Why You Should Start Saving NOW

March 20, 2023

Pretty much every personal finance resource will tell you that the earlier you start saving, the better off you’ll be. It’s a bit of a “well, duh,” thing, but there’s more to it than just the fact that you’ll have longer to save if you start early. The thing is, the earlier you start, the earlier you can stop saving if you want to.

That’s right. People who save aggressively in their 20s and 30s and then stop while they deal with other financial priorities like buying homes, educating kids, traveling the world, etc., may be better off than people who wait to start saving until 45 and plow money away until they’re 65. This concept seems a little crazy, so let’s do the math.

Compound interest effect

Let’s say you start saving at the age of 25, putting away $6,000 per year (that’s $500 per month or just $250 per paycheck if on a biweekly earning schedule), and then stop at the age of 45. At that point, assuming a 6% moderate rate of return (meaning you invest the money in, for example, a target-date fund aligning with your 65th birthday), you’d have $231,020 saved. If you stop saving at that point and just “let it ride” until you’re 65, that amount could grow to $764,723, assuming that same 6% average performance over the years.

(You know that saying, “You gotta have money to make money?” That’s evidenced here. Your money makes money for you.)

Now let’s reverse that. Say you wait until you’re 45 to start and then decide you’re going to buckle down and save aggressively for the next twenty years. Then, to amass the same amount of $765,000 by 65, you’d have to save almost $20,000 per year (or $1,656 per month/$828 per paycheck).

In both scenarios, you’d be saving for 20 years. However, by waiting to get started, you’d have to save more than three times as much each month to get the same result. That is crazy! But the math doesn’t lie.

Tips to start saving

The challenge is finding the cash to get an early start, especially if you’re trying to pay off debt. However, the lesson here is that even a tiny amount of money saved early can significantly impact your future savings. So here are a few tips:

1. Always get the match in your 401(k)

That’s a 100% guaranteed immediate return on your money, and we’ve yet to find another legal way to achieve this.

2. Live within today’s earnings (aka don’t borrow against the future)

Our instant gratification society has us thinking that we need a posh lifestyle straight out of school. But that’s just a recipe for postponing financial independence. To stick to your savings priorities, you might have to live a bit minimalistic until you can afford more. It’s better to live frugally than to elevate a lifestyle to what it would be at a higher income.

3. Sometimes, it’s all in your head

Don’t rely just on willpower to save more money. Instead, try using money mind tricks to help you stick to your intentions.

4. Start small

Even if it’s just $25 per paycheck, it’s better than nothing. So that’s where I started. I then just raised the amount over time as my income increased and my debts decreased.

5. Use the auto-escalator tool

Check to see if your 401(k) plan has an auto-escalator. It’s a tool that lets you set up your contributions for automatic increases at set intervals. Try setting up a 1% increase each year to coincide with your annual raise so you’ll never feel a reduction in your take-home pay. A 35-year-old earning $50,000 who uses the auto-escalator to go from 5% to 15% over 10 years will have more than $250,000 extra saved at age 65.

The numbers don’t lie. If you’ve been thinking that you’ll wait until you feel more like you can afford to save, it’s time to shift away from that mentality. Starting early, often, and setting your savings on automatic is a way for you to make yourself afford it now.

Why You Should Check Credit Before Marriage

February 09, 2023

Your credit reports and histories do not merge with your spouse when you get married. However, both credit scores and payment histories will be used for many aspects of your financial life. Here are several ways a couple’s combined credit scores can impact their lives together:

Your Ability to Get an Apartment 

Landlords routinely do credit checks as part of their screening process. They will likely require each of you to file a rental application. While there is no standard credit score to rent an apartment, the average renter’s score for 2020 was 638. However, you may need a score near 700 in competitive markets like San Francisco, New York, or Seattle. 

The Cost of Your Mortgage Payment 

Many factors go into acquiring a mortgage. In joint mortgage applications, the lender will use both credit scores to determine your interest rate and whether you qualify. 

The higher your score is, the more likely you’ll receive the most competitive interest rate. With a lower score, you may still qualify for a mortgage. However, you risk a house payment of hundreds more per month to buy the same property. 

