What Financial Independence Means To Me

July 03, 2018

As we celebrate our Nation’s Independence, I find myself reflecting on the notion of financial independence. I want to share some of my personal journey to financial independence, not to define financial independence, but to share my personal feelings on what it means to me.

A journey, not a destination

Several years ago, I found myself at a crossroads. While I was making decent money as a financial planner, I found myself struggling to support my growing family. We were living check-to-check, not saving for retirement (or any other financial goals), and using credit cards to pay for routine expenses like food and gas.

Not exactly a model of how to manage money, which is not a good place for a financial planner to find themselves! I knew I had to take control of my finances and live the strategies I educated others about. While this is still evolving as our goals and life changes, I remember very clearly declaring financial independence in the spring of 2013!

The changes I made

Financial Independence looks different for everyone, but I laid out several goals that I considered essential to claim my own financial freedom.

  • Adopt AND stick to a budget (aka spending plan) – Understanding where we were spending our money was the first step for me. That allowed us to sit down and decide where we could cut back, make sure we were saving into our emergency fund, retirement accounts, and paying off credit card debt as aggressively as possible. We still use a spending plan (and will forever) because it is the most valuable tool to make sure we live below our means. Everything else builds off the idea of spending less than we bring in!
  • Build an emergency fund – By living below our means each month, we could build 6 months of expenses into a savings account. These two accomplishments got us off the cycle of living check-to-check. Seeing that account grow over time encouraged us that we were on the right track – and the confidence to keep going.
  • Save for retirement – We started contributing to our retirement accounts. To start, we did enough to make sure we received the full match for our employers. We had to tweak our budget to do this, but found the things we cut back on were not essential and it was easier than we expected.
  • Pay off credit card debt – This was my personal nemesis! I could never feel like I was financially independent if I owed a lot of money to credit card companies. After making minimum payments for several years and paying insane amounts of interest, we began to attack the highest interest card first with every extra dollar we could find. This only happened because our spending plan allowed us to make sure we stopped using the credit cards first. Once the highest balance was paid off, we shifted to the next higher rate with even more zeal. In 32 months, we were totally out of credit card debt. The day we made that last credit card payment was an awesome day!

It’s important to see the connection your goals share – especially recognizing how the spending plan is the foundation for taking control of your finances. Living below our means was the first step in our journey to financial independence.

If I can do it, you can too (I promise)

Once I started this journey, real change happened quickly. I quickly noticed my attitude shifted from feeling like I was destined to be in debt forever and never be in control, to a determination I could live within a budget and become financially independent. This mindset is important if you feel like you are “bad with money” or just not meant to get ahead. Recognize that financial independence is intentional, and has very little to do with how much money you make. We can all decide to live with our means – which is the most important step!

Maybe the 4th of July is the day you decide to start your own journey to financial independence. Believe you can get there, then take small steps to start your journey. Before long, you will be on your way. When you reach your goal, celebrate your success and use that to renew your conviction.

I’m not saying it will be easy, but I promise you it is worth it!

5 Ways You May Be Sabotaging Your Financial Independence

July 02, 2018

Take a moment to think about what you would do if you were financially independent. Would you travel, volunteer, spend more time with family or friends and “treat” them or yourself more often? Is financial independence something you want to achieve and life keeps getting in the way?

This month, take a stand and start choosing the financial lifestyle you want. When the people who founded the United States of America declared the nation’s independence, their biggest interest was in achieving each individual’s freedom to determine his or her own financial destiny. Here are some things you may be doing wrong, and the keys to setting yourself up for financial independence:

  1. NOT writing down your financial goals or action plan. It’s easy to procrastinate your way to financial mediocrity or even financial ruin, but studies show that people who just write down their goals and action plans are significantly more likely to achieve them. You’ll be thanking yourself later. Create a S.M.A.R.T. (Specific, Measurable, Attainable, Relevant, and Timely) goal plan using the S.M.A.R.T. Goals worksheet, and use online calculators to figure out the savings or payment rates you’ll need.
  2. NOT using a spending plan to guide your financial decisions. Look at your transactions over the first six months of the year, and compare them to the plans you made. Can you see where you need to reign some things in, and where you’ve done a good job sticking to your plan? Keep up the good habits, and change the ones that aren’t working now.
  3. NOT paying off debts quickly and wisely. Include a plan to pay off credit cards every month, automate the payment of low interest debt, and eliminate high interest debt.
  4. NOT keeping an emergency fund. Lacking a cushion of funds to pay for the occasional car repair or veterinary bill can repeatedly sabotage the best of financial plans. Use a separate savings account or a Roth IRA, whatever works best for you, to stash some cash that you will not touch unless it’s for an emergency.
  5. Making poor investment choices. Don’t leave your financial dreams to chance! Invest for the long run and not like a day trader (unless you ARE a day trader). Take advantage of the tax benefits offered by retirement accounts to set up a diversified, long range portfolio. Then put money into those accounts consistently and generously to accelerate your achievement.

It’s never too early, or too late, to start matching your financial decisions up to your goal of financial independence. You might even enlist your friends to help you stick to the plan and avoid poor choices that will sabotage your success. Keep with it and soon you will be enjoying your financial freedom.

How My Wife & I Keep Our Finances Organized Through Life Changes

June 22, 2018

There are certain things in life that, without regular attention, will eventually cause serious issues for you. I call these thing self -care. If you neglect your personal health, it will eventually hijack all your time and energy to get well again. If you do not nourish your personal relationships, you will ultimately have to spend much more time trying to sew them back together again (or finding new ones). Organizing and maintaining your family’s finances also falls into that category.

Five years ago, my family’s finances were cruising along after making substantial changes a couple years before. My wife and I had gotten on the same page and were working as a team. We were debt free except for our home, and surpassing our savings goals. We were in the best financial shape of our lives. It felt great! Then my wife made a conscious career shift and things changed.

Re-thinking our financial organization

It sure would have been nice to throw our finances into cruise control and concentrate on the new undertaking, but life doesn’t allow for that. In the case of changes like career shifts, personal health challenges, aging parents, and family additions, you must consciously decide to revisit your financial organization.

How to re-organize your finances after a major life shift

Examine it

A few months in to her career change, we felt the turbulence of our autopilot budget. Spending areas like dining and transportation started to creep up. The need for childcare increased. The old habits that had put us in a great financial position before were no longer working now that my wife’s company had been added to the mix. It was time to re-visit our plan.

What worked before?

To get on track to being debt free the first time, we sat down for a series of family meetings to get on the same page. We decided that it was time to return to the kitchen table and get back on track. We had to question everything again.

We asked ourselves the following:

  • What things were mainstays in our family’s finances that we needed to change?
  • Should we still be dining out at the same rate?
  • Do we want to maintain the same entertainment subscriptions?
  • Is our cell phone plan still the right one?

Making time for Family Money Meetings

Since we are equal partners in the decision-making of our finances, we had to make time to come together and agree on the plan. This article goes through the steps to have your own Family Money Meeting. Even if you are the sole financial decision-maker in your household, it still makes sense to set aside time to examine your financial foundation. Our meeting focused on creating a stable financial foundation by following the steps in this list.

Set it

Once we got a new plan in place, we had to make some adjustments to the things that were occurring automatically. First we looked at our automatic savings plans and 401k contributions — since we had some business debt we wanted to pay off, we had decide whether automatic savings was still the best strategy for the time being. Automating your finances can be very convenient, and it worked when we were cruising along, but you must remember to adjust as your family’s situation changes.

Once we adjust to our “new normal,” we were able to go back to automatic savings, just at different levels til we had that debt gone.

But don’t forget it

Once the plan was in place, we had to keep an eye on whether it was having the desired effect for awhile. We looked at things like whether the new budget categories were staying within range and made sure our savings were growing at the desired rate. Until you can get back to cruising along, it’s important to continue having regular family meetings to make sure you remain on track, while adjusting as circumstances change.

Once we took the time to re-organize our family’s finances it gave us back the time to focus on and prepare for the future. Take the time to give yourself financial organization check-up. If you already have a plan in place, take the time to examine your plan to make sure it still works.

 

 

Why We Avoid Paying Our Bills (And How To Fix It)

June 19, 2018

There it is. The dreaded stack of unpaid bills. The “I’ll get to that later” pile. The pile that occupies a prominent spot on my desk so it can grab my attention, yet it still sits there unpaid day after day pile.

You’re not alone

If you also have a pile like this, you’re in good company. I’m an experienced Certified Financial Planner™ professional, and I have one, too.

That doesn’t get either one of us off the hook, however. The bills still need to be paid; we both know that. Otherwise, ugly things begin to happen to our credit scores and the phone begins to ring with urgent calls from strangers demanding money. We both know that, too.

Miscellaneous bills are my kryptonite

In my own defense, these are “miscellaneous” bills. Oddities that occur sometimes, like the occasional medical co-pay from that dermatologist visit a couple of months ago. Or the bill for that awesome discount I got by subscribing to Florida Sportsman and checking the “bill me later” box. Or my annual Certified Financial Planner™ credentials renewal fee.

The critical bills however, those that take care of life’s necessities — food, shelter, clothing, transportation, insurance, and debt payments – those are set up on electronic bill pay with my credit union so they are paid like clockwork every payday and never missed. I find that putting as much of my financial life on autopilot as possible avoids quite a few financial stressors.

