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

December 20, 2017

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

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

“Not good with money”

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

Living paycheck to paycheck even on a high income

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

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

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

Moving from innocent to empowered

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

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

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

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The Trouble With More

December 13, 2017

If you just picked up on the concept of hygge, you’re behind. The new design trend in homes this year is called Lagom. It’s the Scandinavian concept of having just enough, as in a sufficient, perfect amount. And I think it applies just as much to money as it does to designing a trendy home. As a society we have an obsession with more, but many are starting to realize that more is not always better.

More stuff does not equal more happiness

As I contemplated this trend (which would be a struggle for me to personally embrace, as I love a cozy home), I was reminded of an interview I watched several years ago with Tom Shadyac, the filmmaker behind the documentary “I AM,” but also the director of films like “Liar, Liar” and “Bruce Almighty.” He said something that really struck me about the excess he had accumulated during those successful years.

He said, “I was standing in the house that my culture had taught me was a measure of the good life, and I was struck with one very clear, very strange feeling: I was no happier.”

He went on, “I had a full-time housekeeper, I had a full-time gardener, I had a landscape architect, … I had a house manager, a business manager, a money manager, a career manager. I needed a manager for my managers.” He had tapped out on the more equals happier scale.

The trouble with always wanting more is that eventually it gets to be too much.

The Universe says that great joy leads to great abundance but that this is not true in reverse. I fully believe that — we can get so caught up in making sure we have an abundance of stuff or money, but that doesn’t lead to joy. However, when we pursue joy for the sake of pure joy, we often find that the things we really need are there in abundance anyway.

Lagom = more joy?

How much of our focus in life is about accumulating more? More money, more clothes, more toys, more square footage, more car. But do we ever stop to consider whether the moremoremore is bringing more happiness? Often it just brings more obligations that cancel out any added enjoyment.

Breaking the cycle

The next time you find yourself caught up in the cycle of wishing for more and therefore not enjoying the current enough, stop to consider whether the added responsibility of more will be worth it. You may just find that enough is enough. And that wouldn’t be such a bad thing now, would it?

Your Obsession With Being Perfect Could Cost You Six Figures

December 06, 2017

As a recovering perfectionist, I feel slightly hypocritical even writing about this — perhaps I should title the post “How I’d Be Wealthier If I’d Gotten Over Perfectionism Sooner,” but either way, I need to call out something I’ve noticed more and more in my conversations with peers and colleagues who are 40 and younger. There’s an obsession with perfect that is getting in the way of a lot of things (read Brene Brown’s Gifts of Imperfection if you really want to get into it), but when it comes to money, it’s costing real dollars.

Perfect as a goal

There’s nothing wrong with striving for greatness in life, and that desire to get things “right” serves us well throughout our school years in terms of getting good grades and therefore better college and eventual career opportunities. But once we get into the “real world,” there are benchmarks we use to measure certain areas of personal finance that can mislead people who put “doing it right” ahead of all other criteria.

When it comes to your financial outlook, getting it perfect in the short term could actually lead to missed opportunities in the long-term. The worst part is that you probably won’t even know if you got it “wrong” until it’s too late. Here’s what I mean.

What is “right?”

The biggest issue here is that “right” is a moving target when it comes to things like investing, your credit score and even building a cash nest egg (also known as the emergency fund).

Investing

When it comes to investing, getting it “right” doesn’t actually mean you never experience a loss of value in your portfolio. If you make it through your entire career without once seeing your 401(k) balance drop, you actually got it wrong because it means you invested too conservatively and missed out on the greater growth that comes with greater risk.

It may feel better because you never had that pain of “loss,” but you’ll never actually know what you lost out on in missed opportunity. In fact, investing too conservatively over a 30 year career could literally cost you a half million or more.

When it comes to investing, there is no perfect, but generally speaking, the longer your time horizon, the more chance that taking risk will pay off. When the market drops, think of it as a buying opportunity — the cheaper you buy into your 401(k) and other investments, the better the long-term outcome. Even investing on the worst day in the market (aka going all-in the day the market peaks before an extended down period) leads to a better outcome than not investing at all — don’t wait.

Credit score

I like that people want to have a great credit score and it’s kind of cute how some of my more competitive colleagues compare scores all the time, but trying to get it perfect may actually hurt you in the long run. For example, I’ve talked with people who are hesitant to explore refinancing their debt or even apply for a mortgage because they were afraid of the “ding” from applying. What’s the point of having a great credit score if you’re not going to use it? Anything over 750 is enough, heck even 720 will be good enough to offer you great credit options. Obsess less about your score and more about these things.

Nest egg

When you’re first starting out, getting some cash in place to handle the things that come up in life like job losses, cat surgeries and car engines needing replacing (all true stories in my life) is super important. A great guideline to shoot for is 3 — 6 months of expenses, but as life goes on and hopefully cash flow becomes a little more … flow-y, it’s important to reassess that balance.

We can get to a point where we’re so used to putting cash in a savings account that we may be missing out on other opportunities for that money, whether it’s using it to increase HSA contributions, invest in something else or even pay down your mortgage faster. There is no perfect number that applies to everyone, actually. The amount you need in your nest egg depends on several things:

job security (the more secure your job or in-demand your skills are, the less likely you’ll face prolonged unemployment)
family situation (the more mouths you have the feed, the more you need)
housing situation (the person who could get out of a month-to-month lease and move in with mom and dad in an instant needs less than someone who owns an historic old home in a transitional neighborhood that might take several months to sell)
other sources of cash available (not that you want to use these things, but they can be a part of your emergency plan as time goes by)

If you find yourself the sole breadwinner with a spouse and 4 kids at home, you probably need up to a year’s worth of salary set aside, while a DINK couple (dual income, no kids) could get by with 3 months as long as they would be able to trim back on spending quite easily upon a job loss or accident.

Getting this one wrong on either side could cost you — have too little saved (perhaps because you were focused on spending money on making your house look perfect first?) and you could find yourself in serious debt or losing your home should something come up. Having too much in cash could cost you investing opportunities (see above). It’s best to re-evaluate how much you need at least every 5 years or so, and definitely when you have a big life event such as the birth of a child, significant increase in income, new home purchase or change in marital status.

Where you should try to get it perfect:

Avoiding high interest debt (or debt at all) — Interest, whether it’s tax deductible or not, is money wasted. The less you can spend on it, the easier it will be to achieve financial independence, which I view as having choices in life.

Minimizing taxes — I don’t mean spending money on mortgage interest to get a deduction, but making sure you’re taking full advantage of all tax savings opportunities. Some examples:

Maxing out your HSA before contributing to your 401k beyond the match
Making full use of a flexible spending account if you aren’t HSA eligible
Properly documenting and deducting charitable contributions
Running eligible education expenses paid out of pocket through your state’s 529 plan, if applicable
Tracking business deductions if you have a side gig

Choosing your life partner — You won’t find a perfect human and you can’t be perfect (sorry!), but you can find someone who’s perfect for you and that makes a huge difference in your long-term finances. My CEO Liz wrote about this in her book What Your Financial Advisor Isn’t Telling You and it’s true — who you marry could be your best or worst financial decision ever.

The 3 Risks Of Saving Too Much

November 29, 2017

There’s no shortage of headlines in the personal finance world telling us how poor Americans are at saving money, particularly when it comes to saving for retirement. It’s easy for people who have an unhealthy obsession with saving money to justify their habit since it’s culturally supported for the most part. But there is such a thing as saving too much.

Does it pain you to spend money?

One sign that you may be too obsessed with saving money is if it actually causes you pain to pay for things like buying new clothes, a nice dinner out with friends or a gift for a family member, even though you have more than enough money in the bank to pay your bills and then some. You may have a fear that any type of spending that can be classified as frivolous is the beginning of a trend of needless spending that could ultimately leave you penniless.

Are you afraid to retire?