How Much You Can Afford for Future Cars 

Like a mortgage, your score will determine the interest rate you receive if you decide to finance a car. While it’s possible to buy a car with cash, many of us still finance a portion of our cars. In fact, in 2019, 55% of all used vehicles were financed. 

According to the 2022 Experian State of the Automotive Finance Market, the average interest rate for a used car loan with a credit score above 780 was 3.69%. Meanwhile, the average used car loan for someone whose credit score was between 500 – 600 was 15.86%. 

This means that a lower score increases the monthly payment difference for a $20,000 used car by 33%.

How Much You Pay for Car Insurance 

Unfortunately, it doesn’t stop there. Your credit score can impact your auto insurance rates. A consumer’s credit information dictates a numerical rating known as “credit-based insurance scores”. Insurance companies use these scores to price insurance policies. In short, the insurance industry has determined that credit scores, a measure of how a couple manages their financial matters, is a good predictor of insurance claims.   

What To Do If You Have Bad Credit 

The good news is that you can take steps to improve your credit score. Plus, the sooner you communicate a shared goal of improving credit, the sooner you can improve your scores.

  • Request Free Copies of Your Full Credit Reports.  

Visit www.annualcreditreport.com  to request your reports from all three agencies (Equifax, TransUnion, and Experian). Review them carefully, looking for items that aren’t yours. These can include paid balances reporting as outstanding, things that have been reported multiple times, and other mistakes. 

If you find an error or fraudulent activity, immediately go to that bureau’s website and file a dispute. You can file with each bureau through its unique online process. 

  • Catch Up on Any Past Due Payments 

Don’t ignore your debts. Be proactive and talk with creditors if you have fallen behind or fear that you may soon fall behind. See if they will allow you to make alternate payment arrangements or if they are willing to negotiate the debt. 

  • Pay Down Your Balances 

The total debt you owe makes up 30% of your FICO® Score. Paying down both of your outstanding balances can lower your credit utilization rates, increasing your scores. 

  •  Educate Yourselves and Continue to Monitor 

Several other strategies and services to help you improve your scores. The more you learn the specifics of your credit, the better prepared you will be for your financial life together. 

Nurturing a relationship is hard enough, and maintaining financial wellness is only one factor contributing to a relationship’s success. Nonetheless, it is a crucial factor; the more you communicate, the more you can work on it together.  

Gifts For Your Honey That Last A Lifetime

January 31, 2023

With Valentine’s day just around the corner, it’s time to remind our partners how much they mean to us.  Some of us may go big with our gifting, others may take a more measured approach. Either way, it’s a perfect opportunity for a lifetime gift- financial security that lasts well beyond Cupid’s special holiday.

Retirement Accounts

Helping your relationship collectively secure retirement truly is the gift that keeps on giving.  Look at how much each of you contributes to your 401(k) at work and consider increasing your contributions by 1%.  Even better, sign up for the automatic contribution rate escalator feature if your plan offers it.  This will gradually up that savings rate automatically every year and really boost those balances in the long run.  You can also contribute to an IRA / Roth IRA.  In fact, if you haven’t made contributions for last year, you can still do that through the tax filing deadline.  And then, you can do the same for this year.  Sweeter than a box of chocolates!

Life Insurance

Making sure your honey is taken care of if something happens to you is a true act of love.  Review your existing policies and fill out a needs worksheet or calculator to determine how much coverage you need.  Add additional coverage if there is a gap between what you have and what you need.  For the best deal, review your insurance options at work and compare those to private insurance options.

Estate Planning

A close relative to life insurance, estate planning is all about making sure your wishes are honored. This puts the people you love most in the best position to carry on financially as easily as possible.  Reviewing or creating a few key documents can help maximize inheritance and minimize the hassle of sorting everything out.

Last Will allows you to make gifts, establish guardianship for minor children, and create a Trust upon your death.

Beneficiary Designations states who receives the money from accounts like your retirement accounts and life insurance policies.  Review those today to ensure they are set up per your wishes.

Transfer on Death / Payable on Death accomplishes the same as your beneficiary designations but applies to bank and non-retirement investment accounts.

Power of Attorney authorizes someone to make financial and healthcare decisions on your behalf should you be incapacitated.

Living Will lets you spell out your wishes regarding critical care decisions like life support, resuscitation, and feeding tubes.  This can be a huge stress relief for your spouse/partner in clearly handling a difficult situation.

