemployment benefits.

Read up on the qualifications for unemployment, which typically have to do with your lack of employment not being your fault. Each state has its own requirements, length of time you will receive benefits and even benefit amounts. You can even estimate your potential payment. Knowing what you might receive can help you gauge how many months you can make it when you factor in your savings along with unemployment. As of right now, the federal government is supplementing all unemployment checks with $600 per week, regardless of previous income. This relief is in place through December 31, 2020.

5. Suck every benefit out of your job before you leave.

Missed your annual physical or dental checkup? Need glasses or contacts? While you are employed with a paycheck and an employer subsidized healthcare plan, get every medical need taken care of if you’re able.

If possible, also find out how your health insurance will be covered during a layoff. Some employers will subsidize healthcare for a certain period of time, while others stop subsidizing on the last day of employment. You may also be offered COBRA, a continuation of your healthcare coverage at your expense. Know that you can use your HSA to pay for healthcare premiums when you are claiming unemployment.

6. Find out what happens to other benefits when you leave.

If you have an outstanding 401k loan, find out how the loan is treated once you are laid off. Some employers allow you to keep paying, while others may give you a grace period, but require you to pay the balance rather quickly. If you’re unable to repay the money within that period of time, the remaining balance is considered a withdrawal and could be fully taxable. In addition, if you are under the age of 59 ½, you may have an additional 10% early withdrawal penalty. Make a plan to avoid this, if at all possible, by brushing up on the temporary rules for hardship withdrawals that could help you avoid the penalty and even taxes.

If you have life insurance and/or long term care through a workplace plan, find out if you can take those benefits with you and how much they may cost so you can factor that in to your budget.

7. Clean house.

Being laid off can be emotionally traumatizing. While you are in your right mind, get copies of key documents such as performance records or work samples. Get the contact information of potential references. Also, offer your information to fellow colleagues who may need to use you as a reference.

It’s also a good idea to find the contact information for payroll (you may have to request your W-2 or update your address if you move), the best HR contact for former employment verification and benefits contacts. If your layoff is imminent, start removing your personal items from your workplace.

I mentioned it before, but getting laid off can be a traumatic event. The more prepared you are for the layoff, the easier it will be to find a job and the less impactful the layoff will be on your finances. A little bit of preparation can go a long way.

Is This The Year You Start A Charitable Giving Habit?

December 18, 2017

It’s the time of year for giving. In our home, as in many households, that giving includes charitable contributions. While we make some contributions during the year in response to events, we make our planned gifts during the holiday season. Here’s how we think about it:

Charitable giving is a financial habit

While I can’t prove this scientifically, I do believe that money has a “flow,” and that sharing some of the money I make with others shows gratitude for blessings in my life. In fact, giving away money can actually improve your budget by forcing you to manage your financial resources more mindfully. Making charitable gifts has always been something my husband, Steve, and I agreed upon in our relationship. In fact, when we got married we asked friends and family to make donations instead of sending presents.

How much to give

Personally, we aim to donate a set percentage of our income after taxes. We include charitable donations which are tax deductible, as well as contributions which aren’t (such as contributing to a GoFundMe campaign for a neighbor with unexpected medical bills). If you’re new to giving, start with a small percentage goal, like 1 to 2 percent of your take home pay, or 5 percent of your discretionary income.

Tax deductions

If you itemize your taxes, you may take a tax deduction for money or property donated to a qualified organization. According to IRS guidelines, you may generally deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases. Don’t forget to print out copies of the donation acknowledgements – you’ll need to save them in case your tax return is audited.

Where to give

Where you give is an entirely personal choice. If you’re new to charitable giving, consider asking yourself, “what problem do I most want to help solve?” as a starting point for your research. You may make more impact by making larger contributions to fewer organizations. Set some guidelines for yourself. For example, we focus our giving on education, international health and food security.

You’ve got plenty of charities to choose from. According to the non-profit directory Guidestar, there are 1.8 million IRS recognized non-profit organizations in the U.S., including 501c3 registered charities and other nonprofits. Some people give a set percentage to their religious organization. It’s a good idea to check out any organization on Guidestar or Charity Navigator to see how well they make use of donors’ contributions.

Giving stocks or mutual funds

Lucky enough to have bought Apple stock fifteen years ago? Give some shares of that instead! If you have stocks or mutual funds which have appreciated in value, donating shares instead of cash allows you to make the deductible donation without paying taxes on the capital gain. See IRS publication 526 for all the rules.

Check for matching donations

Chances are, if you work for a larger company, your employer will match employee charitable contributions, up to a certain dollar limit. Some employers have guidelines for what types of contributions they will match, so check your benefits website for more details.

When you can’t afford to give much – or anything

If you’re buried in student loans or credit card debt, or at a place in your life when you just don’t have any surplus income, please give yourself permission not to make donations. If you can swing it, give your time instead. Most of those 1.8 million non-profit organizations run on a combination of contributions of both money and volunteer effort. Don’t know where to start? Check out VolunteerMatch or Volunteer.gov.

The bottom line? Giving is habit worth developing.

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