Another sign of an unhealthy need to save money is if you’ve reached an age (and a savings level) where it would be reasonable to retire, yet you insist to friends and family that you can’t afford to take time away from work to travel, even when your spouse or children are begging you to see the world with them. People with a saving mentality like this often only feel relief from their fear of financial ruin when they are actually physically depositing money into their savings.

It’s not about greed

People who over-save are usually doing it out of fear of never having enough or to fulfill some other need that is temporarily met when they see their net worth grow. They’re rarely greedy. Rather, their behavior is more about self-preservation than self-promotion. They have trouble ever enjoying the fruits of their labor, even when logic tells them that they can safely afford to.

You could be hurting yourself more in the long run

The personal finance industry generally supports this unhealthy mindset. The problem is that there are real risks to being overly obsessed with saving money. Here are three:

Poor investment performance due to overly active trading. People who are unhealthy savers tend to pay too much attention to their investment performance, which can often lead to losses due to failed attempts at market timing or investing too conservatively due to a risk-averse orientation. To overcome this habit, resolve to only check your accounts quarterly, and consider using a pre-mixed investment strategy like target date funds, where the asset allocation decisions are made for you. Ask a financial planner to run a few projections showing you different outcomes based on more aggressive versus more conservative investment mixes to show you what you may be missing out on by being too vigilant about market risk.
Inappropriate levels of insurance. You may be tempted to skimp on insurance because the cost of the premiums may seem too high, but being underinsured could easily lead to realizing your biggest fear of losing everything. On the other hand, you may be way over-insured to protect you against any loss at all. Your best bet here is to consult an independent insurance broker and request a review. Obtain a couple of opinions if you’re concerned about being sold or if you have access to an unbiased financial planner through your workplace financial wellness benefit, use it. Some of my favorite conversations with employees are what we call “second opinion” calls.
Deathbed regrets. The mantra of many over-spenders applies here: You can’t take it with you, and it’s true. Too many people who spend their entire lives accumulating cash find themselves at a point when they realize they’ll never see the benefit of all that sacrifice and immense regrets ensue. The best way to avoid this tragedy is to sit down with an independent financial person you trust. Maybe it’s your financial advisor or maybe it’s your accountant, but ask them to help you ease your grip on your money so that you can spend some of it on yourself, family, travel, a vacation home – whatever will fulfill you besides the feeling of saving money.

Look at the numbers

Whenever I have the opportunity to encourage an over-saver to spend, I give them comfort by showing them in real numbers what they need to keep in the bank in order to feel safe. A savings account with enough cash in it to pay six months’ worth of bills is more than enough unless you are the primary income earner with multiple dependents. Next, run a retirement projection to see that you’re saving enough. If it all looks good, go out and enjoy some of that money guilt free.

Don’t get me wrong. Saving money is definitely a necessary aspect of achieving financial security. But there’s a balance that we all need to achieve in order to find that sweet spot of seizing the day while also setting our future selves up for financial independence.

This post was originally published on Forbes.

4 Offbeat Hacks To Stay Within Your Shopping Budget

November 22, 2017

One of my favorite parts of gift-giving is shopping for the perfect item, so avoiding the stores this time of year is not an option for me. To control my inner Santa, who’s prone to buying lots of “To: Me, From: Me” gifts, I’ve found some non-traditional hacks. Try them for yourself:

1. Calculate how many hours you’ll have to work

In the book Your Money Or Your Life, the authors describe the process of calculating your “true hourly wage,” where you add up ALL the time you spend related to work then divide it into your earnings. Beyond just time spent at work, add in the time you spend getting ready for work, commuting, answering emails after hours and even “vacating” work — it adds up to far more than the standard 80 hours we typically use.

When you’re tempted to buy something you hadn’t planned on, take a moment to figure out how many hours of work it will cost you. Suddenly a $25 sweater at Old Navy doesn’t sound so cheap when that means 3 more hours of work!

2. Go to yoga first

A Brigham Young study found that when you’re focused on physical balance (such as attempting tree pose in yoga), you’re more likely to weigh your shopping options and often choose the lower priced item. Don’t have time for yoga? Just wear high heels instead!

3. Only spend big bills

If you’re prone to rationalizing small purchases as “only” so much money, this one’s for you (those things add up). Go to the bank first (you’ll actually have to go inside to the teller) and get your shopping money in large bills — 50’s and 100’s. Psychologically, this will give you that moment to pause and think twice about an impulse buy, or even just that quick stop at Starbucks for a $6 latte. You will probably find yourself resistant to breaking a $50 bill for a cup full of sugar and might even think twice about a large purchase that requires you to lay out more than one bill.

4. Keep your hands to yourself

My ex used to work at the now-defunct Circuit City, and he was always telling me that one of the ways he got people to buy stuff was by suggesting that they pick it up and play with it. Another study backed that up, finding that merely touching an object creates perceived ownership, which makes you want to take that thing with you. If you’re serious about sticking to your list and not over-spending, keep your hands in your pockets or on your cart.

If your holiday rituals also include plunging headfirst in the bustle of the mall or the Magnificent Mile, try these tips and let me know how you do — I know I’ll be pulling out all the stops to enjoy the season without draining my bank account. Have some fun, but not so much that you’re hating yourself going into the New Year.

The Amount We Spend On This One Thing Really Surprised Me

November 15, 2017

When it comes to planning your spending (sometimes called that nasty “budget” word), there are many ways to do it. I’m personally not one to track every penny or even allocate between shopping, dining out, travel or wine, but some people are. There’s no right or wrong way, just the way that works for you — diff’rent strokes for diff’rent folks.

While I don’t track specific categories of spending, I do like to be prepared for things that might come up that I can’t avoid, which is why I have a savings account labeled “car expenses” where I auto-deposit $25 per month — when something comes up with my car, whether it’s a dead battery, new tires or even just the annual oil change (I drive an older MINI Cooper, so it’s not cheap), I like to have the money set aside. What’s worse than having to cut back on wine because your stupid car broke down?

But a recent article that breaks down where paychecks tend to go caught my eye and has me considering adding a new auto-save category to my money. What caught my eye?

We spend an average of 8% of our income on healthcare.

Eight percent! If you had asked me what percentage of income I thought I was spending on healthcare, (not including fertility treatments), I probably would’ve guessed about 5%, which I would consider high due to the year I’ve had. (have I mentioned I hit my insurance out of pocket max in August?) But 8% really struck me — how many people are putting 8% into their 401k? If you’re not, I imagine it may be due to the fact that you feel you can’t afford it. But healthcare expenses are here and now — we can’t afford NOT to afford it.

So what to do with this revelation?

Planning ahead for the unknown

I’ve said before that the biggest budget breakers aren’t usually shopping sprees or vacations, although those can exacerbate the problem. What usually breaks budgets are random, one-time expenses that you really can’t predict. Or you can predict them, but you’re not sure exactly when they’ll strike, such as knowing your hot water heater is 13 years old, but for now it’s still steaming…

To get ahead of this, rather than trying to come up with the money to pay for healthcare expenses out of your spending money when they happen to pop up, just plan for them. Use the 8% guideline or find your own by adding up all your costs so far this year and dividing it by your income. Then set up a separate account just for healthcare expenses.

So if you make $60k, that’s $4,800, but keep in mind that the total includes any premiums, co-pays and even non-insurance covered stuff like acupuncture or therapy. If you have a Health Savings Account, make sure you are making full use of the tax-savings capabilities by running all eligible expenses through there. And if you happen to be reading this during open enrollment and use a Flexible Spending Account instead, make sure you’re not short-changing yourself by underestimating your expenses! It’s true that it’s ‘use it or lose it,’ but you can always stock up on band-aids, sunscreen and aspirin if you have some left over. (or try acupuncture!)

The Skinny On The Latest Tax Reform Package – Should You Worry?

November 03, 2017

You’re likely to see lots of headlines in the coming weeks about the tax reform package that Congress will be hashing out, which many are calling the biggest tax overhaul in 30 years. Time will tell if that’s true and should a new tax law be passed, chances are it will look much different from what has been put forth so far.

