Don’t Let Black Friday Put You In The Red

November 20, 2017

It’s official. The Holiday shopping season has begun. If you are like me and my family, spending for the holidays is one of the biggest budget busters you will face. Even if you have done a great job controlling your spending up until now (and I hope you have!), the desire to splurge during the holidays is all too real.

To help, I’ve put together some tips on how to manage your spending while keeping that holiday cheer:

Create and execute a detailed budget

I know, it sounds cliche, but it works. Start by breaking your spending down into categories. I suggest:

Gifts
Décor
Entertainment
Travel
Food
Last minute miscellaneous

Then, write down how much you are willing to spend in each category. Consider using a spreadsheet with a separate tab for each category or envelopes – the more detailed the better.

For every person you want to buy a gift for, record their name and the amount of money you want to spend on them. If you feel like it’s “you against the world” when you are budgeting, don’t create your budget in a bubble – include your significant other or a close friend to serve as both a reality check and an accountability partner.

Finally, beware the impulse buy – don’t make any holiday purchases before confirming that it fits in your budget or that it’s already in your plan.

Be careful of Black Friday and Cyber Monday

If you’re planning to be one of the over 154 million consumers expected to make a purchase on Black Friday, this one’s for you. The sales can be great, but don’t buy something unless it is specifically covered by your budget and in your plan. So, if you find that 70-inch TV at 50% off, but the price still exceeds your budget, consider not making the purchase – especially not for yourself.

If you feel like you spend more on yourself than other on Black Friday, you’re not alone. Studies show that 60% of the people who make purchases on Black Friday are “self-gifting.” If you can’t find the perfect sale on Black Friday to fit your budget, don’t worry – you still have about 4 weeks until the end of the holiday season and there will be other sales.

If you fall into the category of feeling obligated to shop on Black Friday because it is a family tradition or you like the rush, consider starting a new tradition such as volunteering in your community. Helping others while sticking to your budget sounds like a win/win situation to me.

Find creative ways to save money

If you are getting nickeled and dimed to death by buying a small gift for several people (teachers, neighbors, not-so-close friends, etc.), think of ways to spend less and still provide a personal gift.

If you are a baker, consider making a huge batch of your favorite cookies or pastries and pass them out (just don’t defeat the purpose by going crazy on cute packaging). A good sweet gift can go a long way toward putting a smile on someone’s face while keeping you on budget.

If you are hosting a family dinner for the holidays, consider baking a lasagna or using a more budget-friendly cut of meat, rather than prime rib, and ask your guests to bring their favorite beverage. You will still be serving a great meal and your guests will have the drink of their choice – that makes for a festive and affordable evening.

Managing your money effectively during the holidays does not mean you have to be a Grinch. Just sit with your accountability partner and write down a realistic budget that will still allow you to enjoy giving to others. Start some new traditions that are fun and affordable, and always remember that spending time with others is more valuable than spending money on others.

Happy holidays!

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3 Ways To Celebrate “Let’s Get It Done” Month

October 16, 2017

October is Financial Planning Month! It may sound nerdy, but obviously I’m celebrating — every month is Financial Planning Month for me! In general, national day designations are meant to bring attention to specific topics, which is great. However, since there are 116 National Calendar days in October alone, financial planning can easily get lost in the shuffle.

The other thing is, simply bringing awareness to financial planning is not enough, we all need to take action. With that in mind, I propose we think of October as Financial Planning ACTION Month. Here are some actions to start a financial plan, or get your existing plan back on track:

Prioritizing your finances

Once you have paid your monthly living expenses, look to prioritize your savings and expenditures in the following order:

Build an emergency fund up to $1,000 to take care of minor unexpected expenses like medical bills and car repairs.
Contribute to your 401(k) at least up to the percentage to take full advantage of your company match – that’s free money you don’t want to pass up.
Pay off all high interest (6% or higher) credit card debt, and keep the balances at zero each month (see below).
Turn back to increasing your emergency savings from $1,000 to an amount equal to 3 to 6 months of living expenses. This way you will be covered if your income is unexpectedly reduced.
From here, refocus on retirement savings or other savings goals.

Paying off high interest debt

The first step is to take an inventory of debt and list the balance due, interest rate, and minimum monthly payment. After making the minimum monthly payments, direct any excess cash flow to either

1) the highest interest rate card (this will save the most money, as the Debt Blaster calculator shows) or

2) the card with the lowest balance (this will help build momentum).

Either choice is great; it’s just a matter of personal preference. By sticking to one strategy, you will pay off your debts sooner and pay less in finance charges. Once this debt is paid off, be sure to redirect that monthly payment you are accustomed to making toward a specific savings goal like retirement savings.

Running a retirement calculator

Studies have shown that those who run a retirement calculator have a much higher level of retirement preparedness than those who do not. Knowing is actually half the battle! A calculator will tell you whether you are on track to meet your goals.