Why do we put off paying bills?

As an informal yet long time student of human behavior, I often ask myself why we sometimes let our unpaid bills stack up? Why don’t we just pick up the check book (or fire up the bill pay app on our smart phones) and pay the silly things? There are a few obvious reasons:

  1. Something more urgent (or enjoyable) demands our attention or our money or both.
  2. It’s an out-of-the-ordinary expense, and we will have to break from our usual routine to pay it.
  3. We don’t have the cash to cover it just yet (this is a biggie; I’ll cover it in a future blog post).

There are also some not-so-obvious reasons too

Some psychologists suggest that humans may be predisposed to naturally avoid unpleasant experiences. For example, our hunter/gatherer ancestors were served quite well by their instinctive avoidance of unpleasant experiences, such as poisonous reptiles, animals with large claws and teeth, and fellow humans sporting angry facial expressions and spears.

Unfortunately, our brain development hasn’t yet caught up to the modern world, and it still tells us to avoid some unpleasantries that we really should stare in the face, grab by the ears, and deal with right away. Like that pile of unpaid bills. In the deepest recesses of our brains, however, we react to that bill the same way our ancestors reacted to rattlesnakes – Put that down! Stay away!

Is it just your money beliefs rearing up again?

Like everything else in our lives, our budgets, bills, and retirement balances are driven by the choices and actions we choose or fail to choose. Dr. Bradley Klontz and several of his colleagues have conducted extensive research into the various beliefs people hold about money and how it affects their behavior. In Are Your Money Beliefs Holding You Back?, my colleague Dr. Scott Spann summarizes many of Dr. Klontz’s findings and discusses how we can go about modifying our long held money beliefs and train them to work for us rather than against us.

Or is it a budgeting issue?

The central issue is often a budget that is out of whack. You do have a budget, right?  No? Again, you have plenty of company. We talk to people almost every day about budgets. One of my other colleagues, Tania Brown, shares some great budgeting tips in  Why Your Budget is Failing and How to Fix It.

Baby steps to get the bills paid

Even though it might feel as if your financial world is not as good as it could be, things are rarely as unpleasant as our minds lead us to believe. A sense of perspective and some baby steps along the way can help us adjust our perspective and get back on track.

Psychologists remind us that a good way to overcome this type of avoidance behavior is to break it down into smaller pieces:

  • Day 1) open the envelope.
  • Day 2) Take out the bill and look at it.
  • Day 3) Pay the bill, then congratulate yourself and celebrate your success.

As comedic actor Bill Murray reminds us in What About Bob with baby steps, we can do anything. It sounds a little silly. It looks way too simple. And it really works.

Take it one at a time

There’s no rush to change all of our money habits all at once. Pick one and work on that one for a while. Give yourself permission to take some baby steps.

Now, if you’ll excuse me for a bit, I have some unpaid bills I need to open.

 

Why Guys Are Getting This New Dating Trend Totally Wrong

June 11, 2018

Have you heard the latest dating trend? You may have heard of ghosting and even stashing, but how about the millennial version of gold digging? Unlike the old version, this one is a bit of a reversal that mostly involves men looking to marry women who earn more than them to help pay off their debts.

Let’s put aside the usual concerns about marrying for financial reasons, and instead look at where these guys are getting it wrong. Even if you’re going to put money before love, there are much better things to look for than income:

1) Net worth

Keep in mind that many high income people live paycheck-to-paycheck and are often deep in debt themselves, whether from credit card spending or from the student loans they needed to get the degrees to earn those high incomes. (Women, in particular, hold most of the student loan debt.) If you’re looking for someone to help with your debts, you’re much better off looking for someone with a high net worth, which is their assets minus their liabilities.

The problem is that high net worths don’t always go along with the fanciest degrees or the most impressive sounding jobs. Wealthy people (or those on the way) often don’t wear expensive clothes or drive fancy cars either. That’s typically how they get wealthy in the first place. In fact, people who are truly rich also often try to hide it. In other words, you’ll actually have to take the time to get to know someone before you know their net worth.

2) Credit score

Of course, money isn’t the only thing that’s needed to make a relationship work. A Federal Reserve study found that people with higher credit scores were more likely to commit and stay committed to their relationships. This makes sense to me — one of the key components of credit scores is “committing” to paying your bills each month. If you can do that, you’re more likely to understand the trade-offs involved in committing to a relationship too.

Even more important may be finding someone with a similar credit score as yours. Research shows that people with huge differences in credit scores are more likely to break up. This may be because of the tension brought by the lower person’s score bringing down the couple’s average or because of the difference in personalities/money philosophies that it indicates, which brings us to…

3) Money philosophy

More important than income, net worth, or even their credit score, the single most important financial factor in a successful relationship is whether you have compatible money goals, philosophies, personalities, and values. What are your key financial goals? Are you more spontaneous or a planner when it comes to money? A saver or a spender? Do you want to keep your finances separate or together?

While not exactly first date conversation topics, it’s a good idea to discuss these things well before tying the knot. After all, what if your higher-income, financially successful partner doesn’t even want to help you pay down your debt? Dating shouldn’t be about digging for gold. It should be about finding someone who wants to dig with you.

How One Financial Decision Changed Everything For This 35-Year Old Single Mom

June 06, 2018

As a financial wellness coach, I have the unique opportunity to dive deep into the finances of many different types of people with many different situations. Most financial advisors don’t have this perspective because they only work with “qualified prospects,” people with enough investable assets for them to manage. Because of our business model, we are able to deliver guidance to employees on every aspect of their finances from crisis situations to wealth building.

I want to share a recent client story about re-thinking your assumptions about the best way to handle what may appear to be a “little thing” that turns out to be a really big thing.

Borrowing from retirement to buy a car – good idea or bad?

A recent coaching relationship, Susan, originally contacted me because she was looking to take a loan from her 401(k) account to purchase a new car. Susan (35) works for a large corporation and earns around $80,000 annually plus bonuses. She is a divorced single mom with an 11 year-old daughter.

She was planning to buy a new brand Buick Enclave, which is a very nice SUV that would provide reliable, safe transportation for her and her daughter. It can carry up to 7 people, ideal for soccer carpool duty. Sticker price after trade-in: $40,000.

Susan’s plan was to take the $40,000 as a loan from her 401(k) because she would get a low interest rate, pay herself back the interest instead of to a bank, and have cash to buy the car, which would enable her to negotiate with the dealer for a better price. She had calculated the loan payment of $375 per paycheck (Susan is paid bi-weekly) for 5 years. On the surface, that sounds like a good plan. But I wanted her to dig a little deeper.

What’s your 5 year plan?

I asked Susan if we could take a step back for a minute to discuss her other financial goals and she agreed. Here’s how our conversation went:

Me: “What does your ideal financial situation look like in 5 years?”

Susan: “I haven’t really thought about it.”

Me: “Let’s break it down to make it more tangible and talk about some other common goals:

  • How much would you like to have in an account in case an emergency comes up?
  • Would you like to be debt-free besides your mortgage?
  • Do you want to put some money away for your daughter’s education?
  • You should have a plan to be on track for retirement some day.
  • How about travel or vacations?”

Setting 5 year goals

After discussing further, Susan decided to put her 5 year goals down on paper:

Me – “How does the car fit into this plan? Can you afford to be your ideal 40 year-old Susan if you buy this car?”

That got her thinking.

Financial psychology side note

As humans, we are constantly making intertemporal choices (inter – between, temporal – time periods), basically deciding to act on impulses (instant pleasure) or for the future (delayed gratification). The brain is an amazing organ. It has the ability to learn and remember, but that can work both ways. The more we make impulse decisions, the more inclined we might be to act on impulses in the future. The more we stop and think about how decisions impact our future, the stronger this part of brain gets.

The more we make impulse decisions, the more inclined we might be to act on impulses in the future. The more we stop and think about how decisions impact our future, the stronger this part of brain gets.

Why visualizing your future makes a difference in today’s choices

If we can’t visualize what we want the future to look like, we don’t have the context for what we could be giving up in the future. Susan’s car decision was impulsive — she was thinking about how it would make her feel good in the present but she wasn’t considering how it would impact her future. After understanding what she would have to give up (retirement preparedness, her daughter’s college plans, the trips she loves), her impulse turned into a thoughtful decision.

What she decided to do

So, what did Susan decide to do? After researching Consumer Reports and other publications, she purchased a 3 year-old Honda CRV for a little under $18,000. She gave up the dream car with room for the entire soccer team, but her new car rated better in safety ratings with less than half the payment.

She weighed the financing options with facts. The dealer offered her a better rate than her local bank with the option to make extra payments. Because her 401(k) loan did not allow this pre-payment option, she decided to use the dealer financing.

Now, she is able to fund her other goals. With the remaining $380 she would have paid every month, she did the following:

  • Opened an emergency fund and set up a $150 auto-deposit per month
  • Opened a separate vacation fund at the same online bank with another $150 going in each month
  • Opened up a College Savings account for her daughter with a monthly contribution of $50
  • Signed up to increase her 401(k) contributions every year by 1% to get her on track for retirement

It’s amazing how one seemingly small choice to drive a different car can make such a huge difference, but it did. What are you giving up in your future with the choices you’re making today?