I personally tend not to worry too much about this stuff until it’s actually law, but I know not everyone works like that, so here are the highlights of what’s being proposed and whether or not you should worry about it.

Mortgage interest deduction

What’s being proposed: A limit on the amount of interest you can deduct.

Should you worry? The limit applies to interest paid on NEW mortgages bigger than $500,000, so if you currently have a mortgage that’s larger than $500k, you’re good. If you were to take out a mortgage in the future that is higher than $500k, you’ll still be able to deduct interest, the amount would just be capped at the interest on the first $500k.

FYI, the current law caps the deduction at $1 million worth of mortgage debt.

Student loan interest deduction

What’s being proposed: Eliminating the deduction altogether.

Should you worry? If you currently have adjusted gross income over $80k ($160k if you’re married), then you already miss out on this deduction. If you’re just starting out in your career and paying down big loans, yes, this could affect your taxes. Depending on your tax bracket and total interest paid, this could cost you up to $625 in taxes. (keep reading though, this could be made up for with other changes)

Want to figure out more closely what it would cost you? Here’s how:

If you’re single and you make more than roughly $37k per year, then take the amount of student loan interest you actually paid (you can find this by logging into your loan service provider) and multiply it by .25. That’s about the amount you save on taxes with this deduction. Same process if you’re married and make more than about $75k combined.

If you make less than those thresholds, then just multiply your interest by .15 to get your number.

State and local tax deduction

What’s being proposed: A limit on the amount of state and local taxes you can deduct, including property taxes.

Should you worry? If you pay more than $10,000 per year in combined property and state income taxes, you could see your taxable income rise should this provision pass. The good news is that there are some powerful Republicans from states with the highest income tax rates who are likely to fight this on behalf of their over-taxed constituents. The fact that next year is an election year will play to your favor if this is an important deduction to you.

Alimony and moving expense deduction

What’s being proposed: Eliminating the deduction altogether.

Should you worry? If you pay alimony or were counting on a tax deduction to help fund a work-related move, then yes, you should worry. If you receive alimony, this will actually help you because you would no longer have to claim it as income.

Medical expense deduction

What’s being proposed: Eliminating the deduction altogether.

Should you worry? Most working people with decent insurance coverage aren’t able to deduct out of pocket medical expenses anyway, due to the law requiring that expenses must exceed 10% of your adjusted gross income before you can deduct it. Older Americans (who have a lower threshold and likely higher expenses), however, may suffer with this provision.

Is there any good news?

One of the goals of this package is to simplify the tax code, which is why a lot of deductions are going away. To make up for that, there are some positive changes proposed as well.

One thing that could help, especially for people who don’t itemize (and therefore don’t care about the mortgage and other tax deduction loss) is that the standard deduction is slated to practically double to $12,000 for individuals (currently $6,350) and $24,000 for families (currently $12,700). In other words, if you’re worried about losing your student loan interest deduction, the loss could more than be made up for by this larger deduction. The proposal also includes lower tax brackets for most of us, which is also good news.

One thing that wasn’t included, that many people thought was on the chopping block, are changes to the treatment of 401k contributions. Unless something gets slipped back into the final package, we can continue to contribute up to $18,000 in pre-tax money plus an additional $6,000 if you’re 50 or older. Even better news, that limit is getting bumped up to $18,500 for 2018.

“Worrying is like paying interest on a debt that never comes due”

The best thing you can do at this point to help your situation would be to let your congressional representatives know how you feel about these proposals. There will likely be organized efforts around some of these issues, so join in if it’s important to you.

There are obviously lots of other changes proposed in the proposed law that our representatives in Congress are working on, but those are the ones most likely to cause confusion and/or directly affect many of us “everyday” working folks. Time will tell what the final result will be. If I had to wager a guess, I’d say we probably won’t know much before Santa starts making his rounds.

5 Seasonal Job Ideas To Earn Extra Holiday Cash

November 01, 2017

Whether you’re a holiday purist who loathes the fact that Christmas displays start popping up even before Sweetest Day, or if you’re one of those who is excited that certain radio stations are already playing holiday tunes, there’s no escaping that the beginning of November pretty much means we’re off to the races for the holiday season. I personally LOVE this time of year — any excuse for merry-making is a good excuse for me! But it’s also a time of busy-ness and stress, and can also get very expensive if you’re not careful.

If you’re looking for a way to help balance the budget against increased spending on things like gifts, travel, meals, etc., how about finding a way to earn some extra bucks? Here are five flexible ways that you can work into your schedule.

Delivery driver — As online shopping continues to take over, more drivers will be needed to deliver purchases to shoppers. For example, Amazon Flex allows drivers to choose when they want to deliver and can be a quick way to pick up an extra fifty bucks for a quick after-work or weekend delivery shift. Look to bakeries, flower shops or meal services for seasonal opportunities as well.
Grocery shopper — Most large grocery chains now have at least one service that allows customers to submit orders online for delivery within a certain window. The delivery shoppers choose which orders they want to fill and the tips aren’t bad either — one of my friends squeezes in a few shopping runs between work and picking her kids up from after-school sports, and it’s allowed her to completely fund their next family vacation.
Pet and house sitting — I’ve personally done this to boost my holiday budget, although the most plum earning opportunities are on the actual holidays, so if you’re one who travels or doesn’t have time to run out for a few hours before serving the holiday meal, it may not work. There are services that allow you to sign up as a contractor and they set up the clients in exchange for keeping up to half the fee, or you can just post in your neighborhood Facebook group or send out the word at work that you’re available to help out with pets and empty houses while people travel.
Gift wrapper/order filler — Many department and big box stores offer complimentary gift wrapping during the holidays, so if you’re pretty good with your hands, this could be a fun night and weekend gig that could also allow you to exercise some creativity. Are there any small businesses in your community that have a large mail-order presence? My mom worked one season for a local gift shop where she hand-wrote all the notes that went with gifts that customers ordered. The coolest part was when she had to write a note from one country music star to another.
Retail — This one may be the most obvious, but it’s still worth mentioning. I’ve held several seasonal retail jobs, including a season at Michael’s Crafts where I became known as “Yarn Kelley” for my Type A obsession with organizing the yarn bins. It’s hard work, but if you’re just doing it for a few weeks, a few shifts at a time, the money adds up and it can also give you an appreciation for your non-retail day job. Just take care not to spend all your earnings taking advantage of the employee discount! (and consider wearing compression stockings)

With a little creativity, there are earning opportunities all around you! Just be sure that you are strategic with the extra money — maybe open up a separate account to make sure you don’t fritter it away or designate the money to pay a certain bill like your cable and internet for the winter months.

Could This Be The Real Thing That’s Keeping You From Saving More Money?

October 25, 2017

Scene: Pet store, just before Halloween.

You walk in and the first thing you see is that all pet costumes are 40% off. Of course you stop to look, and ohmygosh, that princess costume is exactly what your Siamese cat needs because come on, she’s the most royal of them all. It wouldn’t be fair to just dress her up, so you also pick out a Jester costume for the kitten, which is actually kind of purrfect since he’s constantly annoying her while she’s holding court.

Holding court with the commoners

You move along to the next display and see that they also have Christmas collars and who doesn’t want their cats to be dressed up for the family photo?

And just like that, I went from buying a bag of cat food to (almost) spending $75 on impulse buys that I absolutely, 100%, would have regretted within a week.

A real joker

Sound familiar?

Each item on its own didn’t seem like much (although $25 is actually a lot of money for a cat costume, now that I’ve left the store and regained my rational mind), but this is how retailers snag your dollars. They KNOW that you’ll be drawn to those displays and they know that you’ll already be adding up the social media likes and comments before you even hit the register.

My mom could not resist this one for Taz – worth it!

While saving up for life’s events like weddings, holidays and other fun times is one key to avoiding that infamous “borrowing” from your savings (I used to do it too, I kept a running tally of what I took out of my savings thinking that some day I’d pay it all back, when like what, I won the lottery? I was kidding myself), reinforcing your wallet against impulse spending on stuff is another important key for many of us.