Armed with this information, you can determine if you need to stay the course, or make some changes to get back on track. If you know that your 401(k) contributions need to be increased, look for ways to reduce non-essential expenses and redirect those savings to your 401(k).

So, let’s make Financial Planning ACTION Month one to remember by taking action! Once you have your plan in place, celebrate by ordering a pizza. After all, October is also National Pizza Month!

When It Comes To Financial Planning, Listen To Joe Maddon: Do Simple Better

October 02, 2017

It’s that time of year – Major League Baseball playoffs are scheduled to start later this week and the city of Chicago (myself included) is starting to get worked up about the possibility of our beloved Cubbies repeating as World Series Champions. It has me thinking about one of Joe Maddon‘s famous phrases.

If you are a fan of baseball, you probably know that Joe is the Cubs’ manager, but if you are not familiar with Joe, that’s OK – just stay with me here. Joe is a quirky guy — he brings exotic animals into the team’s club house and has the players dress in pajamas when going on long road trips.

Despite all his shenanigans, there is one thing about Joe that has always stuck out to me. One of the phrases that Joe consistently uses to keep his players in the right frame of mind is, “Do Simple Better.” Think about that — he is working with the best ball players in the world and his message to them is not “take more batting practice” or “watch out for the curve ball on a 1-2 pitch,” but rather to focus on the basics.

It turns out this philosophy can also help you improve your financial well-being. Here’s how.

Saving

Do simple: Establish your savings goals by writing them down and putting a plan in place to save for them each month. Whether it’s saving for emergencies, college, vacations or retirement, if you have a written plan on how to get there, chances are much better that you will make it.

Do simple better: Set up a different savings account for each goal, and have money automatically transferred each month from your checking account or paycheck to these accounts. You may be thinking that you are already doing this with your 401(k) by having a certain percentage deducted from each paycheck – that’s awesome, but consider taking it a step further and enrolling in your plan’s automatic rate escalator.

Investing

Do simple: One thing that all great investors have in common is that they have a grasp on the fundamentals. To apply that to your investment strategy, determine what your time horizon and tolerance for risk are for each goal. From there you can choose the appropriate asset allocation, or mix of cash to stocks to bonds. Studies have shown that asset allocation has a larger effect on investment return than any other variable.

Do simple better: Take this risk tolerance quiz to identify your ideal asset allocation for different savings goals. Then, invest accordingly. Also, rebalance your investments at least once per year. This will keep you in line with your initial allocation strategy and force you to buy low and sell high!

Communicating

Do simple: If your finances are intertwined with a spouse or partner, consider improving your communication by having regular meetings to discuss your finances. This is not a “finger pointing” session, but rather a time to ensure the left hand knows what the right is doing. My wife and I have recently made it a point to sit down every two weeks to review our finances, and it has relieved a good deal of financial stress.

Do simple better: Hold this meeting at a time when you are both relaxed and not preoccupied with anything else. We do ours on Sunday evenings, when it’s quiet and we’re not worried about getting to work or taking the kids to their activities. Also, make the meeting enjoyable – perhaps bring a bottle of wine to the table!

One more thing – hold each other accountable during the meeting. For months, if not years, my wife and I have “discussed” calling our cell phone provider to see if we could save some money with more efficient plan. With the nudge of our bi-weekly meeting, we finally did it, and are now saving over $1,000 a year!

Take Action

This is what it’s all about. On paper, the ability to save, invest and communicate seems, well, simple. It’s up to you to set up those automatic transfers, invest per your risk tolerance and meet with your accountability partner. You will then understand the power of “doing simple better!”

5 Tax Moves To Make Right Now

September 15, 2017

As we approach the end of summer and the beginning of fall, things are changing. Temperatures begin to cool, leaves start to turn color, and the kids start back at school. While we do not have much control over these changes, we do have the ability to make some changes to improve our financial well-being.

With about three quarters of the year in the books, now is a great time for tax planning. You should have a good idea of what your income (including bonuses) projects to be for the year, plus there is enough time to make some changes before the end of the year. Here are some ideas:

