2017 By The Numbers

January 01, 2018

Happy New Year!

As we launch into 2018 here at Financial Finesse, we are reflecting on a successful 2017 — a year of tremendous growth in our business as well as in the number of lives we’ve had the privilege and honor to change for the better. We hope that this blog, written by our own financial planner team, has helped you to have a more prosperous year. Here’s a breakdown of what our readers loved this year, by the numbers:

Total pageviews for the year:

157,121

Most popular posts from 2017:

  1. What Are Your Health Insurance Options When Retiring Early? – 1,378 views
  2. How To Have The Money Talk – 1,250 views
  3. How To Avoid Borrowing From Your Retirement – 1,037 views
  4. Do You Need A Cohabitation Agreement? – 805 views

Most popular posts from previous years:

  1. Is Paying Off Your Mortgage Worth Losing The Tax Deduction? – 8,106 views
  2. What An Accident Taught Me About Car Rental Insurance – 5,939 views
  3. How To Be Financially Independent In 5 Years No Matter What Age – 5,275 views

Most shared on Facebook:

  1. Even Jay-Z Has Investing Regrets
  2. The Trouble With More
  3. How My Money Attitude Was Keeping Me Poor
  4. 3 Important Adulting Lessons I Taught My Daughters

Most shared on LinkedIn:

  1. Should You Go Into Debt To Get Pregnant?
  2. The 5 Things You Should Do Right Now To Protect Your Identity
  3. Why You Shouldn’t Worry About Investing At The Top
  4. How Much Will A Hybrid Car Actually Save You?

Readership by city:

New York: 5,638 readers

Chicago: 4,032 readers

Los Angeles: 3,995 readers

Hartford, CT: 2,248 readers

Golden Valley, MN: 1,686 readers

Lives changed:

Countless

Thank you for being a part of our amazing year! Here’s wishing us all a happy, healthy and financially well 2018!

Why My 2018 Intention Is To ‘Always Be Me’

December 25, 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 Cynthia:

Every New Year, I set intentions for the coming 12 months. I’ve been doing this for more than half my life. When I first began doing this, I set personal guidelines, such as “use the power for good,” or “express my gratitude.” More recently, I’ve set annual themes for qualities I wanted to cultivate, such as patient or acceptance. This approach of setting intentions has always worked for me – there’s a magic power in writing down my goals.

Keeping it simple

This year I am simplifying. I’m not setting multiple intentions. For 2018, my primary goal is to, “always be Cynthia.”

Finding myself again

What does that mean, exactly? Aren’t I myself already? Well, sure I am, but lately I’ve been thinking that I’m no longer the most interesting version of myself. I spend a lot of time fulfilling external expectations – work, family, etc. That’s certainly no surprise from someone who’s an Obliger. Not to mention that balancing competing priorities is a challenge for working parents of school-age children everywhere. Flexibility and compromise are essential. I’ve been balancing competing external priorities, but I’ve lost track of some of myself in the process.

Here’s how I plan to return to what feels more “me.”

Focus on strengths

When I use my strengths at home and at work, I’m in the flow: I get more done with less effort, and have more fun doing it. Life’s too short to spend the majority of time doing things I don’t enjoy.

That’s why in 2018 I plan to make some changes in how I manage my money and investments:

  • I can get bamboozled by the pile of paper which arrives in my mailbox every day (see the story of my paper struggle.) How to be Cynthia? Don’t sweat the pile on my desk in my otherwise tidy office. After all, a messy desk can be sign of genius.
  • I’m considering moving my investments from a mostly active to a mostly passive investing approach. I may have the CFA® charter, but I don’t like to watch the market every day, so I am highly unlikely to beat market averages. Does this mean I will move my accounts from the full service brokerage firm where they are now? Maybe. I’ll keep you posted.
  • I like to put together detailed budget spreadsheet where every dollar has a specific job. My husband likes a shorter one, with broader categories, as he easily keeps track of our financial life in his head (he’s a math guy.) The solution? Discuss the summary together but keep a more detailed one for my own use. That way we can put together a spending plan that fits both our personalities.

Don’t wait for permission

I shouldn’t need permission to be Cynthia, so why do I sometimes wait for it? Is it all those years of Catholic school? Is it a generational thing (I’m a younger Boomer, part of Generation Credit)? Carl Richards calls the difference between things you’ve done and the things you’ve always wanted to do the Permission Gap.

What would I do if I gave myself permission? I’d certainly prioritize things that get me out of the house (feeling cooped up is a hazard of working at home): walking in nature, yoga classes, plays and concerts, dinner out with friends, language classes, etc. What does this mean for our finances?

  • I need to set aside more money for babysitting expenses. That should be relatively easy to do. I have wiggle room in our food budget, especially by cutting down on sushi or Chinese takeout orders. I can also try Kelley Long’s absolutely brilliant hack for saving on food expenses.
  • I have to budget more time for fun and exercise. This is such a hard one for me. Kids, husband and work always seem to come first. My colleague Doug Spencer (a fellow Obliger) holds himself accountable by prepaying/prescheduling his workouts at Orangetheory. My goal is to find a similar hack which works for me.
  • Where can I find more time to write? I keep a running list of blog ideas, LinkedIn posts and book topics just begging to be written. Where can I find writing time in a day crammed with responsibilities? What about the hour or so I spend reading 3-6 news outlets daily? While that habit made sense when I worked in politics, the world does not depend on me being up to the minute on current events. It’s time to give up this habit.

Expect to be challenged

Now that I’ve set my intention to always be Cynthia for 2018, I expect that the challenges to living that intention will increase in volume! For example, when I turned forty I decided that my theme for the year was “be patient.” Needless to say the year will filled with unexpected challenges to try my patience. I was given many chances to practice patience. I did, in fact, learn to be far more patient, but it was a hard year.

The upshot? By the time I had my first biological child at age 41, I was a patient person – a useful quality for parenting. Well, patient for someone who’s from NY, anyway. This year I don’t know what’s coming to challenge me, but embracing the challenges will help be me.

How will I stay accountable?

Author Gretchen Rubin, who writes about happiness and habits, recommends setting up outer accountability. She’s got some good ideas here, including creating an accountability group. I know some other time-stretched moms who might want to support each other in being ourselves. As I’ve written before about Rubin’s work, understanding your personality can change your life. One of the ways I’ll stay accountable to this intention is by writing about it, thus letting everyone know I’m working on this.

Don’t hesitate to hold my feet to the fire!

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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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Time May Be The New Money, But Only If You Already Have Money

December 04, 2017

What would you rather have: more money or more time?

In an article, “Being Part of Generation Rent Doesn’t Have to Be a Bad Thing,“ Marisa Bate asserts that millennials are playing by new rules that reflect real economic changes. “If time is our chief commodity (perhaps our only), then we want it as much as possible – and that means outsourcing things so we can get more,” she wrote. “Once, we saved money; now, we save time.” Millennials don’t own anything and outsource everything, she contends.

Should an entire generation give up on financial security?

Bate, a British journalist who counts herself in the millennial generation, says that cash-poor twenty-somethings need a marker of success beyond the traditional home purchase and retirement savings. If millennial employees can’t find an easy path to home ownership and a pension, she observes, then they will look for experiences and flexibility. “We millennials,” she writes, “by all accounts, love experiences and not things anymore.”

Really? An entire generation should give up on financial security in favor of time flexibility? I wondered if that opinion was broadly shared, so I posted the article on social media and asked my younger connections to weigh in. Is time really the new money?

Student loans cause money and time debt

“What’s the point of time if there’s no money to enjoy it?“ was a common response. The burden of student loans caused some to feel like they had experienced a bait and switch. They followed the rules for a good education to be competitive in the job market, but someone changed the rules without telling them. People shared examples of working multiple jobs to pay the bills and stay current on astronomically high student loan balances.

For those early career employees, especially those with graduate school debts, their student loans weren’t just financial obligations. They felt like debt was a drag on their time in all areas of their lives, leaving little free time or financial resources to enjoy life now. The bigger the loan balance, the more their future time was already pledged to activities to make their loan payments. These workers used some time-saving services, such as Amazon Prime or Blue Apron, but not to create work-life balance. They used them so they had something in the refrigerator when they got home from their second job.

Urban strivers will do what it takes for work/life balance

Those with higher-paying careers or lower student loan balances were more enthusiastic about doing everything they could to create extra time in their lives to spend with family and friends. Those less financially-stressed urban professionals are prioritizing extra time over personal economy.