Ideas to overcome the impulse

I won’t insult anyone by suggesting you just stay away from Target or only shop with a list (although that works for some), but if you also find yourself spreeing away your extra dollars, try one of these methods to see if you can’t keep it in check.

Eliminate the extra cash from your checking account. There’s a reason that happy hour is always busier on payday — everyone feels richer due to the buoyed balance in their checking account. Psychologically, I know that I feel much more spend-y when I have some wiggle room in my account, but if the balance is getting down there, I instinctively think twice about spending on anything beyond planned purchases. Hack your own habit by transferring any money you’re not planning to spend on bills and other planned expenditures before your next paycheck to a separate savings account. You may need to dip into it when things come up you didn’t anticipate, but it may make you think twice the next time a shiny object catches your eye.
Give yourself a splurge budget. Whether that’s factoring in that you can’t get out of Target without spending $100, or keeping an extra fifty dollar bill in your wallet that only gets replenished on the first of the month, allowing yourself to partake in the impulse spending — but in a more mindful way — can help to keep it in check.
Remember what you’re saying no to by saying yes to the dress/scarf/tote bag/cat costume. This is the trick I used that had me putting the cat clothes back — I somehow had the presence of mind to remind myself that the more money I save today, the earlier I can retire or the more fantastic vacation we can go on next year. Maybe put a post-it note on your credit card or some other physical blocker that can take you out of your emotional/impulsive mind and back to your rational head.
Match your splurge. Make a rule that for every dollar you spend on an impulse buy you will match with a dollar to savings.
Save your savings. If you’re a sucker for a flash sale or love looking at the bottom of your receipt to see how much you saved at discount stores like Marshalls or TJ Maxx, make a commitment to actually save that money by pulling up your banking app on the spot and moving the “savings” amount into your actual savings account.
Put yourself on a temporary spending diet. One way to deal with the fact that impulse buying is our emotional mind overcoming our rational mind is to create a habit, which takes practice. I’ve lost count of how many food diets I’ve tried and while I may stray from the eating plans after approximately 11 days, some of the habits stick over time. For example, now that I know how much sugar is in a pumpkin spice latte, I’ve gone cold turkey even if I do pop into Starbucks for a treat on occasion — I just choose a lower sugar option. By committing to NOT impulse buy for, say, 21 days (the length of time many experts say it takes to create a habit), you may naturally quell the impulse even if you go off your “diet.”
Create an email filter for all retail emails to skip your inbox and go straight to a folder. This way you can still get the coupons if you need them, but without the daily nudges to shop. This is another trick I actively use and here’s how I know it works: If I know I need to go to Michael’s to buy something, I look in my “Shopping” email folder to see whatever coupon or offer they emailed me that day, but otherwise I’m not tempted because I don’t see it in my inbox. On the other hand, a few weeks ago, an Athleta email escaped the filter and within minutes of opening the email I found myself pages deep in yoga pants and sweater dresses. Danger zone!

What ways have you found that keep your impulse buying in check? I’d love to know and share them in a future post! You can email them to me or just comment on this article on our Facebook page.

Attending College In 2018-2019? Complete The FAFSA Now

October 04, 2017

I know that it feels like this school year just started, but for people looking to maximize financial aid for next fall, it’s time to start thinking ahead already. As of October 1st, the 2018-2019 Free Application for Federal Student Aid (often called the FAFSA) is available for submission and includes a new and improved IRS Data Retrieval Tool, which makes filling it out much simpler (and safer)!

Why complete the FAFSA ASAP?

If you think you or your student may qualify for any need-based aid, it’s essential to file your form ASAP — many states and schools have a limited amount and it’s literally first come, first served. And since the “base year” that the form uses to evaluate your income and assets is now basically two years ago, you don’t have to wait until your taxes are done to file a complete form — the 2018-2019 form is based on your 2016 taxes, which, if they haven’t been filed yet, are due by October 16th this year at the very latest to avoid late-filing penalties.

In other words, you already have the numbers you need to complete the form for next year. Why not get a head start and take one thing off the list at tax time?

Why You Shouldn’t Be So Obsessed With Your Credit Score

September 27, 2017

I saw a headline recently about how to get your credit score above 800 that really had me shaking my head. My first thought was, “Who cares?” It’s true that a good credit score is essential to obtaining the best rates when borrowing to buy a home or a car, but it’s definitely not the end-all, be-all that a lot of young people seem to be obsessing over.

Once your credit score is over 750, you pretty much qualify for all the best rates anyway. Working to take it higher is really more about perfectionism or competitiveness that won’t really offer you any financial perks that you don’t already have. In fact, I’ve seen too many people actually hurt their financial situations in an effort to increase their score.

Your credit score is only a measure of one part of your financial wellness.

Great credit, bad finances

I remember working with a woman who was drowning in debt. She was scraping by to make her minimum payments and couldn’t pay her bills without using her cards, but her credit score was still pretty good because she was paying on time and hadn’t maxed out any cards. When I suggested she enter credit counseling to get it under control, she balked.

Credit counseling would be a ding to her credit score and she needed to keep that up so she could get more credit. I felt helpless. Keeping her score up was more important to her than addressing the thousands of dollars she was losing to interest each year and there was nothing I could show her that would change her mind.

Great finances, bad credit

On the flipside, I have a friend who has zero debt, a fully-funded emergency fund and is on track to retire, but he has a terrible credit score because he has avoided debt and has no real credit history.

The wrong way to compare

If you were to compare the financial wellness of these two people based on credit score alone, you’d get a completely wrong picture. It’s kind of like the thin person who looks super healthy but has high blood pressure, cholesterol issues and vitamin deficiencies. Keeping your weight down is just one component of good physical health.

Your credit score is simply a measure of your ability to pay lenders back when you’re supposed to. If you’re planning to borrow money soon, then it’s something to be worried about. But if you have no plans to buy a home, finance a car, go back to school on a loan or apply for any other type of credit, don’t worry about it so much.

What you should focus on instead

Generally speaking, the people that tend to obsess over their credit score are doing so because it’s something concrete they can measure. It’s just like getting on the scale each Monday morning to assess the weekend’s damage. But there are better ways to track your overall financial wellness that are much more likely to get you to financial independence.

Tracking your financial wellness by net worth

I used to focus on my total debt as a measurement of my financial wellbeing, but that can be a little depressing. It also wasn’t considering the fact that I was increasing savings in other ways so I started tracking my net worth instead, which has been incredibly motivating.

How to find your net worth

Your net worth is all your assets (savings, retirement accounts, home, car, etc.) minus all your liabilities (credit cards, student loans, mortgage, car loan, etc.). If you’re just getting started in life, chances are you have a negative net worth, but that’s ok. As long as it’s growing each month, you’re good.

High income does not always mean high net worth

Remember when Kanye West asked Mark Zuckerberg for a loan and we all pointed and laughed at the extravagant lifestyle he lives? He may have been asset rich, but he was also liability rich. He had a negative net worth. Your net worth is the ultimate measure of your financial wellness and your goal should be to increase that number, month over month.

If you can get your net worth up while also paying your bills on time, chances are you will have a decent credit score by default, although I once unfollowed an NFL player on Twitter for tweeting about paying his cable bill late “just for fun.”

Having a high income and a lot of money in the bank doesn’t a good credit score make (in fact, neither of those factors affect your score at all), but concentrating on keeping more of the income you make and paying back more of what you owe is bound to help you achieve financial freedom. Isn’t that ultimately what we’re all after anyway?

This post was originally published on Forbes, July 2nd.

The Pros & Cons Of Balance Transfers

September 20, 2017

If you’re carrying credit card debt and paying on time, chances are you also regularly receive offers from various financial institutions offering you balance transfer deals. If you’re serious about paying off your debt and have fixed whatever issue caused you to accumulate the debt in the first place, then it can seem like a no-brainer — using balance transfer deals can be a key step in getting to zero debt sooner. But before you pull the trigger to transfer your balance to a new card, make sure you’ve considered all the potential pitfalls first.