Increase 401(k) Contributions. If your income projections show that you are on pace to creep into a higher tax bracket, consider decreasing your taxable income by increasing pretax contributions to your 401(k) plan. Most plans allow you to change your contribution amount at any time, as long as you stay within the IRS limits of $18,000/year, plus $6,000 more if you are 50 or older. Then, when the new year arrives, why not keep your 401(k) contribution rate at this higher level if it fits within your budget?
Increase Health Saving Account (HSA) Contributions. Similar to 401(k) pretax contributions, HSA contributions can be used to keep you in a lower tax bracket, and can be changed at anytime through your payroll deduction. You can even write a check and have it deposited into your HSA up to April 15th of the following year. Since the unused balance in your HSA can be rolled over to subsequent years, and can be invested, view it as a supplemental retirement account as all qualified medical distributions will be tax free, regardless of your age.
Use all the money in your Flexible Spending Account (FSA). Unlike the HSA, your FSA has a use it or lose it provision. So, look at your current balance and future contributions for the year, and match current year medical expense to at least meet this amount. If it looks like you’ll have unused funds, reschedule that minor procedure or visit to the doctor you were planning for this year instead of next so you can use the tax-free money (assuming, of course, rescheduling does not negatively affect your health). Load up on contact lenses or upgrade your glasses this year, rather than waiting until next year. For more ideas on eligible ways to spend extra money, check out this list for ideas.
Offset capital gains with capital losses. If you sold some stock or other asset earlier this year that generated a capital gain, you can offset this gain with a capital loss. By using capital losses to offset capital gains you will lower your net investment income and tax liability. You can even use up to $3,000 of a net capital loss as a taxable income deduction.
Hire a tax preparer. Don’t wait until you’re facing the April 15th deadline to figure out who you’re going to have prepare your taxes for the year. Interviewing and hiring during the fall gives you time to acquaint yourself with your preparer, which makes it more likely that he/she will be able to give you personalized tax planning ideas to actually help you save on your taxes. Waiting until mid-March or later not only limits this opportunity, but may also cost you a premium — some preparers charge more for people who submit their stuff after a certain date.

Asses your overall tax situation now, and put a plan in place to avoid “scramble mode” at the end of the year.

Here’s How One Couple Is Achieving Financial Independence Before Age 50

September 08, 2017

One thing I love about working at Financial Finesse is that I have the opportunity to provide financial guidance to folks with a wide range of needs. The majority of my conversations are centered around the specific needs of an individual at a specific point in time — it gives my days a huge variety and I find that every conversation I have is unique.

However, I was recently reminded that while each person and their needs and goals are unique, many of us are in the same situation. It’s how we approach that situation is what leads to differing needs, goals and outcomes. Here’s what I mean.

The situation

I recently spoke with Craig (not his real name), who was looking at ways for he and his wife to maximize retirement plan contributions. Their goal was to save 50% of their income and to be financially independent in the next 5 to 10 years. He is 37 years old now. After assessing his situation, I agreed that they would actually be able to achieve that goal and be completely financially independent before the age of 50. Amazing!

As our conversation concluded, I found myself thinking about how this guy and his wife are doing things right but was also telling myself that their situation is unique and that they are lucky — they both have good paying jobs and could afford to sock away a good chunk of change to meet their goals.

But as I gave it more thought, I realized that their situation was not at all unique. Like may of us, they both went to school, got jobs that paid them fairly, eat 3 meals a day, live in a home and community they enjoy, etc. They weren’t born into money, they were working to accumulate their own savings. What is unique about this couple are their financial goals which translate to different than the “norm” habits and outcomes. So, what can we all learn from their success?

Learning from their success

Decide What Is Important To You. It’s all about prioritization. Craig’s top priority is to save early and often to achieve financial independence at an early age. My guess is, he’s not concerned about keeping up with the Jones’s, nor does he drive a luxury car.

I think you will agree that Craig has probably taken this decision to a bit of an extreme (not everyone can achieve financial independence by their mid 40’s), but we can all set realistic long term goals and adjust our spending and lifestyle behaviors to achieve these goals.

Making a small shift: Set a goal to retire one year earlier than originally planned. Then, cut out something that’s not as important to you as retiring earlier and apply the savings towards retirement.

Plan Early And Often. Rome was not built in a day. When I talked with Craig, it was clear he had been working consistently towards meeting his goal for a long time. My bet is that virtually every financial decision he’s made since his early 20’s has been influenced by his long-term goal. Again, he may be taking this to an extreme, but if you have a long-term vision, set the goal and work to achieve it, you may surprise yourself on what you can accomplish.

Making a small shift: Answer this question: what do you want to be different in your life 10 years from now? What small action can you take today to take a step toward that change?

Live Below Your Means. Craig and his wife most certainly live in a smaller home than they could afford to buy based on their income. If the bank says you can afford a $350,000 mortgage, that does not necessarily mean it would be a good financial decision for you. Consider what that larger mortgage payment would do to your day to day life style.

Look at it this way, if you had chosen a lower-priced home and reduced your 30-year mortgage payment by $100 per month, and instead directed that $100 to your 401(k) over the 30 years of your mortgage, you would have increased your retirement savings by $100,000 (assuming an annual return on 6%). That’s real money that could allow you to achieve your financial independence sooner that you think!

Making a small shift: Maybe you can’t move to a home that’s $100 less per month or maybe you don’t have 30 years to save, but what other areas can you cut back so that you can find an extra $100? Use this calculator to see the impact of finding just an extra $3 per day to put away.