How Golf Can Help With Your Finances

May 23, 2018

With a busy work schedule, two incredible kids (a.k.a. “the monsters”), research and writing obligations, there isn’t too much time in my life for golf these days. But as I prepare to join my buddies for our annual Memorial Day golf outing this weekend, I’m hoping I’m not too rusty. While daydreaming about hitting the golf links for what Mark Twain referred to as “a good walk spoiled,” it dawned on me that the game of golf has many parallels to managing our personal finances.

Goal setting

It is essential in golf (or any other important endeavor) to set realistic goals. I used to play regularly to a five handicap when I was a card carrying member of the “DINK” society (Dual Income No Kids). My goal during those days was generally to try and shoot in the 70’s – not pro material but not too shabby either. Now since I only play about five to six rounds a year, I am just trying to shoot in the mid- 80’s. Priorities change and I have adjusted my expectations to the reality that I shouldn’t expect to immediately return to my previous form.

This is also true with managing our personal finances. It is important to set “SMART” and realistic goals. This makes the financial part of our lives more relevant and is the first step on the path to success.

Practice, patience, and persistence

Perhaps the biggest similarity between the game of golf and our financial lives is the need for practice and effective routines. The best golfers develop their swing and mental toughness with a never-ending process of hitting balls on a range and they use strength and training programs to support their swing development. I realize that I will not get back to the good old days of golf anytime soon but over time and with some practice, it is a real possibility.

As our financial lives develop, we need to develop routines and discipline to help simplify how we manage our money too. From routine budgeting and paying ourselves first to automatic savings programs and debt reduction strategies, it is possible to simplify our financial lives by creating habits.

We might not always get things right the first time, but just like weekend golfers get an occasional “mulligan” from their buddies, we should all take advantage of a second chance to get our personal finances in order – no matter how far off the beaten path we may have ventured.

Tracking progress over time

Whenever I do decide to start taking my golf game seriously again, it will be important for me to track my scores and see how I am progressing over time. This will help with motivation and let me know when I need to adjust my training routine. Golfers can track their progress using a handicapping system or by simply saving old scorecards.

Proper tracking is required when taking financial life goals seriously too. Goals should never be set and forgotten. Here are some suggestions to track your financial progress:

  • Track your net worth on an ongoing basis using a financial organizer.
  • Review your investment portfolio and track how your investments are doing in comparison to appropriate benchmarks.
  • Review your risk tolerance on a regular basis and as your life goals or circumstances change.
  • Re-balance your investments on a regular basis.
  • If you are working on paying off debt, make sure you are getting there the quickest way possible by using a DebtBlaster calculator.
  • Check your credit history. Order a free copy of your credit reports every 12 months from annualcreditreport.com and use services such as creditkarma.com and freecreditscore.com.

Rewarding yourself

The game of golf can be frustrating to both beginners and veterans of the game. Whether the obstacles are lakes, creeks, sand, or my unorthodox swing, there are potential setbacks around every corner of the golf course. The best approach is to prepare for them and minimize their effects.

However, it does come with some rewards to make up for all the lost balls and broken clubs. It is a great way to get outside and enjoy exercising (especially if you decide to walk the course like I do), nature, the sound of the ball rattling around the bottom of the cup after a perfectly aligned putt, the camaraderie of spending time with friends after a round, or signing a card knowing you just reached a personal best.

The same is true with managing personal finances. Whether the potential obstacles are taxes, inflation, economic uncertainty, health care costs, or paying for my kid’s college education while balancing the need to save for retirement, there are ways to prepare for obstacles without letting them paralyze you with fear.

Long-term goals also take time to achieve and sometimes it helps to have a little reinforcement along the way so managing our personal finances should include some built-in rewards for progress. The next time you review your family’s personal spending plan (a.k.a. “budget”) or pay off a credit card balance in full, be sure to reward yourself a little.

Golf is similar to financial planning in that they both require goals, practice, patience, and persistence. Of course, they can also both be frustrating at times. But with the right attitude, consistent routines of good habits, and proper guidance from coaches, a path to success can be established.

 

A version of this post was originally published on Forbes

The Worst Money Mistakes I’ve Made

April 26, 2018

This question was posed to me recently by a fellow financial planner. His question certainly caused me to pause and think. Over the years, I’m fairly certain that I’ve made a number of unwise money decisions, but two in particular stand out as blunders I’m not particularly proud of. Borrowing from a popular late night TV sketch, let’s take a look at some of the silliest money mistakes we’ve all done or seen and see what useful life lessons we can take from those.

Buying a timeshare

While honeymooning in Mexico, my wife and I fell for the sales pitch and bought into a long-term resort condo timeshare. For those who like to travel frequently and also have the budget to support that lifestyle, vacation time shares might be a reasonable move. At that point in our lives, however – young, early career, modest incomes – we were not the ideal candidates. We also did not pay attention to the ongoing additional fees often tied to timeshare ownership.

Furthermore, we had no idea how illiquid these “investments” are. As anyone who has ever tried to sell a timeshare to someone else can tell you, the supply greatly outstrips demand. In other words, selling your timeshare is close to impossible. If you do find a buyer, expect to sell at a very deep discount to what you likely paid for the property.

What I learned from this mistake

After many years and thousands of wasted dollars, we were eventually able to dump ours and walk away. What important financial life lessons did we learn? Ultimately, we learned never to make a major financial commitment driven primarily by emotion. We were young, on our honeymoon in a beautiful location, and all too agreeable to an opportunity to repeat that experience. Marketers, of course, are very aware of this, and we fell for it all.

Now we know it is much better to first say no and then take plenty of time (days, weeks, or even months) to think things over before committing thousands of dollars to purchase something we may or may not use or continue to enjoy as much as we originally thought. As a result, we’ve avoided the purchase of numerous boats, campers, and vacation homes over the years. These days, when we want to vacation in a fun location, plenty of economical rental choices are available through sites like Airbnb.com or VRBO.com without the long-term commitment or expensive maintenance fees.

Student loans (sometimes)

Student loans can be a good investment. For a relatively modest interest rate, in today’s environment at least, you can leverage other people’s money into an education that boosts your future income significantly, making the comparatively small amount of interest you pay in the short run well worth it in the long run.  However, like any financial tool, student loan debt can also be abused or misused.

For example, at one point in my career, I decided earning my MBA might be a good move, and I applied for student loans to help finance this venture. Along the way, however, my career ambitions took a different tack, and I elected to focus instead on earning my CERTIFIED FINANCIAL PLANNER™ designation and subsequently, a master’s degree in personal financial planning (a decision I have never regretted). Although I had abandoned my MBA pursuits at the time, the student loan debt used to finance that pursuit remained and still had to be paid. Fortunately, I had not borrowed a large sum for this and we paid it off fairly quickly.

What I learned from this mistake

The financial lesson here is to carefully consider the commitment of time, effort, money, and ongoing personal motivation needed to make a particular career choice work. If a substantial amount of student loan debt will be necessary to obtain a degree, we need to be prepared to remain committed to that career choice, at least until we repay the student loan debt. Otherwise, we will very likely be stuck with paying for a decision error over many, many years with zero return on our investment. Another consideration is whether or not the degree we are pursuing really has the future income potential to justify taking on large amounts of debt to finance it.

To err is human

As financial planners, we have the benefit of working with many people from a variety of backgrounds and circumstances. This not only gives us a front row seat to many of the money errors and financial regrets our clients have endured, but it also enables us to share the related financial lessons with others. In no particular order, here are a few of the more common silly money mistakes that can provide helpful lessons for us all:

  • Carrying long-term credit card debt – The insidious evil of carrying credit debt month after month is the reverse compounding effect. Just as positive compounding helps us become wealthy by earning interest on interest, the reverse is true of debt. The negative compounding begins to make our credit purchases exponentially more expensive over time. Transferring balances to a 0% balance transfer card or otherwise refinancing to a lower interest rate is a good start to reducing our debt risk. The quickest way to get out of debt, however, is to employ the DebtBlaster approach we recommend at Financial Finesse and pay off the highest interest debts first, gradually rolling up those monthly payments until the last credit card in the list is receiving a monthly payment equal to the combined payments you were making on all of your cards.
  • Lending money to family – Money decisions driven by emotion rarely turn out well, and what gets more emotional than a plea for money from a family member? If you do lend money to family, most planners recommend formalizing the loan with a written agreement that includes at least a modest amount of interest. Practically, however, treat it the same way you would treat giving money as a gift. Make sure your family loan won’t negatively impact your own cash flow if your family member borrower cannot or does not pay you back. These arrangements work best if you don’t expect to receive the money back in the first place.
  • Borrowing from your retirement plan – On the surface, borrowing from your traditional 401(k) or 403(b) savings plan at work might seem harmless, but it has some obvious and not-so-obvious risks. On the positive side, you are borrowing your own money and paying yourself back with interest. Furthermore, doing this will not affect your credit score one way or the other. However, you will be paying your retirement plan loan interest with after-tax dollars. The not-so-obvious downside to this strategy is that these same after-tax dollars you used to pay the interest will be taxed again when you eventually spend this money in retirement.

Financial planners are just as human as anyone else, and in many instances, we were not always professional financial planners our entire careers. We’ve made many of the same money mistakes our clients sometimes experience. Consequently, we understand and have compassion for the frustration and disappointment that comes from looking back on a financial mistake and wondering how on earth we could have been so foolish. Although our individual “silly money mistakes” may have been expensive, they do not need to be permanent, and we can always learn from them.