“I do everything in my power to save time in everything I do,” explained one 28-year-old. “I use Stitch Fix, Lyft, Amazon, Netflix and more because I’m working 60+ hours per week (and on call 24/7). I need all the time I can get if I’m going to spend quality time with my family, work out, eat healthy, take care of my mental health, socialize with friends, travel, volunteer, read, etc. I need more time so if I can save an hour here and there by avoiding a crowded mall or grocery store lines, I will do it.”

Another who favored time-saving services wrote, “I’m not a huge fan of shopping in stores and my free time is valuable to me. Working Monday – Friday, I’d rather spend my weekends doing the things I truly enjoy and that really doesn’t involve shopping of any sort.” This subset of younger employees, who have corporate jobs with good benefits and lower financial stress, are more open to incentives which give them time to focus on life outside of work.

Marriage and kids change everything – especially in the suburbs

Some of my social media friends in Generation Y (born in the early to mid-eighties), now in their early thirties, had a different perspective. They worked and played hard in their twenties, got married, bought homes in affordable suburbs and had children for which they were financially prepared (“the success sequence”).

Although many had student loans still outstanding, especially those with advanced degrees, they had not borrowed so much money that the debt impeded reaching life milestones. These friends are prioritizing homeownership and saving for goals and were more likely to own multiple cars, cook for themselves and shop locally.

Marriage and kids changed their perspective on financial issues, catapulting them into the natural focus on good financial habits that is necessary to be a homeowner. “I’m struggling to think of any friends who didn’t purchase a home within a year of having their first child,” noted one reader. “I don’t know too many people who rent now that we are in our 30s,” commented another.

Both had left more expensive urban areas to live in less expensive towns. (The opposite is true for one young, married parent I work with, who sold a home in a southeastern city to become a renter in mega-expensive Los Angeles.)

The takeaway: if you’re broke, money is still more important

My conclusion is that time is the new money only for those who already feel on track financially. Those who have a strong sense of financial possibility and faith that they will eventually reach their goals are more likely to spend money to create more time. For those millennial employees who are working multiple jobs just to pay the bills and repay student loans, money is much more important than time.

This post was originally published on Forbes.

How To Get Great Deals On Cyber Monday And Still Stay Within Your Budget

November 27, 2017

Do you have a computer, smart phone or gaming system on your shopping list for this holiday season? If so, you are definitely not alone in the search for deals. Electronics purchases are expensive, and planning can help you get the best deals without busting your budget.

Decide how much you’ll spend

Don’t browse online or in the store to see what looks like a good deal. Make a plan in advance for what you intend to buy and the maximum you plan to spend. Write this on a sticky note and post on your computer, or carry it in your wallet.

Read and compare in advance

Do your research on what you want to buy before you start surfing the deals. Read product reviews in advance, preferably from independent sources like Consumer Reports, Wirecutter and PC Magazine.

Hunt for great deals

Are you looking for an electronic gift for your gadget-loving spouse? Every major media outlet and web portal is running articles about Cyber Monday deals. Check out these articles from Good Housekeeping and CNN for suggestions on saving big bucks. Try retail coupon aggregators like RetailMeNot and search your favorite sites like Amazon, Target and Best Buy.

Shop safely

Consumers made 2016 Cyber Monday the biggest online shopping day in history, a trend which is expected to continue in 2017. Inevitably, that kind of sales volume also comes with fraud and identity theft. Here’s how to protect yourself:

  • Shop online on reputable sites. Don’t shop from a site you reach by clicking on a link. Search for it independently, and make sure it’s a name you recognize.  Shop from home or the office – never on public wifi. Only enter your credit card info on websites that are secure — look for the lock icon in the address bar of your browser. If it’s not there, it’s not secure and your information could be at risk.
  • Pay with a credit card. For an expensive electronics purchase, it’s generally better to pay with a credit card, in case you have to challenge a vendor charge where the goods weren’t delivered. Debit cards don’t usually have the same fraud protection – and you’ll be out the cash immediately while you try and resolve the problem. Some cards also offer limited purchase protection. We used that one year when my son tripped and cracked his Nintendo 3 DS within minutes of opening his present.
  • Think before you download that app. Read this MarketWatch article about how to protect yourself from phony or malicious apps. Research from Risk IQ found that 1 in 25 shopping apps for the Black Friday/Cyber Monday weekend were unsafe to use. Consider bypassing the app and shopping from your laptop or browser on your phone.

Visit a real store

Call me crazy, but there’s still something to be said for actually going to the store. It may be crowded – but it might be less crowded than you think given how much everyone is shopping online these days. I’ve found that most physical locations will match any online deals, and you won’t have to wait (or pay) for shipping. Now that’s a good deal!

 

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Winter Is Coming: How To Prepare For The Expenses

November 06, 2017

I woke up this morning realizing it was time to put snow tires back on my car. This does not thrill me. However, since we moved to NJ from Bermuda, I’ve learned the hard way that an ounce of prevention is worth a pound of cure when it comes to winter. Making smart decisions before the season arrives can save you lots of money:

Prepare your home for cold weather

Simple steps can help you save on heating costs, and avoid expensive repairs like a burst pipe or fallen gutter:

  • Get a tune-up for your heating system and change the filters. Check with your utility company to see if they’ll send a technician for an energy audit.
  • Turn off the water that leads to the outside spigots so those pipes don’t freeze and burst. (Learned from experience!)
  • Install programmable thermostats. Ours are set to 65 at night and 68 during the hours when we are home. We’ve saved hundreds every season by doing this.
  • Clean your gutters in late fall. A gutter stuffed with leaves can freeze and fall, possibly damaging the house or roof. (Yes, that also happened to us, even though we had gutter leaf guards).
  • Check your windows. Are caulking, plastic covers or new energy efficient storm windows needed?
  • Call the tree company If you have a lot of mature trees on your property, have an arborist check them once a year. Trimming dead branches and cutting down deceased or dying trees can save you the thousands you would spend if something fell on your house (or the neighbor’s house).

For more home winter tips, see this Popular Mechanics article.

Winter-proof your car

Preventive maintenance now can prevent expensive repairs later and help keep you safe in a storm. For more details see 5 Steps to Preparing Your Car for Winter. Make sure you:

  • Put on snow tires and get the car realigned
  • Check the battery
  • Change the oil, refill the windshield wiper fluids and check engine coolant and antifreeze
  • Keep your fuel tank at least half full

Don’t forget to put a winter survival kit of emergency supplies in your trunk, in case you are stuck in a storm and need to wait it out.

Check your family’s winter gear

Make sure everyone tries on their winter coats and snow gear before it gets cold! Do the kids’ boots and coats still fit?

  • Stock up on extra gloves, scarves and hats – you know the kids are going to lose some of them.
  • Replace outgrown items at a discount. Check for Black Friday sales, coupons and discounts at your preferred department stores if you need to replace anything. I usually replace the kids’ snow boots and outerwear at sports consignment shops as they may grow out of them in less than one season.

You know winter is coming. Don’t wait to get ready. Depending on where you live, you may have 2-6 weekends left before the snow arrives! Use them wisely to save yourself money and hassles during the cold weather season.

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6 Ways To Beat Financial Stress That Have Nothing To Do With Money

September 25, 2017

Are you insanely worried about money? Does worrying about paying the bills and tackling debt keep you up at night or lead to arguments? If so, you are not alone.

I’ve been there

In my early thirties, I was consumed with financial stress. Money worries were on my mind 24/7. For a long time, I rarely felt relaxed. My worry really began to overflow when I faced my financial struggles head on: I was spending more than I made, I still had student loan balances, I received an unexpected large tax bill that I couldn’t afford and I had to figure out how to live on a lower income following a career change.

How I dealt emotionally

I’ve written many times about how I declared my own financial independence and the specific behaviors I changed in order to achieve it over the past twenty years. What I haven’t written about so much is how I emotionally weathered those rough, early years of cutting my expenses, growing my income and tackling debt without losing my mind!

Here are six ways I stayed resilient. Try the one which intrigues you — or all of them in combination for a powerful boost:

1. Walk it off

During the period where I was struggling financially I walked every day for hours, rain or shine, to burn off my nervous energy. As I was young and single at the time, it was easy to just head out the door. Walking became my go-to strategy whenever I felt overwhelmed.

When I walked, I would usually start off ruminating about my problems, but after twenty minutes or so I found an easy rhythm and became more mindful of my surroundings. I walked for errands, for exercise and to spend time in parks. Eventually, I literally walked my way out of debt by giving up my car.

2. Practice yoga for strength, flexibility and acceptance

My big splurge back then was a 90 minute vinyasa class once a week at a beautiful yoga studio. Each class cost $20, so that was 40 percent of my weekly $50 entertainment budget, and it was worth it. At home, I practiced rounds of sun salutations to build strength, hip and shoulder openers to create flexibility, inversions for perspective change and relaxation poses for acceptance.