Advantages of balance transfers

Lower interest rate — The lower your rate, the more impact your payments will make toward your balance. Just make sure you know you’ll qualify for the low interest rate before committing to the transfer or you could end up with a higher rate than your original card.
Accelerated debt pay-off — To determine exactly what the impact of lowering your interest will have on your timeline, plug your info into the Debt Blaster calculator to confirm.
Pay less interest over time — You can also use the Debt Blaster to calculate how much you’ll save in overall interest, but you also need to add in any balance transfer fees. Make sure you do the math before committing to make sure the savings are worth the potential risks.
Consolidation of balances — Balance transfers can also help you to consolidate several small balances onto one lower-interest card, which means you’ll have less hassle and less chance you’ll forget to make a payment.

Potential disadvantages of balance transfers

Transfer fees — Most balance transfer offers include some type of fee, which is typically 1 – 3% of the balance you’re transferring. For example, if you’re transferring a $3,000 balance to a card with a 3% transfer fee, you’ll be starting with a balance of $3,090. Make sure you factor that in to any interest savings calculations you perform. If you can find an offer with no transfer fee and a lower interest rate, take it! (check the fine print first to make sure there isn’t some other catch to make up for it though)
Promo rates — Keep in mind that balance transfer rates are typically lower than new purchase rates, so if you are using the new card to shop while trying to pay down your balance (which is a very slippery slope anyway), you’ll most likely negate the interest savings of the balance transfer. A best practice is not to “comingle” your debt — keep the cards you’re using for low balance transfer rates strictly for paying down balances.
Rate expiration dates — Many times the low rate that card companies offer to entice you to transfer your balance has an expiration date, usually between 8 and 24 months after you open the card. That’s fine, as long as your plan includes that end date so that you can either have the balance paid off or transfer it to another card.
Type A personality traits required — Managing the debt payoff via balance transfer does require a bit of attention to detail, so just be aware that if you’re not Type A like me, you’ll probably need to put some stopgaps in place like setting multiple reminders on your calendar and phone and even asking a friend or family member to make sure you come back and reassess your situation at least a month before any promo rates expire.
Could dig you deeper — The reason that banks offer these deals in the first place is because they know that many people, despite their best intentions, will simply use this new card to accumulate even more debt, rather than pay it off as would be the best plan. When you open a new card to transfer the balance, consider cutting up your old card to avoid the temptation to accumulate another balance on that fresh zero statement. You don’t have to close the card (that could be a hit to your credit), but cut it up or give it to someone you trust for safe-keeping.
Credit score ding — It’s true that applying for credit does cause your score to take a temporary dip, as will closing old cards to make sure you aren’t tempted to run the balance up again, but if your goal is to get out of debt faster and this achieves it, worry less about your credit score (which will rebound) and more about saving money in unnecessary interest and getting out of debt ASAP.

One final thing: make sure that you’re doing balance transfers strictly as part of a debt pay-off plan instead of as a way to accumulate even more debt. I’ve worked with people before who found themselves deeper and deeper over their heads in debt when they started playing musical credit cards with their balance. It’s important that it’s part of a debt pay-off plan and not just a way to stay afloat.

The 5 Things You Should Do Right Now To Protect Your Credit (Even If You Weren’t Affected By The Equifax Hack)

September 13, 2017

In case you haven’t heard, credit reporting bureau Equifax announced that 143 million Americans’ financial information was hacked this summer, putting about half of us at risk of identity theft. (to find out if you’re one in 143 million, start here) It was only a matter of time before one of the credit bureaus was hacked — I have to say I’m not entirely surprised.

There have been lots of rumors swirling around whether or not the Equifax “fix” is something you should sign up for and whether or not it’s enough. The short answer is that yes, you should sign up since the concerning clause about giving up certain legal rights has been removed (more on that here), but no, it’s probably still not enough to ensure you’re safe from future issues around identity theft. Besides, even if you’re one of the lucky ones whose information wasn’t lifted, chances are it was in another breach over the past couple years.

Here are 4 more things you can do to hopefully secure yourself against future issues:

Check your credit report right now — You can access your free reports from all 3 credit bureaus at AnnualCreditReport.com, or if you’ve already checked all three within the past year, use a free service like Credit Sesame or Credit Karma to at least see if there’s anything fishy with your credit score. If so, you may want to pay to have another credit report pulled to see what’s causing the issue in case it’s due to identity theft. (note that the Equifax service will provide you with a copy of their report)
File your taxes ASAP — One way that hackers use your SSN and other personal information is to file fake tax returns on your behalf to collect big refunds. In this scheme, the hackers are actually stealing from the IRS using your information, so you’re not out any money, but it can cause you IRS headaches if they use your information to do so because the onus is on you to prove that the tax return YOU’RE trying to file is the correct version. If you’ve already filed your return and a hacker tries to file a fake one, their scheme will be blocked.
Consider placing a credit freeze — This isn’t free, but this is the best way to simply lock down your credit so that no new accounts are opened using your info. The problem is that when you’re ready to open an account or apply for a mortgage, for example, you have to have it lifted, which also costs money. Credit monitoring services and fraud alert systems are a bit more reactive, but they’re free.
Check all your accounts going back to May, then make it a habit — One thing that’s extremely frustrating about massive hacks like this is that there’s always a delay in reporting it while the legal team works to cover their butts and the PR team gears up for the onslaught. The Equifax leak was open from mid-May through July, and yet we aren’t learning about this until September. In the meantime, who knows what’s happened with our personal information. It’s worth your time to review all your accounts to make sure there aren’t any errant transactions that you should report. Going forward, make it at least a monthly habit to look at each transaction to make sure it’s valid. I actually check my 3 main accounts as part of my morning routine — I check texts, then email, then Instagram, then Snapchat, then my checking account and credit cards.

If you find any issues

If you find fraudulent charges on your credit or debit card, report it to the bank immediately. It’s not uncommon for banks to have a 60 day window for reporting fraud — as long as you’re within that window, they’ll do all the work to get it fixed. (a big reason to check your accounts regularly)
If the problem extends to someone using your identity to open new accounts or file tax returns, then the steps you need to take are more extensive. The FTC has a great website that covers all the scenarios, so start there.

In the meantime, make sure you’re still staying vigilant by protecting your information to the best of your ability. These tips from a former con man can help.

The Ins & Outs Of Balance Transfers

August 30, 2017

One way to speed up the process of paying off debt while saving money in the long run is by transferring balances to credit cards with lower interest rates. This is a strategy that I used to dig myself out of over $8,000 of credit card debt after college.

Moving even a $2,000 balance from a 16.99% interest rate to one with a 3.99% rate while continuing to pay the $40 minimum payment can save you over $1,300 in interest and reduce the time you’re paying by almost 3 years. It’s really just a form of refinancing debt using credit cards. But there are some nuances to understand when employing this strategy.

Here’s how it works.

When you perform a balance transfer, you’re essentially using your new credit card to pay off the original obligation by paying what you owe to the original card, loan or bank. Your original lender can’t stop this, as they simply see the transfer as a payment being made on your behalf.

Timing

You can request a balance transfer to a credit card you hold at any time, although many card companies offer special deals if you transfer a balance to the card within 30 days of opening the account. If you are opening a new card to transfer your balance, it’s a good idea to include that request at the same time as your application, as this may help ensure that the credit limit of your new account will be high enough to enable a full transfer of your old balance. If not, it’s still worth it to lower the interest on at least part of your balance, just make sure you stay on top of your payments.

Beware the final payment

Even if your balance transfer pays your former account off in full, you may need to make one more payment the following month for any interest that had accrued up to the day you transferred, so make sure you plan for that. I remember thinking I had finally broken free of a super high rate card back in the day, only to be hit with a late fee for not paying the final $30 of interest that had been charged to my account after I’d paid off the balance. That’s perfectly legit, so double check your balance is at zero for good for a couple statement cycles before you officially forget about your original account.