How To Attend Every Wedding This Year Without Going Broke

April 24, 2018

I was chatting with one of our Client Service Managers, Cassie Brunelle, about how expensive it can be to have great friends in your 20’s — everyone’s either getting married or celebrating milestone birthdays, and these days that involves a lot more than just showing up to a hotel ballroom with a gift off the couple’s registry. Cassie may not be a financial coach, but she’s a great role model for everyone else in showing that you can make it to all of these events without compromising your other goals like paying off debt, building up your emergency fund and capturing your full match at work. Here’s how she’s doing it this year:

Like many people my age (mid-late twenties) the era of weddings has set in full force. Not just attending weddings, but being involved in them as a member of the bridal party, while also attending and planning bach trips and occasionally the bridal or couples shower. Between May 2017-October 2018, I will have attended 7 weddings, 4 bachelorette weekends, 3 engagement parties, and 2 bridal showers, four of which I will have been a bridesmaid.

Adding up the costs

The dollars amounts attached to these events can sometimes feel completely ridiculous, but is there a real price tag on an unforgettable weekend celebrating with your friends? Yes there is, but the question is, is it worth it?

In my case, I have successfully justified the expenses, but at what cost? I have had to forgo some other plans and adjust my timeline to some personal financial goals to make it work, but I’ve also employed a number of tactics, tips, and reminders that I’ve compiled below to keep me from having to get a roommate or take on high interest credit card debt.

How I’m avoiding FOMO without taking on massive debt

If you’re reading this and you’re like me, and want to support your friends as they enter a new chapter (and also just don’t want to miss out on a weekend full of memories), then I hope you use some of these ideas to make it a little easier on yourself.

1. How to save when you’re in the bridal party

Being a bridesmaid/groomsman is an honor, but also comes with a commitment to be there for various events, to purchase a particular dress or suit, provide emotional support, and be a team player whether that be setting up and breaking down parts of the wedding or reception, running last minute errands, or making sure the bride/groom eats something (and doesn’t overindulge). Here’s how I’ve been able to do this on a budget:

  • Buy second hand. Yes, you might actually be able to find the dress the bride chose without having to buy it off the rack. Most designer bridesmaid dresses have triple digit price tags, and for a dress you will likely wear once, that can be tough money to spend. I’ve used sites like Tradesy, Poshmark, and Bridesmaid Trade to find the same dress that someone else had to buy and wear once. You have to pay close attention to the details, such as color and sizing (since you can’t return), and make sure there is no obvious wear and tear, but it can save you a ton. The upside is also you can resell your dress on these sites after the wedding too.
  • Do your own hair and makeup. The beauty bill attached to being a bridesmaid can easily reach $300 between hair, makeup, nails, a spray tan, and other grooming, just for one weekend! To avoid this, I’ve planned my haircut/color appointments to occur right before I have these events and have also invested in some high quality makeup, nail polish, and hair tools that I can travel with and do my own hair, makeup and nails. So instead of paying $300 per wedding, I invested around that same amount into products and hair appointments to last me through three weddings.
  • Have real conversations with the bride/groom. You may see a different side of your friend when it comes to wedding planning. For some it’s emotional and overwhelming, and sometimes they may feel unheard especially if their respective families are very involved. It’s important to have a real conversation of what they expect from their bridal party, and perhaps what areas they are flexible so you know what won’t disappoint them. Be realistic with what you can commit to and understand that it’s better to be honest from the beginning than hold onto resentment through various events that are meant to be fun!
  • Reduce the extra. I’ve seen bach parties quickly spiral into too much decor, too much food, and in rare cases, too much alcohol. If you are attending a bach weekend, something my friends have instilled is that everyone contributes something — it can be a game, decorations, party favors, or planning some activity, but this takes the onus off one person (usually the maid of honor/best man) and helps spread the love (and the cost). If we are purchasing something that we expect others to chip in (either an activity, personalized hats, or tattoos with the groom’s face on them) that expense needs to be approved by the group. We have tried to stay in homes or Airbnbs as much as possible so we can make meals at the house and split a grocery bill instead of splitting meals at restaurants.

2. Saving on travel and accommodations

If you are like me and you have to travel to the majority of these weddings, which includes the cost of airfare and hotel, here a few money saving tips:

  • Get used to sharing. Hotel blocks for weddings can be expensive, so sharing rooms with friends is a great way to reduce costs. If you want to forgo the hotel (which can have added costs with amenities and late night room service), booking a large Airbnb to share with friends is a great way to reduce the expense and spend time together. There’s usually a kitchen too, so meals can be prepared instead of ordering from restaurants.
  • Use your credit card points. If you know you have travel coming up, find a credit card that will earn you bonus miles for opening the account (be careful here as there is always a minimum amount to spend in order to earn the miles, and watch out for fees). Whether you have a card with a specific airline or one that earns you miles, it can be advantageous to stockpile these points to use for wedding related travel. It’s important to be mindful that these cards often carry higher interest rates, so make sure whatever expenses you put on the card are within your budget to pay off each month.
  • Stay with friends! Typically the bride and groom get married in one of their hometowns, which can mean free rooms to stay in should you want to forgo a hotel or Airbnb.
  • Plan ahead. Try to get as many details as possible for destination weddings and jump on booking a hotel or Airbnb ASAP, and try not to procrastinate booking flights. My friend group has booked places 6 months in advance so we can break up our payments into 2 or 3 chunks instead of having a larger expense all at once. You’ll be prepared and have peace of mind knowing when you arrive that the payment has already been taken care of.
  • Book your flights with arrival times in mind! Reduce the cost of Uber/Lyft from the airport by arriving at the same time as other guests. Airports can be far from the destination hotel so if you are traveling alone, try to link up with at least one person at the airport so you can avoid the trek alone, and if you are in an urban area you can take public transit together.

3. Other areas you can save

  • Gifting. Sometimes it can feel like a lot to travel for a wedding, buy a new outfit, pay to stay somewhere, and get the bride and groom a gift. Group gifts are great because each person can contribute the amount they are comfortable with toward either a gift card or toward a larger gift such as a grill, couch, or personalized decor. Or if you simply can’t afford it all, take advantage of the one-year rule, which gives you up to one year to send a gift to newlyweds and still consider it timely.
  • Buy a good pair of (neutral) dancing shoes. Having versatile outfits and a good pair of shoes will make it easier to pack for each wedding, and if you only have to buy one pair of good shoes to wear to every wedding, it will be a worthy investment.
  • Have an accountability partner. Am I the only one guilty of feeling more generous than usual during wedding season? Especially if it involves traveling and seeing friends I haven’t seen in awhile, the splitting of bills and rounds of drinks can get a little messy. This is where Venmo is a great in the moment way to make sure you don’t get stuck with the entire bill, and having someone remind you that maybe you don’t need to buy a round at the after-party just because you’re drunk with love for everyone in the room. Leaving your credit cards behind and carrying cash can help combat this impulse. I’ve made a plan for wedding weekends that involve multiple nights of fun and spending to have a friend to check in with on our spending; no one wants to see those surprise charges on their credit card the next morning.
  • Remember you can say no. I know it can be very hard to decline an invite to a wedding, bachelorette party or other event related to an impending marriage, but you still can in a tactful and clear way. It’s a delicate balance of being there for your friends and also doing what’s best for you. Having a clear conversation up front should your friend ask you to be in the wedding party or play any role that puts a financial commitment on you is important in setting boundaries and managing expectations.

    If you want to really be there for your friend, but know it will cause you undue stress because of other commitments in your life (maybe you’re planning a wedding for yourself!) be realistic with your loved one up front. If you’re not, it can lead to resentment and misunderstanding in the future, and you don’t want to lose a friend over events that are meant to be joyous and fun.

These are just the things I’ve done, but here are tons of other tips for saving as a wedding guest from Refinery 29, Money Crashers, Loverly, and even the NY Times.

Just know that you’re not alone, and take some extra time to find little ways to save. Life can get busy, and missing out on big events can be a bummer so preparation, planning ahead, and voicing any concerns up front will help you have the most fun celebrating with your friends this year!

Re-establishing Your Financial Identity During Divorce

April 23, 2018

Many divorces start out rather amicable. When two people decide they will  “consciously uncouple,” there is often a high level of trust as they begin to unwind their lives. However, once you make this decision the process can still take a while. Depending on where you live an uncontested divorce can take from 2 days up to 18 months. In other cases, it may be to your advantage to end the year married for tax filing purposes. The tendency can be to postpone doing things like establishing separate accounts, refinancing the home, closing credit cards, etc. because with such momentous change on the horizon; why disturb the status quo? 

Things can change quickly

Then something happens, like one person gets into a new relationship, and things sour quickly. All those divorce nightmares you heard about can suddenly become a reality if you have financial exposure to someone that sees you as an adversary. This is why it makes sense to start limiting financial exposure as soon as possible once the divorce decision has been made.  

Here are some steps to take immediately and a few tips to consider after the divorce is final. Because there could be long-term legal ramifications to these decisions it would make sense to consult with a family law attorney along the way.  

What you should consider right away

Checking and savings

If all your accounts are owned jointly, you will need to establish new accounts. If you have accounts in your name only already in place then it may make sense to operate in those accounts going forward. You can choose to operate out of a joint account for joint expenses like mortgages and utilities (more on this in a moment) but keep in mind that you will be responsible for any account mismanagement, like overdrafts.  