As my body grew stronger and more flexible, I found that I also became more emotionally resilient. I still practice most days, which helps me keep my sanity regardless of what life throws at me.

3. Meditate to foster kindness and compassion

I’d practiced yoga before, but I’d never tried meditation. Feeling stressed all the time seemed the perfect reason to learn how to do it. I tried a few classes, but what really worked for me was simply sitting quietly in a chair at home and paying attention to my breath for about 20 minutes per day.

It was such a helpful habit that I continue this daily, more than two decades later. Not sure where to start? Try an app like Headspace or the guided loving kindness meditation with Sharon Salzberg.

4. Process by putting it on paper

When my financial stress was at the highest points, I sometimes found myself bubbling with resentment. I was irritated with myself for letting the situation get out of hand, angry at clients who had not paid their bills and generally mad at the world for not living up to my expectations. Blaming yourself or others is never an effective motivational strategy, though.

Inspired by a book by Julia Cameron about jump starting creativity, The Artist’s Way, I began a journal writing program. For nearly two years, I wrote several pages in school notebooks every morning, writing about whatever I was thinking or feeling at the moment. I also used the questions in the book to prompt more thoughtful responses.

It’s worth noting that I’ve never gone back and read what I wrote – I was content with getting it all out on paper so could leave it behind me.

5. Say your prayers

Prayer is personal, and what feels most meaningful for one person can be different from another, depending on one’s spiritual tradition and beliefs. I can only tell you what helped me.

Despite 16 years of Catholic school, it wasn’t until I hit the financial skids that I developed a daily prayer practice that was personal and connecting. Don’t underestimate the power of asking for help, and for giving thanks for what you do have.

What I found the most helpful was asking God for wisdom and insight, so that I could make wiser decisions, and for resilience, to weather the financial storms.

6. Seek community

The Beatles had it right: we get by with a little help from our friends. The right traveling companions in life can help you in your journey to financial independence. As I wrote in this post, I formed a group with other self-employed friends to support each other in changing our financial habits. Because we each had different financial challenges and skills, we encouraged each other, gained inspiration from each other’s strengths, and held each other accountable.

Financial peace takes time

Going from financial stress to financial peace takes time. I’m financially independent now, but it didn’t happen overnight. Those early years of significant financial behavior changes were a struggle, but they were also deeply transformative.

These practices I’ve described are things that worked for me in supporting my journey. As our blog editor Kelley Long wrote, your money attitude can keep you poor. The opposite is also true — the right money attitude, along with the right financial behaviors, can make you financially independent.

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How To Save For A Down Payment On A First Home — Without Giving Up Avocado Toast

September 11, 2017

Are you renting now and want to buy your own home but aren’t sure how you’ll ever save enough money for the down payment? When Australian property manager Tim Gurner dissed twenty- and thirty-somethings everywhere by saying they’ll never buy a home because they are too preoccupied with spending money on avocado toast, he unknowingly created a new cultural reference.

Although I’m well past the early career stage, I found his comments to be condescending and missing the point, especially given the rapidly expanding level of student loan debt and the prohibitive cost of housing in many urban areas.

I also think he’s wrong. You can have your avocado toast and eat it too. Here’s why:

When you’re ready to buy a home, you’ll make it a priority.

Are you ready to buy a home now? There are three facets to being ready:

1. Are you prepared to commit to a geographic location? Many people in their late twenties and early thirties just are not ready to stay in one place yet. My 28-year-old stepdaughter is in the early career stage. She just finished her master’s degree and is starting a new job in a new city. How could she possibly know if she wants to stay there yet?

2. Do you have a spouse, partner and/or kids? Home purchases are strongly related to household formation. A “household” is a group of people living together, and the more new households form, the better it is for the economy overall. Early career adults become financially independent and boost the economy by buying cars, work clothes, travel, and eventually homes of their own.

If you’re single and not a parent, you may not feel as strong of a need to invest in a home purchase. I stayed single until age 39 and it wasn’t until my mid-thirties that I started to rearrange my personal finances to prepare for a home purchase. In fact, according to a Pew Research Center analysis, nearly a third of young adults are living in their parents’ home—a rate higher than in my generation. Economic research from the Federal Reserve Bank of San Francisco suggests that young adult residential choices (e.g., living with parents) may “delay the timing of the decision to set up households.” In other words, when you’re ready to settle down with a partner or raise kids, you’ll prioritize a home purchase.

3. Can you afford it? As I wrote in a recent blog post, it’s a good idea to keep total housing costs (e.g., mortgage, taxes, insurance, utilities, maintenance) to 25 to 35% of your after-tax income. For example, if your family take-home pay is $4,500 per month, you should try to keep your monthly housing costs somewhere in the range of $1,125 to $1,575. With a 20% down payment, a 30-year mortgage at 4%, and $200 a month for utilities and maintenance, that’s a mortgage range of approximately $128,000 to $200,000.

I realize the 35% ratio could be a challenge in an insanely expensive city like Los Angeles or New York, where housing costs can eat up to half or more of a family’s income, but it’s a helpful guideline. After all, if you are renting, you may be paying a mortgage already—your landlord’s mortgage.

Are your rent and utilities together 35% or less of your take-home pay? If so, you can probably afford the monthly costs of home ownership, although you may have to adjust your expectations about where you buy. You may not be able to afford your first-choice neighborhood, and that’s okay.

You don’t have to stay there forever. According to data from the National Association of Home Builders, the average buyer stays in their home for 13 years. You don’t want to be in a stressful situation where you spend so much money on housing that you can’t fund other important goals, such as retirement, college, or an emergency fund, or have enough wiggle room in your budget to enjoy life now.

Buying real estate is like getting married.

Gurner is correct that splurging on overpriced food items isn’t going to help you save the most effectively for a down payment on a home. The important point he is missing is that when you’re in the stage of life where you are prioritizing brunch with friends or travel over real estate purchases, you’re just not emotionally or geographically ready to buy a home. Real estate is like marriage. The wrong choice can really mess up your life.

Renting, on the other hand, is like dating. It’s something you should keep doing until you are sure you want to settle down and are ready for a committed relationship. Many people are happy dating – and renting – for a long time before they decide to commit.

Believe me. When the right one comes along, you’ll know it. Then everything will change.

You will use your ingenuity to save for the down payment.

I’m not suggesting you should spend all your money now on craft beer and yoga retreats in Bali. Even when you’re renting, it’s important to pay down credit card and student loan debt, build up cash reserves for emergencies, and sock away at least 10 percent of your income for retirement savings.  What I mean is that when you decide to buy a home (and not just daydream about it), that decision will align your actions towards your goal.

It certainly takes time to save for a home down payment, which is likely to be the largest sum of money you’ll ever have to save in a short period of time. The typical buyer puts down 20 percent of the purchase price in cash as a down payment. Per this Forbes article, a 20% down payment on the median home in Cleveland is a reasonable $25,000. In my part of the country, NY/NJ, it’s about $75,000. (California prices are in the stratosphere, so that can be the topic of another blog post.)

Remember, however, that “median” means “midpoint.” That means that 50% of the housing stock would require down payments less than that. In any case, be realistic – and be patient. For most people, it will take you five to seven years to save that kind of money, depending on how much you are willing to prioritize.

Let’s take the Cleveland home purchase example above. To save $25,000 in five years, at a 1 percent interest rate you’d need to save $407 per month. That’s about $13.50 per day; less than you may spend on lunch out or having drinks with a friend after work. It’s doable.

Where I live, in suburban NJ outside of NYC, it’s a bit more of a challenge since it may take you longer to save $75,000. However, you could save that in seven years by putting away $862 per month. That’s about $29 per day, which would involve some bigger choices, such as moving to a smaller apartment, giving up a car, trimming way back on eating out or getting a part-time job to earn some extra money. Once you’ve made the decision to buy, however, you’ll find those kinds of choices easier to make.

Perhaps you can swing the monthly payments plus property taxes, homeowner’s insurance and maintenance, but you don’t have the full 20 percent down payment saved. There are many good mortgage programs for first-time home buyers. (See a summary in my fellow planner Mark Dennis’ article here.)

The key is to know yourself.

When you are ready to buy a home, you’ll make it a priority. If you haven’t saved much up until that point, you’ll need to spend some years building up your savings account. That process will be good for you, and it will help you change your financial behaviors so that when you do buy a home, you’ll be a better steward of your financial investment.

This was originally published on Forbes, June 11

[Quiz] Do You Need A Living Trust?