Length of promo rate

If you are taking advantage of a special interest rate offer (they typically last between 6 and 24 months), make sure you know how long the low rate will last so that you can try to have the balance paid off (either by paying it down over the months or by transferring your balance to another card in the future) before the rate increases. Set a reminder on your calendar at least a month out from the expiration date to make sure you don’t miss it.

Transfer fees

Most cards charge a balance transfer fee, which is typically a percentage of the amount you transfer, especially if you’re transferring to a 0% card. If you can find one that doesn’t charge a fee, that’s a great deal! Make sure you take that in to consideration when you’re evaluating the total cost of the move (interest plus fees) to make sure it’s still a good deal.

Also know that sometimes card companies will send you checks in the mail with special offers for using them, such as a lower interest rate or bonus reward points — double check the fees to use those checks before you take advantage, as sometimes it’s higher because it’s considered a “cash advance,” even though you’re not actually getting any cash.

What you can transfer to a credit card

All major card companies will allow you to transfer your balance from any other major credit cards and most also allow you to transfer balances from store cards. If you’re looking to transfer other types of debt, like a car loan, student loan, business loan or payday loan, you’ll want to check with the card company to see if they will allow that — some do, some don’t.

What you’ll need to initiate a transfer

The account number of the balance you’re looking to transfer
The amount you wish to transfer
The personal information required when opening a new credit card (social security number, income, employment info, etc.)

Other things to consider

Your credit score might go down, but it should bounce back as you pay down the new account — Chances are your balance transfer will take up most of the credit limit of your new card, so your credit utilization score might take a hit. As long as you pay down the balance (that’s the reason you’re doing this in the first place, right?), that issue will go away, so it shouldn’t stop you unless you’re also planning to apply for another loan like a mortgage or auto loan before you can get your credit utilization back down.
Keep your original account open, even if you don’t use it — This will not only help your credit utilization score, but it will help to maintain your credit history as well. If you’re worried that you might be tempted to run the balance up again, you can cut up the card, just don’t close the account. That’s what I did.
Avoid new purchases with your balance transfer card — You may start to receive nudges from your new card company encouraging you to use the card for purchases by offering you things like cash back or reward points, but don’t take the bait! I’ve seen too many people fall into this trap and wind up in way worse shape than they started because they used their new card to shop while also trying to pay down the original balance they transferred. When I was paying off balance transfer cards, I didn’t even carry the card with me to avoid this pitfall.

The ability to transfer my balance from card to card as I paid down the balance was a huge reason I was able to dig out of my $8,000 debt in about 5 years. If you’re serious about doing what it takes to get out from carrying credit card debt for good, mastering the art of balance transfers will help significantly.

How My Money Attitude Was Keeping Me Poor

August 23, 2017

I’m a huge believer in the power that examining our own money beliefs can have in changing financial situations. Several years ago, I had an epiphany about how my own deep-seated assumptions and issues with money were literally keeping me from getting ahead financially.

When I stopped to think about how I’d watched my annual income more than double over the first ten years of my career and yet I was still living the same paycheck-to-paycheck lifestyle, it was like a lightning bolt of understanding struck me. I wasn’t struggling to save more money because I didn’t make enough, it was something else. And as I dug deeper into my money “rules” and assumptions, I was embarrassed and ashamed to realize the real issue.

I resented people who were better off than me.

Americans have a fascination with wealthy people (case in point: the Kardashians) and I’ve only met a few people who didn’t think that striking it rich wouldn’t be nice. Yet many of us harbor disdain and judgement for people who we perceive to be better off than us in our daily lives.

It’s one thing to envy Paris Hilton, but I was looking at people who were like me in many ways, just more financially comfortable, and placing them in a different class than I saw myself. This “me versus them” attitude was holding me back from ever actually allowing myself to get to a point of financial comfort, regardless of how much money I made.

I was literally sabotaging any chance I had at getting ahead because deep down inside, I didn’t want to be perceived as greedy, selfish, privileged, having it easy, etc. When I was super honest with myself, I admitted that I was harboring those judgments about people who seemed to have their financial act together. And I realized that not only were those judgments not true, they were actually hurting my own financial situation.

By challenging these assumptions and realizing that the real difference between those better off than me was more due to a difference in little financial decisions like driving a car beyond the loan payoff date or not buying as much house as they could afford, than them making more money or being greedy and selfish, my situation slowly began to change.

A tiny shift

As I started to release my negative feelings about people with money and instead practice an attitude of abundance, gratitude and “we’re all in this together”-ness, my money situation started to change.

My checking account started having more than $100 in it on pay day because I wasn’t buying my way out of guilt.
My savings account reached $1,000 and I let it continue to grow – something about hitting 4 digits and staying there turned out to be a HUGE shift for me.
I paid off my debt for good and never turned to credit cards again to plug a gap for something I should be saving for.
Most importantly, I started thinking of myself as someone who made smart decisions with money in order to give myself financial freedom, instead of someone who never had enough.

And I stopped looking at others who seemed to have more money than me as greedy and selfish and instead saw them as people who value financial security as much as I do. A nice side effect was that I was a happier person in general as well.

Test your own attitude

Here’s a quick test to see if perhaps you’re suffering from a similar subconscious reaction: If you find yourself living paycheck to paycheck no matter how much you make, ask yourself how you feel when you see someone driving a luxury car like a Mercedes or a Lexus. If you automatically assume the driver must be some rich jerk who thinks he’s better than you, you could be suffering from the same money mindset that was holding me back. (assuming the driver didn’t just cut you off in traffic, then I don’t care what kind of car they’re driving, they’re a jerk!)

Make the shift

To overcome it, start to become more mindful of your internal dialogue when it comes to financial security, then start to change it. Rather than, “Oh, I could never afford that,” start asking, “How can I afford that?” The next time you catch yourself saying, “That would never be me,” ask yourself, “Why not?”

As you start to answer those follow-up questions and take the time to be really honest with yourself, you’ll start to see a subtle shift in the way you handle money. Let your savings account cross that $1,000 mark and get used to it. Don’t be surprised if eventually you start to realize that a thousand bucks isn’t really that much, while also honoring the work it takes to get there. Question your assumptions about carrying debt — there’s no rule that says we always have to have a car payment or credit card balance.

That’s all it takes — a one degree shift that gets you further and further on a new course will eventually take you to an entirely new place financially.

Is Your Side Gig Worth It?

August 16, 2017

There are lots of reasons to take on a side gig, not all of them financial. Perhaps you’re looking to gain experience in a new career field or you love the type of work but couldn’t do it full time (pet sitting comes to mind, one of my former side gigs). Finding a way to bring in some extra cash with your free time definitely makes sense, especially when it helps with things like paying off that lingering credit card balance or allows you to take a vacation you couldn’t otherwise afford. But not always.

My side gig of teaching group fitness is less about the money and more about guaranteeing I get a good workout in at least once a week (although I never complain about getting paid to work out!) But there may come a time when it’s no longer serving you, or you realize that you may actually be losing value, which is what lead me to go from teaching three classes per week to just one. If you’re thinking of a side gig, how do you decide if it’s actually worth it? There are a few things to consider.

What would you be doing otherwise?

I’ve met many interesting people riding around in ride-share cars over the past couple of years, most of them just trying to pick up a few extra bucks in their spare time. I often wonder if they’ve thought about the total trade-off they’re making considering the time they spend logged in but not driving anyone, the price of gas, the wear and tear on their vehicles, etc.

One way to figure out if a side gig like that is worth it is to consider what you would be doing with that time otherwise. If you’d be parked on the couch binge-watching old episodes of Friends or flipping through social media, then it’s probably a worthy trade of your time. But if you’d be doing homework, engaging in restorative downtime that may enhance your performance at your “real job” or something else that could potentially earn you more money down the road, then maybe it’s not worth it.