Credit cards

If you have credit cards in your joint names the best practice is to either close or freeze these accounts. If you have separate accounts but your spouse has a card in their possession as an authorized user, it may make sense to close their card and have the number reissued.  

Your home

If you are in the divorce process and you have mutually agreed that the home would be too much for one of you to keep, go ahead and start the selling process. While that sale is in process it probably would make sense for one of you to stay in the home. That person would be responsible to keep the house staged for showing. It would be ideal to have some written agreement in place outlining how expenses for the residence will be split until a sale occurs or the divorce is final. 

Accounts with beneficiary designations  

Any account where you can change the beneficiary without a spouse’s consent should be updated immediately. Others, such as your retirement accounts, will have to wait until the divorce is final, depending on your state. Be sure to update any POD or TOD provisions on financial accounts and don’t forget any life insurance you have.

Cash flow

As soon as possible, readjust your budget for your new standard of living. This is the perfect time to lay out a spending plan that keeps you on track for your future goals.  

Once the divorce is complete

Beneficiary update part 2 

Now that you’re officially unmarried, make sure you update all accounts that required spousal permission. These are typically retirement related benefits like 401ks and pensions.  

Healthcare and other benefits

Reassess your benefits to make sure they are right fit for your newly constructed household. For instance, you may be in a situation where a lower or higher deductible would make better sense now that you are on your own. 

Estate planning 

Move forward with updating your estate plan for your new reality. Update who would serve as your executor for your estate and who would serve as power of attorney for finances and healthcare. If you have a trust, you’ll want to make sure your ex isn’t named as successor trustee, nor are any in-laws named. You may also need to update potential guardians for any minor children.

Mortgage 

If your spouse is keeping the house, be diligent in making sure the mortgage is refinanced with your name removed. Any mortgage delinquencies will also affect your credit, as my colleague learned the hard way. 

Revisit your spending plan 

Sometimes the financial terms of the separation can change at the last moment. You will need to update budget considering these changes. This is also a good time to review your plan with a financial planner.   

Retirement

Use a calculator to determine if you are still on track for retirement. Also contemplate how your social security benefits can be affected by your decisions going forward.  

Going through a divorce is emotionally and financially challenging. No matter what you’re feeling in the moment, it’s important to make decisions keeping your “5 years from now” self in mind, the person who will look back on this stressful time and sigh with relief. Do what you can to avoid also looking back and wondering, “what was I thinking??”

How Expensive Is Your Marriage?

April 12, 2018

Twenty or so years ago, my employee Greg and his soon-to-be wife, Susan, opted to take a pre-marital course that would help them prepare for life as a couple. They had talked about their plan for their marriage before stepping into a counseling room, but they both knew there were aspects they hadn’t considered.

Not everyone discusses this stuff first

There were several other couples in that course and Greg was shocked when he realized that most of them had never discussed their life goals — let alone their financial ones — until that day, which in some cases was just weeks before their wedding date.

It’s not unusual for us to never have discussed these topics with our spouse before our lives are merged, and sometimes our marriages end up costing us more than we anticipated. That’s when we need to sit down and re-evaluate what we’re doing differently from when we were single.

How expensive is your marriage?

Income & expenses

The first is how much your expenses and income increased after getting married. If your income has increased at a higher rate than your expenses, your marriage is saving you money. But if your expenses have increased at a higher rate than your income, it’s costing you money.

Net worth

The second deals with your net worth after marriage. Determine what your net worth (total of investments and value of assets like your house, car and other tangible property minus all debts) was before you got married. How has that changed since being married?

It is possible you are spending more than you’d like but are acquiring valuable assets in the process, which puts you in a better position financially than when you were single. Alternatively, you might be doing well with your expenses as a married couple but making poor investment decisions, causing your financial situation to worsen even though your day-to-day money management has improved.

Other costs to evaluate

Day-to-day expenses

Go to the grocery store alone and purchase everything you need as a household for the next week. The following week, do the shopping with your spouse. Then compare the two experiences.

Do you purchase more or less when you shop together? Some couples work as a check and balance, discussing purchases and finding ways to save as they go down the aisles. Others become more impulsive and get into a spending frenzy, which ends up costing more money than they would have spent as individuals.

Major purchases

Consider evaluating your behavior in how you currently make major purchases.

  • Do you and your spouse make the decisions together?
  • Do you have a plan for the expense?
  • Have you done some comparison shopping?

Look at the criteria you’ve used to make your most recent major purchase. Then imagine you’re making the purchase again, only this time, sit down with your spouse, create a savings plan and do some extensive comparison shopping. If you find your purchase was the best you could have made, you’re in decent shape. If you didn’t make the best purchase, you may want to beef up your criteria.

Investments

A good way to evaluate whether you and your spouse are on the same page with your investments is for each of you, independently, to revisit or look over your current investments. Then, individually make hypothetical changes to how you’d manage your portfolio.

Compare your strategies, risk tolerance and some future investments you’d consider buying. How different are your strategies? How could your different ideas about investing be affecting your current portfolios? Some couples share similar investing strategies and others differ tremendously.

Cost of borrowing

Test your knowledge of your credit strength. Was your credit score higher when you were single? Is it stronger now? Do you know when to use joint credit accounts vs. individual credit? Do you know how much debt your spouse has? Couples should know how to leverage their credit and be fully aware of each others’ debt loads.

Taxes

The marriage tax penalty became less of an issue in 2018, now that tax brackets have changed to all but the highest earners seeing a difference when they marry someone with a similar income, but it’s still something to consider. Even though the tax brackets have changed, most married couples still benefit the most from filing jointly due to the rules around other deductions. 

Look at your tax liability and how it is affected by the alternative minimum tax. Since AMT doesn’t follow the same formula as regular tax brackets, it can be easier to trigger when earning two incomes. Sit down with your CPA to determine if this affects you.

Gifts for each other

To determine if you’re spending unnecessarily on each other, look at whether or not you both have the same ideas about gifts. Do you put a spending cap in place? How do you each go about purchasing gifts? You can also evaluate the gifts you’ve purchased over the course of your marriage. How much did you spend on them? How valuable does your spouse find the gifts? There has been a lot written about the different ‘gifts’ people value most; you could be spending on your spouse when they may not want a purchased gift at all.

Ways to reduce the cost if you find it’s too high

Re-evaluate your household budget

Define roles in the budget and track your spending together on a regular basis, re-evaluating it every quarter. List all the major purchases you anticipate within the next year and set goals for when you want to acquire them.

Create a savings plan; if you both have different ideas on what purchases you want to make within the year, you can use this opportunity to synchronize your plans. Then, do some comparison shopping. Consider more than just cost; look at quality, warranties or anything that could end up costing you in the long run.

Watch out for the “his and hers” mentality

If you opt to manage separate accounts, make sure you at least have a joint investment account so you can meet your investment goals together. Also be sure to utilize each spouse’s strengths in your investing strategy. You may find that one is a long-term strategist and the other is a good decision maker on when to buy and sell.

After you’ve tested your knowledge of each other’s goals and strategies, you should have a better idea of how you can work together to maximize your investments.

Find balance for your life goals

Gauge if your goals match. Your spouse might be anticipating a large family and this could be more expensive than you had planned, or they may feel strongly about sending your kids to Ivy League schools. If your goals don’t match, you both should consider how and where to compromise so your finances aren’t at stake.

Keep your credit strong

Each of you should maintain strong credit scores and use them for leverage. If a couple has shared debt, each is individually liable for it regardless of who incurred it during the marriage. Joint liability can hurt the couple if they don’t, or if one of them doesn’t, manage their credit, since it drags both credit scores down.

Discuss your attitudes about debt before you plan to use joint credit. Does your spouse feel debt is a disadvantage or even dangerous? Or maybe they feel it’s necessary to meet your financial goals. Either way, you may want to be prepared to make substantial compromises if your opinions differ.

Make your gifts more meaningful

If you’re spending money on your spouse to show your affection, consider how they prefer to receive it. The book The Five Love Languages by Gary Chapman describes the different ways people react to love. Your spouse might prefer quality time over receiving gifts. Just an understanding of how to show your spouse affection in a way they will most appreciate it can save you money in places you may have never considered.

Evaluate your tax options

Run a tax calculator for you and your spouse filing together and also as married filing separately. Then determine how to make a penalty less impactful or even turn it into a benefit. You can run a free estimate on each scenario at turbotax.com. For most married couples, it’s most beneficial to file jointly.

Understanding and synchronizing our values and financial behaviors in marriage is by no means easy, but most married couples would probably argue that sharing their lives with the person they love makes all the work worthwhile. Wouldn’t it be great to not only enjoy your marriage, but to have it cost you less, too?

What A Financial Coach Hopes To Teach His Kids About Money

April 10, 2018

My family and I just returned from an amazing vacation, which has me reflecting on some of the major life lessons that I have been trying to teach my children. As a financial planning professional, many of these life lessons have a financial theme, but the most impactful money lessons are really the ones that are about life – not just “getting through life” or “trying to make ends meet” though. I’m talking about living a life of purpose and meaning.

“If a person gets his attitude toward money straight, it will help straighten out almost every other area in his life.” –Rev. Billy Graham

This is a simple yet powerful quote that stresses the importance of having a proper mindset when it comes to managing personal finances. Here are a few lessons that I’m trying to communicate to my children as they continue to learn and grow.