We all want to show our special someone how much they mean to us. While gifts are lovely, planning for their future is the gift that keeps giving.  Most employers offer resources to help you with life insurance and estate planning, so it’s not a big chore.  What better way to say “I love you” than making sure they are taken care of for a lifetime?

The Challenges Of Financially Cohabitating Couples

January 31, 2023

Are you among the growing number of unmarried Americans living with a partner? When financially cohabitating, you get a lot of the savings that a married couple typically would enjoy. You don’t have to maintain separate homes or pay redundant bills and purchases, like internet and other household items. Not having some financial benefits of marriage can present some real challenges. Here are some things to consider:

Money Management

You can open joint bank and credit card accounts, simplifying household expenses and making you feel like a couple. If one partner has poor credit, the other can add them to their credit cards to improve their score. The money in the bank accounts is also immediately available to each of you should something happen to you and vice versa. (Of course, having joint accounts can be messy if you split up, making you create your own “divorce” process.)

However, putting too much money in a joint account can trigger having to file a gift tax return. That’s because the IRS considers half of all deposits gifts to the other person. If the gifts exceed $17,000 this year, you need to report it to the IRS. Any excess over $17,000 reduces the recipient’s total lifetime gift and estate tax exemption.

Estate Planning

This is one of the most important areas for non-married couples. You likely won’t be each other’s default beneficiary and won’t be considered family for medical purposes. So, you’ll want updated wills, durable powers of attorney, and health care directives. Having beneficiary designations on any retirement accounts, health savings accounts, life insurance policies, and trusts is also crucial. You can get free basic documents from Free Will, DoYourOwnWill.com, and MyDirectives. However, MyDirectives only allows you to draft advance health care directives but provides free online storage. If you’re considering hiring an estate planning attorney, see if your employer offers a prepaid legal plan you can sign up for during your open enrollment or discounted legal help through an employee assistance program.  

Unfortunately, you won’t be able to roll each other’s inherited retirement accounts into your own retirement account to defer taxes. Anything passed between you at death won’t get the unlimited estate tax exemption married US citizens get. You also won’t be able to pass on your remaining estate tax exemption to each other. Fortunately, the current $12.92 million estate tax exemption means this is unlikely to affect most people. (If you’re worried about estate taxes, consult an estate planning attorney.)

Employee Benefits

You and your partner likely won’t be eligible for employee benefits such as being on each other’s employer-provided health insurance unless you’re domestic partners. Even in that case, the federal government levies a tax on the value of the benefits to the partner. Some employers will cover that cost. If yours doesn’t, you may have to decide if it’s worth paying the tax or getting insurance someplace else.

Government Benefits

You won’t have the option to file taxes jointly, which saves most married couples money, especially if one spouse earns a lot more than the other or if they have children. Speaking of children, you can’t adopt a child together unless you’re domestic partners in some states. The federal government doesn’t recognize domestic partnerships. So, you can’t petition to keep a non-citizen partner in the US or collect spousal or survivor Social Security benefits. Not being eligible for survivor Social Security benefits may make life insurance more valuable even when you’re retired.

Should you get hitched?

As you can see, there are a lot of financial benefits you give up by not being married, so you may want to factor these into your decision of whether or not to say “I do.” Of course, marriage also has its financial drawbacks, especially if you eventually get divorced. That’s one reason why deciding to get married shouldn’t just be financial.

How To Make Financial And Life Decisions in Uncertain Times

March 19, 2020

If you are a planner like me (full disclosure, I am not a CERTIFIED FINANCIAL PLANNER ™, but a planner in the generic sense), who likes to analyze all of her available options before making a thoughtful and well-informed decision, you may feel frozen from action in the current environment. New developments on public health recommendations, personal health recommendations, and the general state of the economy are being broadcast daily. How can we make the “right” decision when the situation may be entirely different tomorrow?

We all must make daily decisions, and in uncertain times, the importance of those may feel amplified as we try to control the situation as much as possible. To clarify, when I refer to “decisions,” I am referring to both the smaller things in life –Should I still plan a summer vacation? –and the bigger life event-related ones –Should I have another baby? Should I switch careers? These questions can be applied to all decisions, including financial ones.