Is it serving you?

Teaching fitness definitely passes the first test — I’d either be sleeping or paying to work out elsewhere if I wasn’t teaching — but I recently found myself wondering if it was worth it in other ways. Besides actually teaching the class, I also have to spend time learning each class, which can add up to a couple more hours each week. And after more than 12 years doing it, I’m getting bored and I know it’s not making a difference to my fitness. But the kicker was that two of my classes were at 6am, which meant that two nights a week I had to be in bed by 9:30 if I wanted to get a full night’s rest.

Since I work from home, I no longer have to get up at the crack of dawn in order to squeeze in a workout, so I was having to get up early only because I was teaching. I knew I was done the night the Cubs won the World Series and I couldn’t fully enjoy the celebration because it was already two hours past my bedtime. Teaching daybreak classes was no longer serving me and the lifestyle I currently live, so I gave up my early mornings earlier this year and have never looked back.

How much is your time worth?

There’s actually a way to quantify the worth of your side gig as well. Oftentimes we just think of the total dollars we earn, when we should be thinking about the true hourly wage, including all the costs involved in the job as well as the time spent indirectly related to earning that money. In the book Your Money or Your Life, the author describes it as what you’re trading your life energy for so that you can quantify purchases in terms of how many total hours of your life you’re trading for that thing.

Here’s my calculation for teaching at the gym, where my $42 hourly wage turns out to be less than $2 per hour now that I’m down to just one class per week. If I were doing this only for the money, I’d have to re-think that trade!

What’s the impact?

Ask yourself if your side gig is truly something that is making a positive impact on your life. You may find that it is, that it’s the thing that gets you through long workdays. If that’s the case, it’s worth it. On the other hand, if you find that it’s adding stress to your life or you’re finding yourself saying no to things you want to do because of your side gig, it’s worth examining whether that stress and sacrifice is worth the extra cash.

What To Do If You Need Cash Immediately

August 09, 2017

Have you ever found yourself in a pinch when it feels like your financial world is crashing down around you? Maybe you got hurt and had to take some unpaid time off work, which put you behind a month on bills, then your car breaks down and at the same time the refrigerator dies. You find yourself wondering if you broke a mirror or walked under a ladder without noticing!

Each of these things on their own are stressful, although you can typically bounce back after a couple months of frugal living and scrimping. But when they pile on and make you feel like the whole world is against you? That’s when you need to go in to survival mode and try to minimize the long-term fall-out while staying afloat — you need cash and you need cash NOW.

Here are the options, along with their pros and cons, in order of preference:

Sell things you own: Whether it’s something valuable around your house or the stock you’ve accumulated in your stock purchase plan at work (or any stocks or mutual funds you hold outside of a retirement account), this is definitely a place to look for quick cash.
Pros:

Nothing to pay back
Can help with de-cluttering
Could be the least painful option

Cons:

May have to sell item for less than it’s actually worth
Might be something you wanted to keep
Capital gains taxes if you sell for more than you paid

Check with your community: Many churches, synagogues, mosques and other communities maintain funds to help out members in need, so check there as well to see if you qualify for assistance.
Pros:

Typically no payback required
Often comes with emotional support as well

Cons:

Application process could be in-depth and feel intrusive
There may be restrictions that require funds be paid directly to providers like car mechanics, landlords, medical facility, etc.

Borrow from family or friends: You have to be careful not to take advantage of loved ones who may be too generous for their own good, and I highly advise signing an agreement to keep things on the up-and-up, but asking around in your inner circle could be the relief you need.
Pros:

No credit check
Lower or no interest
Possible flexibility with re-payment

Cons:

Could put important relationships at risk — be careful about any extravagant spending if you haven’t yet paid the money back to avoid possible resentment

Get a side gig that pays tips: Waiting tables, bartending, washing cars, delivering pizzas — there are lots of ways in today’s world where you can work a shift and take home cash without having to wait until payday. Be creative and ask around in your community.
Pros:

You don’t have to give up anything but your time
The harder you work, the more you make

Cons:

It may take awhile to accumulate the amount of cash you need right now
Time is limited — if you have kids who need care while you’re working, it may not be worth it

401(k) loan: Depending on your plan, you can sometimes get a check in hand within a day or two.
Pros:

Pay yourself back
No credit check
Relatively low interest rate

Cons:

Need to have enough in your account to borrow (you’re typically limited to 50% of your balance up to $50,000)
May have to pay back lump sum if you lose your job or quit, or risk possible tax issues
Could compromise your retirement

Credit card cash advance: Not the best option, but worth exploring if you’re desperate. Ideally you’d only use this if you had a card with a low or 0% promo rate.
Pros:

No credit check, assuming the card is already open
Can often write a check

Cons:

Super high fees and often high interest
Could have a negative effect on your credit score if you’re maxing out

Payday loan: I don’t even really want to include this as a viable option because these are so toxic to people’s financial well-being, but I have to so that I can spell out how very bad they can be.
Pros:

I honestly can’t think of one good thing besides the fact that you can get cash quickly

Cons:

High fees and interest rates bordering on criminal
Can quickly snowball out of control
Little to no flexibility with payback
One of the main reasons people end up in bankruptcy

If you’re not sure which of these options is best for you or how to facilitate, try checking with your employer to see if you have a financial wellness benefit or access to financial guidance through your EAP (employee assistance program). They won’t be able to write you a check, but you may find it helpful to brainstorm ideas with the help of a professional who will also be able to help you re-establish your finances once you get through the dip in the roller coaster of life.

How Much Do You Really Need In Your Emergency Fund?

August 02, 2017

In this age when people are measuring everything from the number of steps they take, to how many hours they sleep, and even how many calories they burn while they are sleeping, it’s no wonder that people regularly ask me if what they are doing is considered “normal” when discussing their personal financial questions with me — we like knowing not only where we stand, but how we measure up compared to our peers.

But really, who am I to say what’s normal — is there even such a thing? This is why we have rules of thumb in the financial world. And while there are exceptions to all of the rules, they are generally good guidelines to help make decisions. One of the more common rules of thumb I discuss with people is the importance of establishing an emergency fund (often called a nest egg or rainy day fund).

How much should you have in your emergency fund?

Rule of thumb = three to six months of your expenses

While you may need more if you own a home that could potentially be hard to sell, work in a field that is highly volatile or specialized or have a large family dependent on one income, this is a pretty good gauge of things to make sure you’re protected. When real estate prices plunged along with a lot of people’s job prospects during the last recession, twelve months would have been more appropriate because that’s how long it took many people to find new jobs when selling their home wasn’t an option because suddenly their houses were worth less than the mortgage.

What’s the emergency fund for?

Get you through an unexpected loss of income

The emergency fund’s primary purpose is to ensure you have the money you need to cover all your core financial expenses in the case that you or your spouse loses your job. Being unemployed is stressful enough, so it’s nice to know that you have that money aside, so that you don’t have to accumulate a mountain of credit card debt or miss payments that can impact your credit score. These savings will ensure this unfortunate event doesn’t cause too much long-term financial damage.

In the event that the loss of income is more permanent, it’ll also give you time to adjust to a new reality, allowing you to keep paying your bills until you’re able to reduce them through cancellation or adjustment of service, sale of your home or termination of your lease, etc.

Large unexpected one-time expenses

While this is more of a last resort, as you should be budgeting for most non-recurring expenses like home maintenance, pet illness, healthcare bills, etc., there are always things that come up that just can’t be planned for beyond just having the right insurance to minimize the impact. That said, it’s better to tap into these savings than it is to get into credit card debt that’ll amass large interest charges.

What it’s not there for

It’s NOT your piggy bank to tap into when you are feeling that spending itch or paying for expenses that should be planned for through your normal budgeting process like vacations, holidays, etc. This is your safety net and can leave you in pretty bad financial shape if you don’t have it when you need it (and you’ll need it, I promise). That’s why the best emergency funds are those that are held in a separate account that’s a bit harder to access and remains untouched except in times of true emergencies. And once the emergency has passed, they are brought back up to their necessary amounts to protect against the next thing!