True financial wellness requires action

Financial wellness is more than just a feel-good buzzword/phrase. It’s where financial education and action meet to produce real results. Financial wellness requires knowledge and action with the end result being a positive sense of well-being backed up by actual financial behaviors that help us instead of create stress. No matter what my children are trying to accomplish in life, I want them to take action and always feel empowered to change their circumstances and the lives of others in a positive manner.

Countering harmful money beliefs

Money isn’t the root of all evil. This is a potentially harmful money belief that is often based on a distorted view of personal or family experiences. Stories of corporate greed, financial fraud, and other money-related wrongdoings help perpetuate this belief.

The reality is that “love of money” is the problem, and financial avoidance is not the solution. I don’t want my children to ever forget to express gratitude for their financial blessings, but I also don’t want them to forget their duty to be good stewards of their future resources. A healthier but not obsessive focus on money matters is needed in this day and age where money remains a taboo topic for many.

It’s not about luck

Wealth doesn’t require luck. Where are the real role models anymore? Pro athletes, musicians, and actors dominate most of the news cycle and trending social media feeds. This isn’t anything new, but what is alarming to me is the idea that wealthy individuals somehow accumulated their riches by luck or greed.

Now I realize that we occasionally hear about the Bernie Madoffs of the world who cut corners or the lottery winners that hit the jackpot. But the Millionaire Next Door is more likely to have achieved his or her success through hard work, persistence, trade-offs, and having a dream they were willing to turn into an actionable plan. I want my children to realize that it’s true that some people have more obstacles to overcome in life. However, your background doesn’t guarantee future success nor does it predict certain failure.

Never judge your success or status in life through financial measures

Perhaps the greatest lesson that I want to convey to my children is that their own determinations of successes or failures in life should never be assessed by their income or net worth statement. This sounds like such a simple concept, but I’ve met too many pre-retirees that were financially prepared to leave the workforce but lacked purpose and meaning in their lives because they were too focused on accumulation rather than living a life.

Experiences matter more than stuff

I want my children to enjoy spending time with me as their dad and mentor and not focusing on just spending time with their stuff. This applies to me as well. If I decided to be too product-oriented as a parent, that could be sending some negative messages to the people that I care about the most.

This doesn’t mean that we cannot enjoy some creature comforts that make life enjoyable. But it does mean that there always needs to be balance, and I want my children to value time more than the things that could rob me of that valuable time with them. As a result, we make sure our spending plan prioritizes those summer camp experiences as well as family vacations and plenty of staycations.

Avoid debt if at all possible

Never let debt become your master. The average American household has over $130k in debt. Among households carrying credit card balances, the average debt is $15,762.

Borrowing makes sense in so many situations, yet the struggle is real for those who are having trouble making ends meet because they are over leveraged. What’s the joy in busting it at work all day just so you can keep up with credit card bills, auto loans, and mortgage payments on a lifestyle you couldn’t afford in the first place? For my own children, I will constantly guide them to challenge the status quo and never become a slave to debt.

Remember that your current circumstances aren’t forever

It’s not surprising that retirement preparedness research suggests negative debt attitudes are related to decreased retirement confidence and lower overall financial wellness. More immediate consequences of debt can be seen in the eyes of recent graduates who are entering their post-grad lives feeling burdened by their loans. Many are delaying future life goals such as marriage or buying a home based in part on debt concerns. My advice to them is to not allow your current circumstances to create a sense of stagnation in life. Believe you can make real change happen and explore all alternatives to take financial action that will move you beyond the current situation.

Money is simply a tool 

In my professional role as a financial planner, you may be a little surprised to hear that I do not enjoy talking about money. I guess that I better clarify that I frankly don’t get pleasure out of just talking about money, but I do enjoy discussing ways to integrate money decisions into lives in a way that gives financial resources more purpose and meaning. Money does create opportunities, but ultimately you have to decide how to use it in your life. You can either become a wealth accumulation tool in pursuit of money or allow your wealth to do incredible things for yourself and others.

Keep the big picture in mind

Always dream beyond your current financial or life circumstances. I’m working with many individuals and families that are dealing with some major obstacles on the path to financial freedom. My message to them is the same that I try to convey to my own children. Don’t ever give up.

No matter how good or bad your current financial status may seem, it is essential to look ahead and plan for the future. Live in the moment, plan for the future, and thrive. It’s that simple.

A challenge for parents

As you consider the money lessons you’d like to teach your own kids, I suggest asking yourself the following question:

What message am I sending the people that I care about most?

Asking these types of questions as early as possible during parenthood may be the key to set up the next generation for a true path to financial wellness that is based on a solid foundation.

What Pro Athletes Wish They’d Known Sooner

March 23, 2018

At Financial Finesse, I have had the honor of working with former NFL, NBA, and MLB players through the financial wellness benefits their leagues have established for them. As we work together, these guys have generously confided in me many things that they and their wives wish they’d known during their pro career. Most of us may never be professional athletes, but I’m pleasantly not surprised to note that what they’ve shared really does apply to all of us. Here’s a few things they’ve had to say:

  1. Having money in the bank right now doesn’t make you a successful businessman. I think that anyone who’s ever experienced an unexpected event like a job loss or major illness can relate to this — times may be good now, but they may not always stay that way. If you’re flush with money these days, lucky you! Enjoy, and use that money to secure your financial future as well — get at least 6 months expenses into your emergency fund, pay off any debt, and get some invested for retirement.
  2. I wish I’d started my business while I was playing, not after I left the league. We’ve had some debate about this on the planner team at Financial Finesse, but what I think he means is that before you lose your current stream of income (or give it up), make sure you’re set up to keep things going. Before you quit your 9-to-5 to pursue your dream of starting a business, start learning what your new adventure will entail by learning the vocabulary, shadowing someone else who’s doing it, and immersing in the hard work that goes with the glamour. Try to get a year’s worth of expenses set aside — that will give your business a solid year to get up and running, without you having to worry about turning a profit in order to pay your bills.
  3. Enough is never enough. You’ll never have a paycheck like the one you have right now. Don’t take it for granted! This one is pretty specific to pro athletes and highly paid entertainers, but it’s the truth! Save early and save often.
  4. I bought houses and some family lived in them. I didn’t start charging rent until two years after I’d left the league. You need to have that conversation and take that action before you leave the league. It just gets more awkward, and possibly disastrous, afterward. Lesson for the rest of us: if your income is helping to take care of others and your situation changes, don’t wait to give them a heads up that the change will affect them, too. We talk to so many people who are barely able to make ends meet due to a spouse’s disability or job loss, and yet they are still funding their adult children’s lifestyle. You have to change the agreement when your situation changes.
  5. I failed to run my life like a business while I was playing. I wish I’d done at 25 what I’m doing now. I wish I’d learned to run it like a business. You should always be looking at the numbers to make sure what’s coming in is enough to cover what’s going out, while also accumulating more to invest in the future. That’s the essence of running your life like a business.
  6. There will be awkward conversations, especially with your S.O. [significant other], no matter what happens when you leave the league. Be transparent. This is your time to shine, and she has her time to shine. The successful ones hash that out now. Your life partner can make or break you financially. Do the work to make sure you’re both playing for the same team.
  7. I spent 4 years NOT wanting to call Financial Finesse because I was convinced I could handle things on my own. I’m so glad I finally called. If I’d done it sooner, my life might have been better. There is no weakness in reaching out for help from the resources that are available to you. Whether that’s making use of a financial wellness benefit or calling your EAP for help with something else going on in life, it’s always a smart move.
  8. I should have been more aware of the benefits I would have AFTER I left the league, and more assertive about keeping them. I talked to a former player who missed out on hundreds of thousands of dollars of disability income simply because he moved and didn’t open his mail for two months! Many people I get to know across a variety of industries don’t know what benefits they have right now beyond a 401k and health insurance, and even fewer know that they could take some of those benefits with them when their job or career ends. Investing a little time right now in meeting with HR or researching your benefits internally may make a world of difference to you and your family, financially.

How To Adopt Financial Habits That Stick

March 16, 2018

If your goal is to become a better steward of your hard-earned money, what does it take to improve your odds of succeeding once you decide to make some positive financial changes? It helps to make your goals as specific as possible.

Since the acronym SMART was introduced in a Management Review article in 1981, many of us have become familiar with the notion of making our goals:

Specific
Measurable
Assignable
Realistic
Time-related

For example, common personal financial goals might include contributing a set percentage of pay to your retirement plan at work, paying off all credit card debt within 24 months, and building emergency savings equal to three months of take-home pay within 5 years.

Behavioral change is tricky business

Although SMART is a handy and easily remembered acronym for developing and articulating goals, it doesn’t do much to actually keep us motivated to achieve them. Changing the way we think about and spend money means finding ways to change our behaviors, and humans are largely creatures of habit. Accordingly, becoming a better money manager means modifying those habits and establishing some key financial priorities.

Translating intentions into action

For example, becoming better prepared for retirement could mean committing to regularly saving a specific percentage, say 10% or more, of every paycheck to your employer’s retirement savings plan and simultaneously learning to live on less than we earn. Becoming a better saver means committing to regular transfers from a checking account to an emergency fund savings account every payday. Getting out of credit card debt means committing to a cash-only lifestyle while also paying off the highest interest rate cards first.