August 21, 2017

A revocable living trust can be a powerful, customized estate planning tool. However, trusts are time-consuming and best drafted by an estate planning attorney, which can be costly. Take this short quiz to figure out if it makes sense to think about incorporating a trust into your estate plan:

1. Do you or your spouse have children from a previous marriage?

If you answered yes: A living trust may help    

Trusts are not just for the wealthy. A trust allows you (the “grantor,” or person who creates the trust) to name both beneficiaries (the people who inherit your estate or income from your estate) and trustee(s), the person or firm who will manage those assets for their benefit. The beneficiary and the trustee can be different people. If you or your spouse have children from a previous relationship, setting up a trust allows you to specify who inherits what, for how long, and under what circumstances, as well as how old the beneficiaries need to be before taking control of the assets. For example, you could set it up so that your surviving spouse receives income from the trust until their death, then your children receive the balance. See Financial Planning for New Stepparents from more ideas for blended families.

2. Do you want to keep your wishes private?

If you answered yes: A living trust may help   

Typically, when someone dies there is court supervision – probate — to determine if that person’s will is valid and authentic, or if there is not a will, what will happen to the deceased person’s assets. While it’s not likely to show up on a reality TV show about what happens to your stuff, probate is a public process.

It’s also time-consuming and, if contested, can be costly. A living trust bypasses probate, so that any assets titled in the name of the trust pass easily and privately from you to your beneficiaries with some simple paperwork. If you or your spouse own a business, it may be a good idea to place the business in your trust for this exact reason, so that ownership doesn’t get tangled up in the estate settlement process. (this does not, however, keep the IRS from levying estate taxes on the value of the business)

Keep in mind that a trust is only effective for what you put into it, so if you do create a living trust you will need to re-title any non-retirement bank and brokerage accounts as well as real estate to the name of your trust. Leaving accounts in your name alone means they go through probate, even if you have a trust.

3. Is most of what you own in retirement accounts and your home?

If you answered yes: A living trust may not be worth the expense

If most of what you own is going to pass by beneficiary of law, which means you’ve named beneficiaries on your life insurance policy, retirement accounts and pension, and you own your home and cars jointly (JTRWOS) with your spouse – the costs and effort of establishing a living trust may not be worth it to you. See this article about why you may not need one.

4. Do you expect to have a taxable estate (more than $5.49 million  in 2017 if single and $10.98 million if married)?

If you answered yes: A living trust may help   

Under the current law, most estates will not owe federal estate taxes. According to the IRS estate tax exclusion, you can currently leave quite a lot of money and property to others federal estate tax-free. Married couples get twice the exemption amount, and whatever remaining amount of the exemption not used by the first spouse’s estate can be claimed by the second. However, if the value of your money and property, including any assets held in your name – real estate, brokerage accounts, retirement accounts, businesses, coins, jewelry, collectibles, cars, etc. — as well as life insurance, is expected to exceed the $5.49 million limit ($10.98 million if married) you should consult with an estate planning attorney about trust strategies, including a living trust and other types, which could minimize estate taxes for your heirs. You may also want to check to see how estate taxes work in your state as well.

A trust won’t help you escape estate taxes, but it can help you take full advantage of the rules around exclusions.

Check for resources at work

Your employer these days may be your best financial services provider. Check your EAP for estate planning resources available to you at no cost, including online do-it-yourself services for creating wills and health care directives, or referrals to a local attorney. If you are considering creating a living trust, you might want to enroll in your company’s voluntary legal benefit during the next open enrollment, if available. This will help save you significantly in trust preparation costs.

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How Much Will A Hybrid Car Actually Save You?

August 14, 2017

When you’re in the market for a new car, how do you figure out which one is going to be the best buy given your situation? Hybrid cars are all the rage in places like California – several of my colleagues drive them. These cars definitely cost more up front than their equivalent gas-powered models, so how do you know if/when you’ll save money?

When my husband Steve and I moved back to the United States in 2010 after living abroad for five years, we had to purchase two new vehicles. We were torn between traditional or hybrid. Because we had put some money aside for the costs of buying new cars when we returned to the U.S., and we also had the proceeds from the sale of our Bermuda car, we decided to buy one of each and track how it worked out over time. (This kind of financial tracking is what happens when an actuary marries a financial planner!)

Here’s what we found.

Our traditional car – loaded and fun to drive

First we bought my car, a Chevrolet HHR, for a little less than $19,000 new from the dealer. It’s an American car, which was important to me, plus it has a back-up camera, satellite radio, sporty details and a manual transmission, which make it fun to drive while improving resale value. Plus, as a small station wagon, it’s been the perfect car in which to fit multiple car seats – and now lots of kids’ sports equipment.

I test drove some other, more expensive cars, but it just didn’t seem worth it at all to spend twice as much money for a luxury vehicle. We have put about 100,000 miles on my HHR in seven years, and get about 26 miles to the gallon (the EPA estimate was 29 on the highway but I mostly drive it around town).

Our hybrid car – very low fuel costs and no frills

My husband Steve originally thought he’d buy a sports car, but ran into the same dilemma. He didn’t find anything he thought would give him twice the driving experience as a less expensive car. Instead, he decided to go with the Honda Insight hybrid, also new from the dealer, for around $23,000. His thought was that he would save on fuel costs during his 23-mile commute to work.

His hybrid is more basic on the inside and has an automatic transmission, so even though it’s highly fuel-efficient, we tend to use the HHR for family road trips. He isn’t as fond of driving his car as the HHR, but he tracks his mileage and he gets 42 miles to the gallon, right on target to the EPA range for that model of 41-43 on the highway.  Steve has put about 87,000 miles on his car so far.

Gas prices determine the better buy

Which has been the better buy for us? Maintenance and repairs have been similar for both cars. Both had components which were recalled and replaced at no cost by the dealer.

What it came down to was that it all depends on the price of gas. When we purchased the cars in 2010, gas prices were high, climbing to more than $4 in NJ in 2011. If gas prices had stayed high, the hybrid would be the clear winner in terms of cost. For direct comparison, let’s assume we keep both cars for ten years total with cumulative mileage of 120,000 each. Here’s how it works out:

Under the scenario with high gas prices at $4/gallon, the more expense hybrid is the clear winner, saving us $3,032 over ten years.

Gas prices are low now, though, and have been for a few years. What if gas prices averaged $2.20 over the ten-year period? In that scenario the traditional car total costs beat the hybrid by a mere $132.

We’d still buy a hybrid again

There are plenty of other reasons to buy a hybrid car besides savings on fuel costs: going “green,” potentially lower car insurance, and state tax incentives, for example. We are a family who composts, who has solar panels and recycles – so we would be likely to do it again anyway, even if there were not significant net costs savings.

Shopping for a new car

If you’re in the market for a new car, use this method to project future purchase and fuel costs over the time you plan to own the vehicle. Also check out our other posts on Lessons in Car Shopping, Where to Buy a Car, How to Avoid Hidden Car Costs and How to Get the Best Deal on a Car for more useful tips.

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Ready To Move Out? How To Make It Happen In A Year Or Less

August 07, 2017

I recently spoke with, Dylan [not his real name], a 25-year old employee, when he called our Financial Helpline with a dilemma: he lived with his parents and siblings, and he really wanted to move out on his own. However, he was living paycheck to paycheck, paying his bills on time but spending whatever was left on enjoying life now. He liked his life, but he was starting to have a nagging feeling that it was time to get his own place. How much was it really going to cost, and how could he make it happen?

Step One: Follow the Money

When I asked him where he thought he was spending his money now, Dylan shared that he had monthly bills for his car, insurance, gas, parking, cell phone, gym membership and student loans, as well as contributing to family groceries. He had a spreadsheet in Excel where he figured out how much money he had remaining after paying bills every month. He generally spent whatever was left over, trying not to go in the red but otherwise not worrying about it.

Was it worth it to cut some expenses so he could get in his own place? The first step is to figure out what could be eliminated. I encouraged Dylan to track his daily expenses carefully to see where the money was going. We walked through different ways to do this, including using a smartphone app, the paper/pencil method, or entering them in a spreadsheet. Dylan already had Mint on his phone, but hadn’t set it up fully to easily track expenses, so he wanted to start with that method. I pointed him to Mint’s instructional videos on YouTube, and suggested a few to watch to make set up easier.

Step Two: Calculate the Costs of Renting

The next step was figuring out how much Dylan could afford to pay in housing costs, as well as how much it would take to rent an apartment. His paycheck was around $1,200 every two weeks after taxes, insurance and 401(k), so most months he was bringing home $2,400. If he spent no more than 35 percent of his take-home on rent and utilities, that would give him a total housing budget of $840.  He thought he would be able to get a small studio apartment for $800, or share a 2 BR with a friend for that amount.