The key takeaway from Craig’s story is that if achieving financial independence is THE most important thing to you, it’s entirely possible. You just have to be willing to make some tough choices in order to get there.

Meet Our Newest Planner: James Jacobucci

April 10, 2017

The newest member of our CERTIFIED FINANCIAL PLANNER™ team, Jim Jacobucci, CFP®, MBA, has always liked to save money. It’s one of the reasons he switched careers to financial planning from manufacturing. I asked Jim some questions about his money story, money and family life, and what it means to come to Financial Finesse:

What’s your personal mission? Who do you most want to help? I most want to help people who generally do not have access to sound financial guidance. Those who have problems making ends meet each month or who have taken on high levels of credit card debt need help just as much, if not more, than anyone else. My mission is to provide sound guidance on how to navigate through everyday financial issues that are important to everyday people.

What’s your money story – what your parents taught you about money, etc.? Did you hold any negative beliefs about money that you had to overcome? For as far back as I can remember, I liked to save money. I’m not really sure why. When I was, say, 8 years old, I did not have a goal in mind to buy something specific, but I just liked to save what little money came my way.

I do not recall my parents teaching me specifically about money, but we were a middle class, single income family. When my dad was working, things were fine, but if he was laid off, things got pretty tight, pretty quickly. Maybe just experiencing this influenced me to save when I could.

What is the biggest mistake you ever made with your money, and what did you learn from it? The biggest financial mistake I ever made was not having an adequate emergency savings fund while I was going through a career change. I knew that my income would drop during this transition, but I did not properly plan for all scenarios. For a while, money was pretty tight until I gained some more traction in my new profession. What I learned from this is to always hope for the best but plan for the worst when it comes to making decisions that will have a long term financial impact.

What have you learned about money and marriage that you can teach the rest of us? I am very fortunate in that my wife and I are pretty much on the same page regarding our finances and how to prioritize. And therein lies a lesson learned. This may sound a bit too clinical, but I believe when you commit to spending the rest of your life with someone it just makes sense to be sure you have the same general philosophies when it comes to money.

My wife and I never really had in-depth money conversations before getting married, but you get a pretty good grasp on someone’s financial tendencies when you are spending time together. While dating someone, if I saw she was spending frivolously on luxury items at the expense of more practical things, that would have been a red flag for me. Not that she would be “wrong” in her spending choices, but having such a different outlook on spending compared to mine would present some challenges if we did get married.

How do you teach your kids about money? I try to explain to my kids why I am making the everyday choices that I am with regards to money. It started out at the grocery store when they were young.

If we were going to buy a gallon of ice cream, I would explain why I was buying the brand that I was. Was it on sale? If one brand is more expensive, is it worth spending that extra dollar on that brand or would it be wiser to spend that dollar somewhere else?

Now that they are a bit older, when it is time to make a purchase for my kids for say, new summer clothes, it is left up to them what to buy (as long as it is tasteful). They are given a budget of how much to spend, but it is up to them on how they spend it. My wife and I certainly provide some coaching along the way and help weigh the pros and cons of buying a designer item vs. a more run-of-the-mill item.

What do you think your generation does differently with money/attitudes about money? Being a Gen Xer, I think my generation sees money that is something that you need to work hard for, to earn. Put in an honest day’s work and get an honest day’s pay.

If you could wave a magic wand and reform financial services, what would you do? I am frustrated that those who need the most help, those who are really struggling to make ends meet, get the least help. One of the great things about delivering workplace financial wellness benefits is that we’re compensated and incentivized equally for offering financial guidance to an employee with a net worth of $10 or one with $10 million. This is the approach of Financial Finesse and why I love working here.

Tell me about your financial coaching philosophy? First and foremost, I respect every employee that I am coaching. They may be in a bad financial spot, but there are always reasons for getting to where they are.

Understanding those reasons, how they affected their finances, and what can be done to improve their financial wellness is what I strive to do. I never pass judgment on a person, regardless of their situation or how they got there. It’s my job to listen and understand and give employees the tools to make improvements.

Why did you want to earn your CFP® designation? What does it mean to you? There were three main reasons that I decided to pursue my CFP®: to broaden my knowledge base in tax and estate planning, to provide myself with a certain level of intellectual stimulation that was lacking in my job at the time and to give me the ability to help a wider range of people. To me, the CFP® designation represents an ongoing commitment to keep current on financial planning topics, which enables me to be in a position to help people make the right financial decisions.

Is there anything that really surprised you about coming to work at Financial Finesse? Why? The thing that surprised me the most about coming to work at Financial Finesse was all of the planners are deeply involved in the company in areas which impact how workplace financial wellness programs are designed and delivered. They are involved in many parts of the business – research, consulting, communications, recruiting and fact-checking. This is a great because the planners all have unique skill sets and experiences that are useful in multiple areas of the company.

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.