Deciding what we need to do and being very specific about it is relatively easy. It is the commitment part that presents most of us with an ongoing and often difficult challenge.

Getting from tricky to sticky

Creating meaningful and lasting behavior changes is no small task, nor is the process for doing so consistently and successfully fully understood, even by experts. University of Pennsylvania research professors Angela Duckworth and Katherine Milkman, both PhDs with considerable achievements under their respective belts, recently launched an impressive and appropriately named project called “Making Behavior Change Stick.”

The goal of the project is to better understand the various nudges and incentives that help people consistently make better decisions with respect to health, education, and personal finance by utilizing a research team comprised of large corporate sponsors and professionals from the fields of psychology, economics, medicine, computer science, marketing, and sociology.  This particular research project is relatively new, ambitious, and ongoing. It will be interesting to follow the various insights that it uncovers over time.

What we’ve learned at Financial Finesse

In the meantime, my colleagues and I have a considerable amount of experience with facilitating behavioral change within the realm of personal finance via financial education and individual financial coaching tied to workplace financial wellness programs. Data from our 2016 Year in Review research summary shows that improving behavior is the key to improving employee financial wellness among a sizable cross-section of large employers with active financial wellness programs in place for their employees.

Gradually adopting positive financial behaviors leads to improved cash management, less debt, and better preparedness for retirement, particularly among repeat users of financial education and coaching resources. The availability of individualized financial coaching appears to be particularly helpful in facilitating sticky financial behavior changes that are both effective and enduring. Whether you participate in a formal financial wellness program or not, some of the best practices that can make your financial behavioral changes more sticky and less tricky include:

Automate. Put as many decisions on autopilot as possible. Using your bank’s electronic bill pay feature to schedule regular monthly credit card payments so they are always made on time is one example. Another is setting up automatic transfers every payday from your checking account to a savings account in order to build up an emergency fund.

You are probably already saving for retirement with automatic payroll deductions to your 401(k), 403(b) or similar employer retirement plan. Use similar techniques to automatically save for other goals or to help get out of debt faster. Instead of having to make many great decisions every month, make a few great decisions now that automatically repeat themselves every month from now on.

Be mindful. Practice mindfulness and recognize that many of our decisions are driven as much or more by our emotions as they are by logic. We are only human, and emotional biases are going to creep into our thoughts and decision making abilities.

Rather than trying to bottle up or ignore our emotional and often illogical sides, we can choose instead to acknowledge and explore them. The next time we fall short of a financial goal or slide back into bad spending habits, we can use those opportunities to carefully examine both why we made those choices and what we were feeling at the time, along with considering what we could do differently next time. Celebrate the small wins along the way. These are what add up over time to become much bigger improvements.

Find a money coach. Have you ever stopped to consider how many superstar level athletes, people who in every sense of the word are quite literally at the top of their game, continue to work with personal coaches and trainers? Although a coach can certainly help us learn new skills and techniques that make us better, their real and lasting value comes from helping us stay better at those important skills and techniques.

Financial coaches are available through a variety of channels. Check your financial wellness benefit or you may already work with a financial advisor or planner who can provide you with financial coaching from time to time. If not, the Certified Financial Planner Board of Standards, Inc has a free planner search tool on their website, www.letsmakeaplan.org.

These are just some of the techniques that we’ve found helpful in creating behavioral change that can produce results. The key is to find what works best for you. Which ones will you adopt to finally tackle those financial goals?

 

This post was originally published on Forbes.

Are Your Money Beliefs Holding You Back?

March 12, 2018

If you are looking to improve your financial wellness, it is important that you are aware of the role your financial attitudes and beliefs have in shaping your future. These beliefs help explain key differences between savers, spenders, and people who try to avoid money matters completely. They can be extremely stubborn and are difficult to change since they can become a part of our ongoing “money script” or life story that follows our financial behaviors.

Financial wellness starts early in life

Drs. Brad and Ted Klontz used the term “money scripts” to describe financial beliefs that are often developed early in life and are frequently passed from one generation to the next. No matter where you are on the journey to reach your financial life goals, it’s always helpful to be aware of your past experiences with money whether they were positive or negative. Take a moment to answer these simple questions:

What are some of your earliest money-related memories and experiences?

Was money a frequent source of arguments or was the topic often avoided?

What are your current “money scripts” or financial belief patterns?

Four types of money beliefs

According to research performed by Dr. Brad Klontz and Dr. Sonya Britt, professors at Kansas State University, three out of four primary money beliefs (money avoidance, money status, and money worship) are linked to potentially destructive financial behaviors. For example, these patterns of money beliefs have been associated with having lower levels of net worth, lower income, and higher amounts of revolving credit. The other money belief, money vigilance, was not linked to problematic financial behaviors.

Do you identify with any of these money beliefs?

In general, money avoiders tend to view money as negative and a source of fear, anxiety, or disgust and often have beliefs that wealthy individuals are greedy. Money avoiders think that they don’t deserve money or that money is bad and the root of all evil. In addition, they also tend to believe that it’s not okay to accumulate more wealth during your lifetime than you will actually need.

Money avoiders may experience conflicting beliefs that having more money and wealth could improve their life satisfaction, self-worth, and social status. This belief system can create a tug-of-war between feelings of contempt toward money and wealthy individuals to placing too much emphasis and value on the role of money during their life journey.

Money worshipers believe that having more money will solve all of their problems and money is the key to happiness. An associated money script is that “things will get better in life if I just had more money.” Another common belief is that the accumulation of more money will lead to increased happiness and overall life satisfaction. For the money worshiper, money is viewed as a scarce resource and there will never be enough of it. Money worshipers may prioritize work over family and social relationships.

People with money status belief systems tend to define their self-worth by their financial net worth. They also place a great deal of emphasis on buying the hottest new items with leading brand names and quality. Money is a sign of success for those with strong money status beliefs. As a result, these individuals may pretend to possess more wealth than they actually have and may overspend to provide others with an impression they have achieved financial success.

Money vigilance is typically associated with themes of frugality and people with these money beliefs tend to focus on the importance of saving, use discretion when discussing financial matters and express anxiety about not saving enough for emergencies. Money vigilant people are most likely to pay attention to their financial well-being. A common belief for the money vigilant is that people should work hard for their money and not expect financial handouts. They also tend to be more anxious and guarded when discussing money matters with people outside of their closest network of friends and family.

Do your money beliefs support your life goals or are they creating a roadblock?

Some of these money beliefs are not problematic. In many situations, they may even be encouraged. It’s at the extremes where these money beliefs can cause problems.

Money worship beliefs can lead to compulsive spending, work-life imbalances, and hoarding behaviors. These beliefs can also be associated with financial dependence, giving money to others they cannot afford to part with, and ignoring or not paying attention to one’s own financial situation.

Money status beliefs are associated with compulsive spending problems and being financially dependent on others. Money status beliefs may also lead to secret spending or financial infidelity.

Money avoiders have trouble setting financial life goals and struggle sticking to a personal spending plan or budget. This money belief is also linked with overspending and compulsive buying. Not surprisingly, money avoiders have difficulty organizing financial statements and frequently struggle discussing money matters.

Money vigilant beliefs can help provide wealth protection. But this watchful approach can also prevent you from enjoying the benefits of achieving a positive state of financial wellness.

Are your money beliefs helping support your financial behaviors or are they creating roadblocks for your financial life plan? If you are having trouble following a budget, eliminating debt, or saving, your money scripts may be holding you back. You can take this quiz, which is the Klontz Money Script Inventory (KMSI) if you want to complete your own self-assessment to examine your own money beliefs.

It’s never too late to rewrite your script

The good news is that you have the opportunity to rewrite these money scripts. While money beliefs can be passed on from one generation to another, they do not have to be permanent. Once you’ve identified your patterns of thinking about money, you can begin to examine how changing those beliefs can fundamentally improve your financial situation. Then you will truly be ready to take mindful, deliberate steps to turning resolutions of change into reality.

 

This post was originally published on Forbes.

4 Steps Women Can Take To Keep Their Life Options Open

March 08, 2018

It’s no doubt that there is no greater time to be a woman in the history of our civilization — I agree that there’s still a lot of work to be done, but I can’t help but feel an overwhelming sense of gratitude to be alive right now as who I am today. It’s true that there continue to be barriers for women, particularly women of color, but generally speaking, we have more choices today than ever before. In fact, we have so many choices that it can often lead to a tremendous amount of second-guessing and anxiety.

Saying yes is also saying no

As Elizabeth Gilbert (whom I consider to be one of my personal mentors, even though she doesn’t know it) put it once, when we make a choice in life, we are also saying, “no” to hundreds of other choices — saying yes to becoming a financial coach for me was saying no to opportunities in musical performance, environmental work and fitness. In today’s society where we get to see how everyone else’s choices play out on carefully curated Instagram feeds, it’s waaaay too easy to get caught up in second-guessing our choices.

“Should I have broken up with that guy sooner so I could have kids? Should I have pursued that opportunity to champion recycling at governmental facilities? Do I really want to close the chapter on teaching fitness?” These are questions I’ve asked myself and the reason I have quotes all over my house reminding me that, “All things happen in God’s perfect timing,” and “…no doubt the universe is unfolding as it should.”