So what do you do if you don’t have an emergency fund yet?

Figure out your monthly fixed expenses: First, you need to know how much you should be aiming for. If you don’t know what your monthly fixed expenses are, that’s a great place start. Our Expense Tracker tool is one way to figure that out, or you can use a free online tool such as Mint.com, which will link directly to your accounts and download your spending. That exercise can also help you figure out how much you can afford to save each month.
Open a separate savings account: Trust me. You’ll want to keep it separate to make it harder to tap into. You’ll thank me later.
Automate your savings: Set up a direct deposit or automatic monthly transfer to your separate savings account. Your payroll department may be able to even take money directly out of your check and deposit it for you. Otherwise, set the transfer for pay day so you never even have the temptation to spend the money. That’s what I do. (And yes, I’m still working to get my emergency fund fully set up, so don’t beat yourself up if this takes some time.)

Now don’t let the math freak you out. Six months of expenses is a big chunk of change! Start first by trying to get $1,000 in your account. I started mine with just $25 per paycheck. After that, aim for three months worth of your mortgage or rent payment. Then tack on three months of car payments, then utilities, etc. and if you have any little windfalls like a tax refund or you won on that scratch ticket your friends got you for your birthday, use that to get you there sooner.

Finally, it’s important to reassess the amount needed in your emergency fund when you have big life changes such as the birth of a child, new home purchase or even an empty nest when the amount needed may actually decrease.

The bottom line is, an emergency fund is your first line of financial defense against life’s little twists and turns. Even if you’re working to pay off credit card debt, it’s important to start your emergency fund to help you avoid derailing your debt pay-off plan should an unexpected expense arise. Don’t delay. Start saving today.

How To Use Rewards Cards Without Carrying Debt

July 26, 2017

Have you ever found yourself opting to pay using your credit card just because you’d get the rewards? I know I have — and it totally works as long as you have the cash on hand to pay your balance off each and every month. I confess that I hold cards for Nordstrom, GAP and Macy’s, but I’ll also admit that juggling that many cards requires very careful record-keeping and financial discipline.

It’s a slippery slope

There’s a reason that credit card companies are constantly upping the ante in offering rewards to card members — they know that it can take just one swipe to start earning them big bucks in interest, in addition to the fees they collect from the merchants who accept their cards. All it takes is one delayed expense reimbursement check to put you over the ability to pay your balance in full, and once you get behind on your balance, it can feel like a real uphill battle to get back to zero.

Rarely do people set out with the intention of burying themselves in debt. It’s usually a slippery slope that turns into a landslide.

How to stay in debt-free territory

The key to success here is making sure you have enough cash available when it comes time to pay off your card each month, right? The only way to do this is to treat the swipe of your credit card as if you were laying down actual dollar bills – every single swipe, every single dollar even with emergencies or extraordinary expenses – actually, especially with emergencies or extraordinary expenses.

And you can’t mix and match spending between using cash and credit by swiping your bank debit card here and your rewards card there. You have to pick one or you’ll end up in trouble.

Keep a separate account

This may seem like a royal pain, but one way to stay ahead of the game is to open a separate savings account that’s linked to your checking where you can simply move the amount you charged each day over to your savings, so you’re literally separating out your balance. Make sure you use a bank that doesn’t charge for transfers or require a minimum balance — there are definitely online banks that offer this feature. This requires almost daily maintenance, but if money is tight, it’s worth it to keep yourself out of debt.

Pay your store cards off right away

There’s no rule that says you have to wait until you receive a statement to make a payment, so one way to make sure you aren’t surprised by a bill from a store card that you use to get a discount is to just pay the card off the same day you charge to it. Some stores even let you make your payment right there at the sales counter.

Track your card balance against your checking balance

The way I stay ahead of my balance is by maintaining a running tally of my credit card balance against my checking account balance. I factor in other bills that are auto-debited like the mortgage or electric bill, and just make sure that the projected balance never dips below zero. If I do find myself getting close to zero balance territory, I know that I either have to stop spending until my next paycheck or statement cycle or move money over from savings.

No matter what method you use, the most important thing is to make sure you’re paying the balance in full each month. Using a card to earn frequent flier miles only to pay double-digit interest on the spending completely negates the benefit of the “free” flight. You might as well save the money you’re paying the bank in interest and buy your trip the old fashioned way — by paying cash.

4 Reasons You Shouldn’t Worry About Social Security

July 19, 2017

It’s that time of year again, when the Social Security trustees release their annual report, leading to a slew of bad news headlines: “Social Security’s grim prognosis,” “Social Security trust fund projected to tap out in 17 years,” etc. But what do these headlines really mean and should you worry about whether you’ll actually receive any of that 7.45% of your pay that you send to the fund in the future? I’m a perpetual optimist, so I tend to look for the story behind the clickbait and what I see is that this is definitely not something to get too worked up about at this point.

Here are 4 reasons why:

We’ve been hearing about this since at least 1999. Little-known fact: I was Miss Kalamazoo County 1999, and during my interview for the Miss Michigan pageant, the judges asked me how I felt about the fiscal woes of Social Security. I remember because I gave a bit of a flippant answer — I said, “I know it won’t be there when I retire, so I just look at it as another tax to pay.” Whether or not that is the reason I didn’t make it into the Top 10 will never be known, but now that I know more about the issue, I realize I was wrong. I fully expect to receive some type of benefit from Social Security, I just don’t know yet if the logistics will be the same as they are today.
The fund won’t be bankrupt, it just won’t be able to pay what it’s paying today. The current estimate is that as of 2034, the fund will only be afford to pay about 70% of what it owes to people at that time (although a Social Security spokesperson actually told me it was closer to 77% in a meeting last year). But that also assumes that the rules around claiming benefits will remain the same, which is what politicians mean when they talk about “reforming” Social Security. They aren’t saying they’re going to stop paying it to people who are receiving it, they mean they want to change some of the rules so that the fund can continue to pay 100% of what it owes to people well beyond 2034.
This is better news than it was a couple years ago. When I first started at Financial Finesse, all of our workbooks and online guidance pointed out that the SS trust fund is projected to run out in 2033. Notice that the projection is now 2034. Like many long-term estimates, the prognosis changes over time as reforms are made and the world changes. It’s similar to the fact that if you run a retirement projection when you’re 40 and it shows you falling short, but then you increase your savings — over time, you’ll get on track. If there’s anything we’ve learned over the past several years of last-minute action to keep the lights on in Washington, our Congressional leaders are terrible procrastinators. Perhaps I’m being overly optimistic, but I have a hunch that by the time 2034 rolls around, people currently collecting SS won’t be planning for a 30% pay cut.
I probably won’t receive what’s currently projected as my benefit. It’s safe to say that by the time I reach my 60’s, the rules around claiming Social Security will be different. Here are some of my own personal predictions, which are 100% my opinions based on nothing more than my own knowledge (aka I’m just putting ideas out there).
- Right now the earliest age to start collecting is 62 — if I had to guess, I’d say that age will be bumped up.
- Today you can claim your benefit regardless of other income or savings, although your benefit may be taxed — I suspect that eventually there will be means testing, where people of a certain income or wealth level will not even be able to claim a benefit.
- Depending on when you were born, full retirement age ranges from 65 to 67 — I won’t be surprised if that age is closer to 70 and that late retirement age isn’t pushed back to 72 or later at some point.

What does this mean for you?

At this point, we have to go with what we know when projecting our own future retirement projections. If the Social Security trustees are saying that in 2034 that benefits will have to be cut to 70% in order to keep things going, then that’s the best we have to go on for now. Some people elect to not even factor SS in to their retirement projections, preferring instead to rely on their own savings, which they have more control over. I personally just take my projected benefit and multiply it by .7 to get the amount I use in my projections. Until we hear something different or major reforms are passed, that’s truly our best guess.