So what would it take to move in?

He would need to come up with a security deposit of one month’s rent and the first month’s rent (about $1,600 total) when he signed a lease. Plus, if utilities were not included in the rent, since he had never had utilities in his name he may need to put down deposits for electricity and gas ($200). His parents had promised to give him some used furniture, but he would still need to get some household goods like dishes and a trash can, so we figured that was another $200. Rent on a do-it-yourself moving truck was $100. Altogether, he’d need to save at least $2,100 to move into his own place.

Step Three: Set Daily Savings Goals

I encouraged Dylan to set a daily savings goal. That would make it easier to say no to certain expenses. If he wanted to move out in three months, he’d need to save $705 per month or about $24 per day (see calculation here). If he wanted to get his own place in six months, he’d need to $355 per month or about $12 per day (see calculation here). If he took the long route and saved for a year, he’d need to save $180 per month or about $6 per day (see calculation here). Any of these goals seemed doable, given how low his current “must pay” bills were, so it depended on how much he was willing to make changes in his lifestyle in order to save.

Step Four: Pay Yourself First

If Dylan didn’t have easy access to those funds, he would be less likely to spend them. He had the capacity at work to have direct deposit to multiple accounts from his paycheck, so he decided to set up a savings account at his bank and have $180 per paycheck deposited automatically in it. That way, he concluded, he wouldn’t miss the savings so much. I encouraged him to find small daily expenses he could refuse regularly, such as the ones suggested in my blog post on ways to save money without changing your lifestyle.

Step Five: Check Your Credit

Dylan already had student loans and a car loan in his name and was making regular payments, so he had some credit history. That’s good news, as it’s harder to get a lease if you don’t have any credit information at all on your record. However, he didn’t know his credit score, so I encouraged him to check his actual credit reports online for free via annualcreditreport.com or to check his estimated score using Credit Karma or Credit Sesame.

The Middle Path

Dylan opted to try the six month savings plan. We set a time to check in two months from now for another coaching call, to see how it was going and if the $12 per day plan was realistic. If he implements his plan, he’ll be in his own place by next year!

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The Hidden Secret To Finding The Best Mutual Funds

July 31, 2017

How do you evaluate the tsunami of information you find when you’re trying to pick the best mutual fund for your portfolio? Even if you’ve narrowed down your choice so you know what type of fund (index fund vs. actively managed, large cap vs. small cap, growth vs. value, etc.) there are still hundreds of choices available.

Should you pick the fund that did the best last year, or over the past ten years? My colleague Kelley addressed this already and the answer is a firm no. When my financial planner calls me to recommend a fund, she does this all the time and it drives me bananas. I tell her that’s like looking in the rear view mirror while you are driving.

There’s a better way to evaluate. The key is to look for one simple number, the Sharpe Ratio.

How much return would you have gotten for the risk you took?

The higher a fund’s Sharpe ratio, the better the fund did, adjusted for risk. And by risk, I mean the risk that the price could fall (you won’t care if the fund goes up more than expected, right?) The Sharpe Ratio tells whether the fund manager makes wise decisions  – what to buy, how much of it, and when to sell it – and how much risk they were willing to take with someone else’s money. Did they bet the farm on a few stocks, risk a lot and get lucky (or not), or did they have good returns without too much risk?

You can use the Sharpe Ratio of an index fund in that fund category to see what the average risk is, then compare. For example, if the 10 year Sharpe Ratio of the index is .54, but an actively managed fund in same category for the same period is .78, you’ll know the fund may worth considering. If another fund in that same category only has a Sharpe Ratio of .15, for example, you should walk away from it. Keep in mind that most actively managed funds do not beat an index fund consistently over time (if you’re into math, see here for the research), so this is a simple way to separate the better ones.

Make sure it’s calculated net of fees

You have to compare apples to apples. It doesn’t help much if an actively managed fund beat the index by 1.5 percent if the fees are also 1.5 percent. Make sure the fund’s Sharpe Ratio is after fees, not before.

Where to find the Sharpe Ratio

The Sharpe Ratio is easy to find on most mutual fund ratings, such as Morningstar and Lipper (if you have a brokerage account, you may be able to download longer Lipper profiles there). You can also generally find it in the fund’s prospectus, although you’ll have to dig through a lot of legalese to get there.

In my opinion, after decades as an investment adviser, the Sharpe Ratio is by far the best measure of a mutual fund when you’re trying to choose among several with similar objectives. All the other stuff is generally just fluff.

 

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Can You Still Receive Social Security If You Move Abroad?

July 17, 2017

Many evenings when the rest my household is in bed, you can find me watching HGTV’s Househunters International. As a French speaker, I pay special attention to episodes featuring little villages in the South of France or francophone Caribbean islands. Is this where my husband, Steve, and I should retire and restore a 19th century country house? Or maybe we should consider Italy, where we got engaged and the cost of living seems so inexpensive?

We’ve been ex-pats before and we both know how wonderful it is, as well as the financial implications. As I wrote in a previous post, if a U.S. citizen or resident alien (green card holder) is considering living abroad, they need to make sure they understand the financial and tax basics for U.S. taxpayers living overseas.

Before you buy that surf shack in Costa Rica, keep in mind that Uncle Sam follows you everywhere, even if you’re retired. You’ll file a U.S. tax return every year and you may need to file a state tax return (especially if you still maintain a property in the U.S., even if you rent it out). You’ll also need to report any non U.S. bank and securities accounts annually to the Treasury Dept.

Maybe you weren’t expecting that you’d still pay U.S. taxes, but you can accept that, since you can’t imagine giving up your U.S. passport. Here’s what else you need to keep in mind before retiring overseas.

You’ll probably pay foreign taxes

Even if you don’t have earned income, you will still be subject to the tax laws as a resident of the foreign country, so may have to file there in addition to your U.S. return if you receive distributions from your 401k, IRA, pension, etc. That’s something you’ll definitely want to research before you make your retirement decision. U.S. taxpayers are taxed on their worldwide income, so even if you’re retiring to one of the few countries without an income tax, such as Bermuda or the Bahamas, you’ll still have to pay U.S. taxes. In general, deductions and credits can sometimes soften or eliminate the impact of foreign taxes paid.

You can still receive Social Security benefits

In most situations, you will still be able to receive your Social Security benefits when living outside the United States as long as you are eligible for payment. Generally, you can have them sent to the foreign country, or deposited in a U.S. account that you have maintained. However, there are some countries where you can’t, and some additional restrictions on some non-citizens, so do your homework. See this Social Security Administration brochure for the complete lowdown. Use this Payments Abroad Screening Tool to see if you’ll be able to receive payments abroad or if you will face restrictions.

Medicare won’t cover you overseas

Health insurance is a critical decision when thinking about retiring overseas. Generally, Medicare does not cover care you receive outside of the United States (see overview), so you will need health insurance in the country where you move. If you travel to the United States frequently, or plan to move back to the U.S., you may want to sign up for both Medicare Part A and Part B anyway, so you’ve got insurance when you are in the U.S.

If you plan to be permanently in the foreign country and don’t travel frequently to the U.S., you could still consider signing up for Part A, which for most does not require a premium, but could cost you dearly to adopt should you change your mind and move back later. You should weigh the pros and cons of keeping Part B as part of your retirement budget based on your long-term plans and what kind of health insurance you will have in your retirement destination.

You’ll want – and need – a tax professional

When we lived overseas, our federal tax return was 50-70 pages. If you’re living abroad, I strongly encourage you to find a tax professional, such as a CPA, who is knowledgeable about ex-pat taxes. Without tax guidance, you may find yourself overpaying or underpaying taxes, and running afoul of reporting regulations on foreign accounts. It’s worth every penny to get good guidance in this category.

You’ll need a U.S. mailing address for your U.S. accounts

Maintaining your U.S. accounts, such as credit cards, brokerage accounts and even your 401k, has significant advantages. You’ll be able to maintain your U.S. credit score. It’s much easier to pay bills – such as quarterly estimated taxes – and wire funds from your U.S. account. Most ATM cards from major American financial institutions will work around the world for a small fee.

If you ever want to change brokerage firms or open an additional account, such as a 529 for a grandchild, you’ll need to have a U.S. mailing address. If you plan to sell your home, register as an overseas voter and get a new driver’s license in your new country of residence and don’t plan to have continued state residency, the address could be a trusted friend or relative’s home – just make sure to sign up for online delivery of statements and bills to your email address.