One option is to freeze all decision-making until things have stabilized. For a lot of decisions, this strategy could work. However, what if you have a time-sensitive decision or an opportunity that may not last long? Below are a few questions to ask yourself as you navigate a decision in an uncertain time:

Do I really need to decide now?

When you are close to a situation, it can feel like you must decide right now. However, for most things in life, that’s not the case. Consider whether waiting to gain some perspective will help you make a better decision, and one that you feel more at peace with. Try to avoid letting fear and panic guide your decision making. Write a date on the calendar to revisit the decision, to hold yourself accountable to deciding and not putting it off indefinitely.

What is the best-case, worst-case, and most likely scenarios for each option? What are the potential upsides and downsides of each scenario?

This is something that I do a lot at work, when making my own decisions or helping a colleague make a decision. But I find that most of us are less likely to do it in our personal lives, and especially around our finances. It can be easy to get emotionally invested in a specific outcome rather than looking at all outcomes. If you’re not sure of the upsides and downsides of a financial decision, call a financial coach to help you identify them!

What is my back-up plan if things go poorly? What does my support system look like?

Contingency planning is critical here, and your support system plays a huge role in what your worst-case scenario looks like. Are you thinking of switching careers, moving across the country, or buying a house right as we head into a recession? Your age, your savings, your income streams, your partner, and your risk tolerance will all impact how the worst-case scenario looks for you.

Every day we make a multitude of choices, and ultimately our lives become the sum of these choices. Do what you can to set yourself and those around you for success, but know that there’s no such thing as a “perfect” decision

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.

5 Great Ways to Have a Spring Staycation

March 22, 2016

Spring is in the air and if you are like me, you are thinking about what to do with your kids during the season. For many, it is taking time off to spend quality time with your family. You start to think about beach trips or a trip to Disney. Then a cold dose of reality hit. For me, it is my family’s commitment to our financial goals and for others it may be the knowledge that if you have to finance your vacation then you probably should think twice about taking the vacation.

If  you find that traveling away from home for spring break is not in the cards for you, never fear. The staycation is here. You can have a great vacation, full of relaxation and family bonding.

The key is to make it as much like a family getaway as possible. Have some ground rules for your staycation: no smartphones (or limited use), no tablets (my eleven year old nearly died), limited television, no working from home, and no cooking, cleaning or laundry. (I fought for those.) Remember, the only thing your kids really want is uninterrupted time with you. How it happens does not really matter to them.

Before you begin, come up with a budget. Although staycations are typically cheaper, the costs can add up quickly without the boundary of a budget. Below are 5 ideas on cost effective staycation ideas:

Discount sites. Use online discount websites like Groupon or Living Social for discounts on local activities like roller skating, fairs and plays.

The library. Visit your local library to learn about free events like puppet shows or movies. Some libraries offer free passes to zoos and museums.  At our library, you can also check out parking passes to national parks.

Picnic in the park. Have fun with it. You can get kites at a dollar store. You can also get a bucket, fill it with dishwasher liquid and make huge bubbles. Our kids loved it (and so did we). Check your local area for free movies in the park or free music and bring popcorn.

Movies. If you live near a discounted movie theater, take the family to go see a favorite movie you missed or a favorite movie the kids would like to see again. Many discount movie theater have ½ off nights.

Camping outdoors or under the table. Surprisingly, this was my kids’ favorite activity. We got popcorn and told ghost stories. You can even grill out.

Spring break doesn’t have to mean debt. You can have a family vacation that won’t follow you in credit card charges for the next 6 months. Taking the time to do a little bit of research to unearth staycation ideas can create a vacation your kids will remember for years.