Keeping your options open

Many of my friends, colleagues and people I’ve had the honor of working with express similar doubts, although often not as deep — sometimes it’s as simple as, “I just wish I hadn’t used my credit card to fund that shopping spree last year.” Regardless of your certainty (or lack thereof) of your life choices so far and the future you’re embarking upon, there are some financial moves that you can make in the meantime that will keep your options open as you navigate this time of tremendous opportunity for women.

4 steps women can take to keep their life options open

1. Eliminate debt ASAP. When I was first starting my career, nothing stressed me out as much as the self-flagellation I endured every time I thought about what else I could be doing with the $300 per month I was paying on my credit card that I’d run up on stupid things like clothes and food. In the three years it took me to get to balance: $0, I limited pretty much anything optional in life. But it was worth it — being debt-free allowed me to leave a marriage I hated and also later allowed me to leave a job I hated.

2. Get confident about investing. Studies have shown that women are better investors than men, but we’d never know it — it’s by default because we are more cautious and shy away from going big in areas where we don’t feel 100% confident that we know what the heck is going on. The majority of the women I work with on investing choices and education are actually doing everything just fine, they just don’t know it. The sooner you can find the certainty that you’re doing fine with investing (because you’re putting money away for retirement, right???), the easier your mind will rest. And the more your early saving will help keep your future options open.

How to get more confident about investing

The simplest way would be to use Target Date Funds, understanding that the entire purpose of these mutual funds is to diversify your investments in a way that is appropriate for someone planning to need the money in the year named in the fund. In other words, I use Target Retirement Fund 2040, which is the closest year to when I’ll most likely be retiring. I know then that the fund will put my dollars in the appropriate mix of stocks and bonds, allowing me to take advantage of market growth over the years, without taking too much risk for my age.

If you want to get more hands-on, start reading. I like the books The 5 Mistakes Every Investor Makes and How to Avoid Them as well as Picture Your Prosperity. I’d also be remiss not to mention What Your Financial Advisor Isn’t Telling You: The 10 Essential Truths You Need to Know About Your Money, which was written by our CEO Liz Davidson. And of course, I invite you to poke around this blog for more insights from my brilliant colleagues.

Pick one and stick with it

Finally, know that there are as many investing philosophies and strategies out there as there are make-up tutorials on YouTube — the key to confidence and success is choosing the one that resonates most with you and sticking with it. Much like I stated above about the dichotomy of choice, saying yes to one means saying no to many others, you just have to go with it. And just like you can change your mind on many of life’s choices (including your eye shadow pallet), you can change your mind on investing strategies, but monkeying around with it too much can obliterate any progress.

3. Stockpile savings in a Health Savings Account (HSA). This is one of my top financial regrets — when HSA’s were first introduced, all I saw was the high-deductible that was required in order to start an HSA and I shied away. What I didn’t recognize was that I NEVER went to the doctor, so having a deductible wasn’t an issue. I played it TOO safe by sticking with an HMO plan for too many years, and missed out on literally thousands of dollars from employers who would’ve funded my HSA over the years. Not to mention I missed out on the tax savings of putting my own money in the account.

Why saving in an HSA can be so powerful for young women

Fast-forward almost 20 years into my career and I’ve literally spent over $10,000 in the past 2 years on various healthcare stuff — everything from acupuncture for fertility to having skin cancer removed from my arm and my scalp to seeing a physical therapist for IT band syndrome. Ask any 40-year old woman about her health and she’ll most likely tell you that it’s been a lot more expensive than she thought. If only I could go back and save some of the money I spent at Old Navy and re-direct it to my future healthcare expenses, I’d still be ahead of the game.

If you are planning to have kids one day, this becomes doubly as powerful, even for guys — maternity care is expensive, kids go to the doctor a lot, and you never know when an emergency appendectomy will have you headed to the OR. (just ask a couple of my colleagues who’ve had to deal with this recently)

4. Take care of yourself but don’t be too Type A about it. If I had a dollar for every stressed-out looking but perfectly sculpted adorable young woman I saw at the yoga studio I frequent, I’d be able to afford the unlimited membership — one of the things we’ve done well as a society is instilled the importance of good health in young women. I often worry though that they are putting so much pressure on themselves to do all that stuff perfectly that they’re missing out on the fun of life. It’s not about getting it all “right” all of the time,  it’s about enjoying the journey. The easier my life gets, the more I realize it’s the challenges that make it worth living.

Enjoy some cheese fries, for Pete’s sake, just don’t charge it to your card unless you’re paying it off each month.

8 Ways To Make The Most Of A Big Raise

March 05, 2018

“I’m so tired of driving this old beat up car. As soon as I make some more money, I’m getting my dream car. I deserve it.”

“We have so outgrown this house. There just isn’t enough space for us, to entertain, or for anything really. As soon as I make some more money, I’m getting my dream house. It’s about time I get something I really want.”

“I can’t even remember the last time I had extra money to just splurge with. As soon as I get a raise, that’s the first thing I’m putting money aside for.”

Have you ever found yourself saying some version of these things to yourself? I can definitely relate — early on in my career, I often found myself daydreaming about the ways I would spend additional income.

Hitting the pause button

Depending on your line of work, big bumps in income may come along often or only rarely, but regardless, when they do, it’s easy to quickly start dreaming of a bigger home, nicer car or even just a fancier wardrobe. At the extreme, many of us think that having a higher income will make our lives easier, only to find that when we look back over the years of small increases, nothing’s really changed in the way we feel about our financial situations.

The next time you find yourself with a bump in income, before you start bookmarking properties or loading up your shopping cart, PAUSE. This is the perfect time to consider how to make the most of your new pay rate and to ultimately make sure that you never have to revisit these thoughts again.

Here are eight suggestions that may not sound very exciting, but when taken seriously, can get you to the point of NOT needing a big raise in order to have the life you want.

  1. Accelerate debt payoff – Use the Debt Blaster calculator to find out just how much sooner you can get those lingering student loans or credit cards paid off by adding a bit more to your monthly payments.
  2. Bump up your emergency fund – More income means you’d miss it more if it went away, so use this time to add to your savings BEFORE taking on more financial responsibilities (like a new car or a bigger house) that make it harder to do so.
  3. Max out your Health Savings Account (HSA) – Maybe you haven’t elected the High Deductible Health Plan (HDHP) before because you didn’t want the risk of having a big out of pocket hit, which often makes sense for situations where money is tight. Now that you make more money, the risk may be outweighed by the opportunity to save more tax-free for future expenses, like starting a family.
  4. Contribute more to your 401k – Retirement may seem way off (especially if it literally is), but saving more in your earlier years will give you more options for later years. Use the Retirement Estimator calculator as a way to gauge how even just one percent more saved at a young age could mean retiring a year or more earlier than you expect.
  5. Save for short and long-term goals in a Roth IRA – You can put an extra $5,500 into a Roth IRA for 2018, and even more if you’re 50 or older. When just starting out, a lot of people actually use a Roth IRA as savings account. Since whatever you contribute you can always take out tax-free and penalty-free, it can be a way to build up an emergency fund, while also boosting your long-term savings. Check out these 12 benefits of a Roth IRA on top of that. (By the way, you can still make a 2017 contribution to a Roth IRA by the tax filing deadline of April 17, 2018.)
  6. Purchase some stock through your Employee Stock Purchase Plan (ESPP) at work – If your employer offers an ESPP, it’s a great way to get more bang for your buck because you purchase shares of your employer’s stock at a discounted price. You can leave that money alone until retirement or some people prefer to sell right away to take the earnings from the discount, then put that money toward their next big vacation.
  7. Think bigger – Is there something really cool that you’d love to have, but always figured you could never afford, like a vacation property, or a cleaning person? Depending on how big your income jump is, and assuming you have the Big 3 (emergency fund, no high interest debt and saving enough for retirement) in place, perhaps it’s time to shift your money mindset to something you never considered a possibility before, rather that using the additional money to just upgrade to a bigger house or fancier car.
  8. But not too big — Beware of lifestyle inflation: our “needs” tend to grow as our income grows. I’m not suggesting that you continue to live like a college student, but living below your means is the key difference between most “everyday” millionaires and those who may earn the same salary, but spend every dime they have.

At the end of the day, the point is to enjoy life and a part of enjoying life is having enough money to pay the bills and save for the future while still living in the moment! You put in the hard work needed to get to this new income level. Now, make the most of it by putting some of that extra money towards living life now and making sure you are financially stable in the future.

How We Avoid Money Fights In My Marriage

February 14, 2018

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

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

Method 1: Go “all in” and combine everything

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

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

Pros of going “all in”

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

Cons of going “all in”

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

Who it works best for

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

Method 2: Keep everything separate

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

Pros of keeping it separate

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

Cons of keeping it separate

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

Who it works best for

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

Method 3: Hybrid using three accounts

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

Pros to the hybrid method

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

Cons to the hybrid method

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

Who it works best for

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

Non-negotiables for everyone

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

One final way we avoid money fights

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

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

 

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

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

January 12, 2018

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

When the splurges add up

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

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

A difference in principles

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

Figuring out the big picture

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

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

Setting a team goal

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

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

Teamwork makes the dream work

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

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

Why One Couple Decided To Pay Off Student Loans Before Investing

January 11, 2018

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

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

When the answer isn’t clear cut

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

Option 1: Paying off the student loans

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

Option 2: Contributing more to their retirement plans

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

Option 3: Saving for a rental property

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

What they decided to do

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

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