You’ll need a bank account in your new country

Even though you may maintain a U.S. mailing address for your existing bank and brokerage accounts, you’ll need a local bank in your new home in order to handle local bills. You may want a credit or debit card there too, which could make it easier to open accounts for utilities and handle local transactions. Remember that you’ll need to report your accounts annually under FBAR (see above) if they have more than $10,000 value at any time during the calendar year.

I hope that retiring abroad will be our next great adventure. If you think it may be yours, check out this State Department guide to retiring abroad – and watch some Househunters International.

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What U.S. Citizens Need To Know About Taxes & Working Abroad

July 10, 2017

Are you a U.S. citizen or resident alien (green card holder) planning on working abroad? We’ve got some experience with this in my family: my husband and I were expats for 5 ½ years. Living in a different country can be an amazing experience! Before you relocate (or return to your citizenship country if you’re a resident alien), make sure you know the tax basics for U.S. taxpayers living overseas.

You’ll file a U.S. tax return every year

As long as you’re a citizen or resident alien, you can look forward to filing U.S. tax returns every year, regardless of where in the world you live and regardless of your income sources. The IRS has a long reach: your worldwide income — not just your U.S. income — is subject to U.S. income tax. See the IRS guidelines for taxpayers living abroad.

Whether you owe taxes and how much will be a function of your individual tax situation, but in general, if you have any U.S. income, such as salary, business income, investment income, rental income, Social Security or retirement account distributions, you should expect to pay some U.S. taxes.

If all your income is foreign sourced, remember that income from abroad is still taxable, and you must report all your sources of income, but you should usually be able to take a credit or a deduction for foreign taxes paid. Practically speaking, what this means is that if you live in a country that does not have an income tax, or has a very low income tax, you’re not off the hook — you’ll still be paying Uncle Sam.

You may also need to file a state tax return

If you still meet the legal definition of being a resident of a state, such as maintaining your voter registration, driver’s license, owning a home or earning income in that state, you may need to file a state tax return as well. Check with your state to be sure and obtain a tax professional’s advice to be sure.

You’ll need to report any non-U.S. bank and securities accounts

If you open up bank or investment accounts abroad, you’ll also need to report those once a year, even if you are just a signatory. This includes bank accounts, brokerage accounts and mutual funds, as well as any other financial accounts, even if they don’t produce income. Penalties for not reporting are significant. See more details about Report of Foreign Bank and Financial Accounts (FBAR) here.

Other tips to keep in mind

You may be eligible for the Foreign Earned Income Exclusion  While working abroad, you may qualify to exclude a certain amount of  foreign earned income from your income taxes. That’s what my husband did, as he worked for a foreign company located outside the U.S. A qualifying individual may also claim the exclusion on foreign-sourced self-employment income. If both spouses have foreign earned income, they can both claim the exclusion (up to $102,100 each in 2017).

To claim the exclusion, you must either pass the Bona Fide Residence Test or the Physical Presence test. In a nutshell, you need to actually live in the foreign country, not just travel there for an extended period.

You may be able to claim a foreign housing exclusion or deduction My husband received a housing allowance as part of his compensation, and we could exclude some of our housing expenses, subject to certain limits. Keep in mind you still need to meet one of the tests described above. See the IRS overview here.

You’ll probably pay foreign taxes where you live Any time you work in a foreign country and earn income there, you will also be subject to that country’s tax laws. Keep in mind that there are exclusions, deductions and credits for your U.S. tax return that soften the impact. Use this quiz to see if you qualify for the foreign income exclusion or housing deduction.

The opportunity to work abroad, even if just for a temporary assignment, can be exciting and life-changing. Just make sure you mind your U.S. taxes while you’re seeing the world.

 

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Would You Go This Far To Pay Off Your Debt?

July 03, 2017

Do you feel like the stress from your credit card debt and student loans is out of control? Perhaps you’re wishing on stars for a lottery win or an unexpected inheritance which will wipe your financial slate clean? Maybe you’re putting off going to the dentist or taking a vacation so you can pay your credit card minimums? If you’re sick and tired of living this way, ask yourself this question, “Am I ready to do whatever it takes to pay off my debt?”

You are not alone

Our research shows that nearly one in four employees (23 percent) reports unmanageable financial stress. No age, gender, income level or demographic group is immune from financial mistakes. However, the reverse is also true: millions of people of all ages, genders, income levels and demographic groups have successfully tackled their debts and gone on to build very comfortable financial lives.

I know, because I’m one of them. In my early thirties, I was a renter with credit card debt, student loans, a damaged credit score and a lifestyle beyond my means.

Twenty years later, I’m a financially independent homeowner, real estate investor and committed saver who puts away 30 percent of my income. My journey to find financial balance inspired an entirely different career as a financial planner and led me to meet my husband.  It all started with my personal declaration of financial independence, and my vow to make whatever changes were necessary to dig myself out of the hole I was in.

Big changes get big results

How did I do it? Initially I tracked my expenses and made small changes that saved $5-10 per day: I made coffee at home, gave up magazines, canceled the gym membership, etc. My fellow planner Kelley Long had similar experiences of cutting small luxuries when she was tackling debt. Although I was proud of myself for making changes, after a few months I grew frustrated. I didn’t feel like I was making progress quickly enough. That’s when I decided that only making drastic changes would get the outsized results I was seeking. Here’s what I did:

I downsized my living space. I had a beautiful, spacious rooftop apartment with a deck, a view of downtown and a short walk to the lake. I gave my notice and moved into the home of some friends for three months while they traveled overseas, then rented a room in a 2-bedroom house for a few years. I saved about $600 per month in housing costs, even if my dignity suffered a little initially, and ended up with a fun housemate. After a few years, I moved back into my own place, but instead of choosing a spacious downtown apartment I chose a small studio. If you’re looking for some wiggle room in your budget to pay down debt, looking at living expenses may make sense. Is it time for you to downsize your housing?

I took walks, hikes and hosted potlucks. As a single woman in an urban area, I had grown accustomed to a social life built around discovering new restaurants, movies and meeting for wine or coffee. That was a lot harder to change than my living space. What would I do for fun? I set parameters for how much I would spend on entertainment per week (about $50, for a savings of about $300 per month) and began to find new ways to connect to my friends. I was proactive, suggesting meeting for a walk instead of Thai food. When friends invited me to dinner or to an event, I politely declined if I’d met my entertainment budget for the week. Parties became potluck dinners, which friends liked because they saved everyone money. There is a secret financial power in home cooking!

I gave up my car. A few years into my financial transformation I was making excellent progress. I had moved back into my own place, up in the hills where there was no close public transportation. Then a twist of parking fate compelled me to give up my car – and not replace it. I walked almost everywhere (a relatively easy thing to do in a big city) and took buses and the train. I will admit: there were occasional moments of embarrassment, such as when I sprained my ankle and friends at work had to drive me around for a few weeks. I chose to explain my decision by saying I wanted to walk more for fitness. This saved me about $300 per month compared to what I had been spending. I’m not the only planner who’s done this, by the way. My financially savvy colleague Erik Carter went carless last year.

How much did I save all together from these big changes? More than $1,200 per month, between reduced housing costs, giving up my car and capping my entertainment expenses. That’s four times as much as I had been saving by cutting small luxuries. Thanks to my willingness to reconsider the necessity of the most expensive items in my spending, I was able to pay off my debts much quicker and save thousands in interest charges.

Tackling debt can feel like climbing a mountain, it is true. But adventurous souls climb mountains every day. Consider making some big changes to climb that debt mountain faster. Trust me, you’ll feel great when you get to the top and look around at how far you’ve come.

Do you have a question you’d like answered on the blog? Please email me or you can also follow me on Twitter @cynthiameyer_FF.

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What To Do If Your Spouse Has Bad Credit

June 26, 2017

Have you generally been financially responsible but your spouse or fiancé has made some bad financial decisions? Are you worried that your spouse will drag you down financially, or if you can make the debt and/or bad credit go away quickly? If so, you aren’t alone. Debt and poor credit scores are the norm.

According to a study from CFED, 56 percent of American consumers have sub-prime credit scores, which means they don’t have access to the best interest rates for mortgages, credit cards and car loans. Debt is a way of life for most Americans, says NerdWallet in a 2016 American Household Credit Card Study, with the average amount of credit card debt for those who carry it totaling $16,748. Over 44 million Americans have student loan debt, with 11.2 percent of borrowers delinquent or in default.

Does that sound familiar?

For better or worse

If you have a financially mixed relationship, I’ve got some tough love for you: even if you aren’t legally responsible – although in community property states you will be – it’s still your issue to deal with, too. Marriage is a legal partnership, not just an emotional and spiritual relationship. The only way to deal with debt or credit problems – either your spouse’s or yours — is for both of you to face them head on. If you don’t, it’s only going to get worse.