 

What A New Baby Really Needs

March 01, 2016

I was talking to a friend about two weeks away from giving birth. She was crying over something. (At her stage of my pregnancy, I remember crying over a grocery store commercial.) After she could tell me what was bothering her, she said that she felt like an unfit parent. Continue reading “What A New Baby Really Needs”

What To Do Before You Say “I Do”

February 23, 2016

I am at a stage in my life where I can look back at my choices and say to myself, “What on earth was I thinking?” This is especially true when I think about past relationships. As I was talking to a group of young women who were recently engaged, I saw glimmers of my past relationships in their stories and thought to myself: what do I wish someone would had the courage to say to me that would had saved me from future pain? Continue reading “What To Do Before You Say “I Do””

The Number One Reason Couples Fight About Money and How to Stop

February 10, 2016

70% of fights within couples are about money according to a Money magazine poll, which really doesn’t surprise me. That’s one of the reasons our new book, What Your Financial Advisor Isn’t Telling You: The 10 Essential Truths You Need to Know About Your Money, dedicates a whole chapter to love and money. What surprises me is that so many people I talk to about this are unaware of the underlying issues that lead to these fights. Very rarely is it actually about the money. In my experience, it’s usually more about a difference in values relating to money.

Continue reading “The Number One Reason Couples Fight About Money and How to Stop”

Are You Lip Syncing Through Your Financial Life?

February 05, 2016

I’ve recently become a huge fan of the show Lip Sync Battle. Seeing celebrities “sing” the hits of their favorite artists while doing some very entertaining dances is absolutely hilarious. While it’s one of my guilty pleasures and has led to some world class laughter (“The Rock” as Taylor Swift, Anne Hathaway as Miley Cyrus, Channing Tatum vs. Jenna Dewan Tatum), in one of my odd “connect the dots” moments, I realized that I was having a conversation with someone who was lip syncing her life. Continue reading “Are You Lip Syncing Through Your Financial Life?”

Thinking of Adopting a Pet? Read This First

January 13, 2016

If you’re thinking that it’s time to give in to your kids’ begging or your inner Dr. Doolittle and join the ranks of pet parents, make sure you’re prepared financially to deal with your new fur baby. There are ongoing costs and other things to consider. The cost of a pet, particularly a dog or cat, extends well beyond the adoption fee, which is relatively small when you add up all the other costs that come along with pet ownership.

Continue reading “Thinking of Adopting a Pet? Read This First”

How to Survive the Holiday Break With Your Kids

December 22, 2015

I really do love my kids. But after two weeks of being indoors with them, we both welcome the new school year. I am always on the hunt for inexpensive things to do to keep my kids occupied during this season. Here are some of my favorites: Continue reading “How to Survive the Holiday Break With Your Kids”

The Kids (Credit Scores) Are All Right

August 06, 2015

Which generation has the lowest average credit score? According to this article, it’s the Millennials, who have a 625 VantageScore vs 650 for Generation X and 709 for Baby Boomers. This is unfortunate since Millennials are the most likely to look for a new job or buy a home, which are two of the situations when having good credit can be most important. Continue reading “The Kids (Credit Scores) Are All Right”

Why Every Couple Needs A Joint Account

June 16, 2015

I was recently talking to a couple that I initially thought was talking to me about their debate over getting a joint account. But as each of them spoke, they may had been looking at me but what they were saying was clearly directed at the other person until they forgot I was in the room and they just started arguing. I then remembered some guidance my buddy Kelley, a fellow financial planner, wrote about joint accounts and shared the following guidance from her: Continue reading “Why Every Couple Needs A Joint Account”

Passing On Your Money Skills

May 05, 2015

Working as a financial planner gave me the opportunity to meet so many people and to hear their amazing stories as to how they became wealthy. Most came from humble means, from former refugees who did not speak English, to former teenage moms, to those that grew up in foster care. Their stories are an inspiration.   Continue reading “Passing On Your Money Skills”

Why You Need to Talk to Your Kids About Money

May 01, 2015

I know that many people are hesitant to discuss money with their children — or their spouses/partners for that matter. I have talked about this with one of my pastors and he told me that people will come to him for help with all sorts of issues ranging from drug abuse to infidelity in a marriage, but money issues still remain a taboo topic for a lot of people. Many parents are embarrassed by their past money mistakes and do not want to discuss these with their children.

Continue reading “Why You Need to Talk to Your Kids About Money”

Do You and Your Spouse Have Different Money Philosophies?

April 14, 2015

My husband and I facilitate a class for newly married couples. In light of today’s environment, I am finding that many of the “newlyweds” range from young couples in their 20’s to executive in their 40’s to grandparents in their 60’s. Surprisingly, the biggest conflict is the same with all the couples: different money philosophies. Continue reading “Do You and Your Spouse Have Different Money Philosophies?”