Excessive debt can drag down your financial life as a couple and lead to a cycle of low financial wellness, where you live paycheck to paycheck without building up emergency savings or saving for retirement. Plus, let’s face it – it can lead to some nasty fights! It’s best to prioritize paying debts as a married couple, even if they aren’t yours, because marriage is also an economic relationship. Each partner affects the whole.

Stop blaming your spouse

Do you plan to stay married? Ok, then stop blaming your spouse for the situation you are in as a couple.  Let it go. Blame and shame are not going to move you forward, and may actually make it much, much harder to negotiate changes in in your spouse’s behavior. Consider working with an unbiased CERTIFIED FINANCIAL PLANNER™ who can coach you through the process of figuring out how you are going to tackle the situation together. Find one by asking your workplace financial wellness program or look for a Fee-Only CFP®.

Practice full financial disclosure

When my husband and I first got together, we had the Money Talk. I was honest with him about where I was in my financial life (paying off some debt from a former business, downsizing my lifestyle so I could save more). Although he’d had it together since graduating college, he wasn’t the slightest bit judgmental. In fact, he was able to look at the situation quite logically and before we got married, we figured out a plan to tackle the last of my student loan and business debt.

We developed a strong, unified vision of where we wanted to go in our lives and how we would manage money together.  (You can read our story here.) Keep talking about money throughout the evolution of your relationship: have money meetings and make sure you understand each other’s financial values – the number one reason couples fight about money.

Set everyone up to succeed

Set up a system where the less savvy partner can succeed. This means:

  • Avoiding blame or judgement
  • Making money management a team effort
  • Setting up “yours, mine and ours” accounts for cash management so everyone has some control over some of their spending
  • Monitoring your credit monthly
  • Celebrating small wins

Consider workarounds to protect your credit

In the meantime, consider workarounds to protect your own credit and repair your spouse’s, such as putting some bills in an individual name and avoiding joint credit cards, car loans or mortgages, etc.

Worst financial enemy or best friend?

Let’s be realistic – if you weeded out everyone in the country who had debt or less than perfect credit, the pool of potential mates would be pretty small. That doesn’t mean it’s not important to address in your relationship, though. How you deal with credit card debt, student loans and/or poor credit scores in your relationship will determine the financial foundation of your marriage.

As our CEO Liz Davidson wrote in What Your Financial Advisor Isn’t Telling You, your life partner can be your worst financial enemy or someone who lifts you higher. Even if you don’t have the same levels of financial wellness levels when you start your life together, with good communication and ingenuity you can be best financial friends.

Want more helpful financial guidance, delivered every day? Sign up to receive the Financial Finesse Tip of the Day, written by financial planners who work with people like you every day. No sales pitch EVER (being unbiased is the foundation of what we do), just the best our awesome planners have to offer. Click here to join.

 

The Magic Power of Writing Down Your Goals

June 19, 2017

Can writing down your goals help you achieve them? For me, the answer is a definitive “yes.” I’m a prodigious maker of “to do” lists, “to be” lists and “to experience” lists. When I was single, I even made a list of what kind of a person I’d like for a spouse, so I’d recognize him when I met him. (I did!) For me, that process of setting intentions and figuring out how I’ll measure my success has been completely transformative, especially when it comes to a recent discovery in an old notebook.

You can predict your future by writing it down

Last week I was cleaning old files in my office and I discovered a list I’d made in a composition book from late 2000 titled, “Characteristics of My Dream Job.” I wrote it during a particularly difficult time in my career: the stock market tech bubble had burst, and the fee-based income I’d built in my new financial planning practice over the prior three years of a bull market fell by more than 50 percent. I needed a Plan B in case I couldn’t make it through a bear market financially.

The list

When I read the list (pictured below) I was floored. It’s as if seventeen years ago, I conjured up my role as a CERTIFIED FINANCIAL PLANNER™ at Financial Finesse delivering life-changing workplace financial wellness programs.

dream-job
DREAM JOB LIST: I was floored to read over this list I made 17 years ago, describing exactly what I’m doing today.

My kids tell me all the time they can’t read my handwriting, so I’ll give you the highlights: motivation and encouragement of others, relevant/meaningful/influential in people’s lives, teaching, public speaking, writing instructional materials and articles, flexibility in schedule to meet future childcare needs, deadlines, cheerful/can do environment, fast-paced with lots of formal and informal opportunities to learn. Wow.

Fast forward 14 years

As it turned out, I weathered the bear market and went on to build a successful team practice, eventually leaving after 8 ½ years to move with my family for my husband’s international job. Even though I had forgotten about the Dream Job list until the other day, my intentions were working behind the scenes. That’s why I had an immediate “that’s my tribe” reaction when I came across the Financial Finesse website in 2014. And that’s why it was so easy to choose to work here, instead of accepting offers for a wealth management position.

Writing down our goals is our company’s secret sauce

At Financial Finesse, we also like to write down our goals and intentions. That’s one of the things I absolutely love about working here. It’s also why I believe we’ve been able to have such outsized impact on the country by launching an entirely new industry, workplace financial wellness, which helps millions of American workers become more financially secure.

How we do it

We call them “MBOs” – Management by Objectives, and we all set them individually, by team as well as company-wide for each quarter, in addition to company-wide over the long term. We’re strategic about it – this isn’t just a list of things to do. Rather, the MBO process aligns employees’ actions and team goals with the broader objectives of the company and our social mission.

Employees draft their own MBOs based on company and team goals, propose how success will be measured, then receive direct, personal feedback from our CEO and the management team to let us know if they’re on target. At the close of each quarter, each employee – including our CEO and management team — reviews their MBOs and gets scored based on how well they have achieved them. It works – when I think of what we’ve accomplished as a small-sized company, I’m amazed, but I also know that a huge part of it is that we are mindful of our goals — we keep our eyes on the prize.

Try this goal-setting exercise

Have you been struggling with getting somewhere in your career or financial life? Consider accepting the idea that you become what you believe (or at least borrow it for use).  Find some quiet time, grab a notebook and pen and answer these questions:

  • If everything worked out exactly the way I wanted it to in my life/career/finances, what would that look like?
  • How will I know when I’ve been successful?

Post them where you can see them, or set regular times to review them. Then maybe you won’t have to wait 17 years to figure out you’ve already achieved them!

If you’re willing to share your goals exercise, tweet a picture of your goals to me @cynthiameyer_FF with the hashtag #PowerOfGoals or email me at [email protected].

Here at Financial Finesse, we believe strongly in the importance of workplace culture and the power of doing well by doing good. This article is the first in our week-long series of posts where we highlight a specific part of our company culture that helps to make Financial Finesse one of America’s best places to work. This is just one part of our celebration of recent recognition by Inc., who listed us as one of the Best Workplaces in 2017 and Entrepreneur, who named us to the Small-Sized Companies: The Best Company Cultures in 2017 list.

Want more helpful financial guidance, delivered every day? Sign up to receive the Financial Finesse Tip of the Day, written by financial planners who work with people like you every day. No sales pitch EVER (being unbiased is the foundation of what we do), just the best our awesome planners have to offer. Click here to join.

Is It Time to Downsize?

June 12, 2017

Last week I wrote about why my husband and I decided to upsize our home, so this week I’d like to take on its opposite: downsizing.

Downsizing — selling a larger home and moving into a smaller one — seems much more popular than upsizing these days. Mobile homes and RV trailers have been brilliantly rebranded as “tiny houses,” and there are hours of weekly television programming devoted to stories about families selling larger homes and moving into much smaller ones. In fact, my nine year old son, who is an avid fan of tiny house television, has been campaigning for us to move into a smaller home. (He is not likely to convince me.) However, you don’t have to go “tiny” to downsize. Any home that is going to be less expensive to own and maintain can be considered downsizing.

Why downsize?

Downsizing is a natural response to changes in your family needs and financial priorities. Downsizing to a less expensive and/or smaller home may be right for you if:

  • The kids are grown up and you don’t need that much space anymore;
  • You can’t afford the house you are in with its related costs while still funding other goals such as retirement, paying off debt or building emergency savings;
  • You want to move to a better school district but homes are more expensive there.
  • You are prioritizing financial independence over increasing your current lifestyle;
  • You seek a home that makes it easier to live in as you get older (e.g., single story, walkable neighborhood, etc.); or
  • You want to spend less time maintaining your home and more time enjoying life.

Downsize your costs without downsizing your space

I live in the New York City area, where housing is very expensive. A common topic of conversation between my husband and I, especially when paying property taxes, is whether we should sell our home then take the equity and buy the same house in a less expensive state. We wouldn’t have a mortgage, and all our related costs would be lower.

Our friends recently did just that. They sold their home in a neighboring town and bought a larger, yet less expensive home in a southern state – near a beach! It may be hard to move while you are building your career or putting your kids through school, but not so hard to do when you are empty-nesters like our friends.

Alternatives to downsizing

For new retirees, there are other ways to downsize costs without downsizing amenities. Here are a few ideas:

  • Co-housing: An intentional community with private homes that share common spaces and responsibilities, co-housing is a growing practice among seniors from the Flower Power generation.
  • Share your home: Many retirees are looking to share their homes, either by renting out rooms or apartments in their own homes, in order to reduce costs and have companionship.
  • Move overseas: Adventurous retirees are moving overseas in droves, to less expensive ex-pat friendly retirement destinations where the cost of living is lower but the lifestyle is pleasant.

Why stay put?

If your total housing costs (mortgage, taxes, insurance, utilities, maintenance) are 35 percent or less of your net income (income after taxes), there’s no need to rush to downsize. There are plenty of reasons to stay put for the time being:

  • You may like your current home and its size fits your family.
  • You like your neighborhood and schools.
  • Your home can be easily modified to “age in place.”
  • You want to stay near your grown children or aging parents.

Moving is a big decision and our sense of community is often connected to a physical location. If your housing costs are not breaking the bank and you’re not sure if it’s the right time to move on, it may make sense to stay put until you have a clearer idea of where you want to go and what makes sense for your goals going forward. You can always change your mind in the future.

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

Are You Really Ready To Upsize Your Home?

June 05, 2017

Real estate season is in full swing — everywhere I look in my area there are homes with “For Sale” signs. There are some larger homes for sale in my neighborhood, and the families who buy those neighbors’ homes have multiple children and want room to grow and an excellent public school system. Have you been wondering whether it’s time to make a move to go bigger? How do you know if you should stay where you are for the time being instead? Here are the factors to consider:

What can you afford?

You’ll have the most financial freedom in your life if you keep total housing costs (mortgage, taxes, insurance, utilities, maintenance) to 25 to 35 percent of your after-tax income. For example, if your family take home is $4,500 per month, your monthly housing costs would range from $1,125 to $1,575. With a 20 percent down payment and a 30 year mortgage at 4 percent, that’s a purchase range of approximately $212,000 to $300,000 (see calculation here). I realize the 35 percent ratio could be a challenge in an insanely expensive city like Los Angeles or New York, where housing costs can eat up to half or more of a family’s income, but it’s a helpful guideline for maximum financial ease.

Why upsize to a bigger home?

When we moved back to the United States after an overseas assignment in Bermuda, a country with a very high cost of living, it was the bottom of the U.S. housing recession. Great deals on large homes in good school districts were available, so we upsized our living space to have room for three kids and lots of visitors, and still spent less than our previous location’s housing costs. This house will be too large for us once all the kids are grown up, but for now, we’re happy with the decision. Upsizing may be right for you if you can afford it and:

  • You would like the space for all your kids;
  • Grown children or grandchildren are moving in with you;
  • One or more parent(s) are moving in with you;
  • You’re moving to a less expensive state and you can afford more house for the same cost;
  • You need more space for a home office/business; or
  • You’ve always wanted to have a big house – it’s a serious bucket list item.

You’ll upsize a lot more than your mortgage

Caution: with a bigger house or bigger acreage, you’re upsizing more than your mortgage. Everything costs more: property taxes, homeowner’s insurance, home maintenance, furniture, painting, landscape, etc. Make sure you take those increased costs into account when figuring out how much you can afford.

If your mortgage is 30% bigger, your other bills will be as well. For example, if you upsize from a $200,000 mortgage to a $300,000 mortgage you should expect your related costs to go up by a third as well. Upsizing can also prompt “keeping up with the Joneses” syndrome, where you feel like you must compete with neighbors who have a more lavish lifestyle. Finally, if you frequently have visitors, do you really need or want to accommodate them in your home, or would it be better and cheaper to put them up in a nearby hotel over time than to pay the costs of upsizing?

Or should you stay put?

A bigger house is a bigger financial commitment. If you can’t afford the total costs, you’ll be “house poor.” If you just can’t decide what your next home purchase should be and at what price it makes sense, there are plenty of reasons to stay put instead of upsizing to a larger home:

  • You like your current home and its size fits your family;
  • You enjoy your neighborhood and your neighbors;
  • You and your spouse don’t agree on what to do next;
  • You don’t want your kids to have to change schools;
  • The costs of selling a home and buying a new one may not make it worth it to move right now; or
  • You believe real estate prices will rise on your street over the next few years, so you are willing to wait to sell.

Moving is a big decision. Our sense of community is often connected to a physical location. You may find that going bigger gives you a more spacious and satisfied feeling, assuming you can swing the additional expense. On the other hand, if you’re not sure if it’s the right time to move on, it may make sense to stay put until you have a clearer idea of where you want to go and what makes sense for your goals going forward. There’s always next spring to revisit the question.

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

Why is an Index Important in Investing?

May 22, 2017

Everywhere you turn, you hear or read personal finance experts advocating the use of index funds in your portfolio. Employees often call our Financial Helpline asking if their 401(k) funds are index funds or wondering what exactly an index fund is and how to pick the right one for them. They also ask how they can know if their mutual fund is performing well. The key to both is understanding indexes.

An index is a statistic

An index is a statistic measure of change in the prices of major groups of stocks or bonds which represent an area of the overall market. In investing, indexes are used as a guide to constructing portfolios, and to set a starting point (benchmark) and measure portfolio performance over time. Indexes are usually capitalization-weighted, meaning that the largest companies have the most influence on the index. Common indexes like this include:

  • The S&P 500®, which includes 500 large companies in a market capitalization weighting, and is widely viewed as a benchmark for the U.S. stock market. If you’ve got a “large company growth fund” in your retirement account, it’s likely its performance will be compared to the S&P 500. You can track the index by entering symbol SPX.
  • The NASDAQ Composite Index includes all the stocks which trade on the NASDAQ market. It includes a lot of technology companies, but isn’t limited to them. You can track this by entering symbol IXIC.
  • The Russell 2000 Index includes 2,000 small companies in the U.S. You can track this by entering symbol RUT. If you’ve got a “small company” or “small cap” fund in your retirement account, it’s likely that its performance will be compared to the Russell 2000.
  • The Bloomberg Barclays U.S. Aggregate Bond Index tracks a range of types of fixed income securities to represent the types of bonds in the bond market. If you have a “total U.S. corporate bond” fund in your retirement account, it is likely its performance will be compared to the Bloomberg Barclay’s U.S. Aggregate Bond Index. Bloomberg Barclays has many common bond indexes and you can find and track yours here.

Another well-known index that is frequently reported as an indicator of the total U.S. economy, the Dow Jones Industrial Average, is a measure of 30 U.S. blue chip stocks from all industries except transportation and utilities. It is a price-weighted average, which means that the most expensive stocks influence the index the most. You can track this by entering symbol DJIA.

An index fund mimics the index

An index fund is a type of mutual fund with a portfolio designed either to match directly or track the performance of an index. For example, an S&P 500 index fund would hold stocks of the companies in the S&P 500 index in direct proportion to how they are represented in the index. When you choose an index fund, you’re choosing a passive method of managing your investments. You won’t outperform the index, but should closely track the performance of the index, with slight underperformance due to trading costs and fees. Index funds are a great way to minimize the fees in your retirement plan or other investment portfolio, which can really add up over a long period of time. Not all index funds are created equally, however, so make sure you read the fund fact sheet and prospectus before you invest. Not sure about how to choose the right funds for you in your retirement account? Start here with an easy to read post from fellow planner Kelley Long on how investing is like choosing a pizza.

An index gives you a way to compare how you’re doing

Comparing your mutual fund to an index that contains similar stocks or bonds is an excellent way to measure how your fund is doing over time. A fund will generally disclose its benchmark, the index against which the fund management measures its performance. For a passive index fund strategy, the comparison is simple. An actively managed fund, which is designed to try to beat an index (although most don’t), may have a composite benchmark (made up of several indexes in pre-set proportions).

The upshot: do a review of your retirement accounts and other investments. Do you own index funds, and if so, what indexes do they track? Do you have a diversified portfolio of funds which track different indexes? Do you have actively managed funds, and if so, what indexes are they measured against? How did they do? If you’re not sure about where to start, call your Financial Helpline or call your financial coach if you have one.

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