What Are You Willing to Spend Money On?

October 07, 2016

As I write this, I’m surfing the web looking for my next “gym” to join. I use quotation marks because I most likely won’t join a traditional gym. I have a pretty functional gym in my basement where I can do all the strength training and cardio I care to do.

I’m looking at gyms that are a bit more specialized. One is a Brazilian Jiu-Jitsu gym, one is a MMA gym, one is an indoor rock climbing gym and one is an American Ninja Warrior obstacle course gym. I like to switch up my fitness routine periodically and take on new challenges. Worst case scenario, I try something new and either don’t like it as much as I think I will (that rarely happens) or I end up taking on a pretty tough physical challenge and end up with a battered body that requires either rest or surgery. (That happens more than I care to admit.)

I’ve noticed that with gyms, pricing is all over the place and it doesn’t make sense to me. Some of the places with longer hours and more diverse offerings are lower priced than some of the ones with more specialized offerings and fewer hours. That befuddles me. Lately though, I’ve been befuddled by more and more things as I go out and look around at ways to better spend money. Here are a few examples:

A new car: My son is driving now and not that long ago, he, my ex-wife and I all chipped in some cash for him to be able to buy his first car. Within our budget, he and I did a pretty thorough search of a few car search engines and narrowed the field down. We saw a huge disparity in the years and mileage of vehicles.

The beautiful part about shopping for cars online is that you can sort in various ways. We sorted by newest, we sorted by lowest mileage and we sorted by lowest price. Eventually, we found the right combination in a car that he absolutely loves.

Cell phone plans: Do I need to say any more than that?  With several iPhones on my plan, pricing with various carriers is a complete hodgepodge of choices. Minutes, data, texts, price of new devices, contract length (or not) — there are a lot of variables that make picking the right plan a bit complex.

“Cutting the cord” television plans: I’ve been contemplating being a “cord cutter,” but as a self-avowed sports and news junkie, I’m having trouble finding a combination that gives me what I want at a price that makes giving up what I currently have feel worth it.

What’s my point in talking about these different products/services? A lot of financial blogs and articles and “experts” will talk about how to cut costs and save a few bucks on various products and services. I’m not a big believer that the lowest price is always the best thing though.

When looking for ways to save money, make sure that you aren’t doing yourself a disservice. Do you REALLY want to drive a car on a bridge built by the lowest bidder? Do you want the lowest cost heart surgeon to operate on your loved ones?   

Figure out which of the many variables in the pricing decision is the most important to you. I rank the features from most important to least important and focus my search on the top two or three variables. With the TV, it’s having an ample supply of news and sports channels. It’s not just about cost. That’s how I stay current with what’s going on in the world and with my favorite teams.

For cell phones, it’s about having enough data for my kids and I to do our work, school and fun stuff without needing to worry if we are exceeding our limits. With us often being in different cities (me on the road for work, my daughter away at college, and my sons at home), our data usage is how we all connect at various times. With cars, here is my thought process.

Take a look at your monthly expenses. See which ones you want to take a look at replacing with a lower priced option.  Then determine the top two or three variables and go out to make a decision that best fits your lifestyle and your budget.

What I Wish I Had Known When I First Started Working

September 06, 2016

I don’t know about all of you, but the older, I get the faster time seems to go by. I feel like yesterday I was babysitting my kid’s friends and today I am watching them graduate from college. After one of my friend’s kids graduated from college, I went to a party celebrating the achievement. While at the party, I was listening to a conversation with my friend’s daughter and her friends, most of whom are also recent college graduates.  Luckily for them, we are in a better job market and almost all of them are either employed or getting ready to start new jobs.

As I listened to their conversation, I started to feel a sense of dread at the direction their conversation was going in. Their discussion was focused on getting paid the most money, moving to a “hot” new city (whatever that means) and what car they are going to buy themselves. I told them that the decisions you make your first working year will lay the foundation of their future financial success or demise – their choice. At that point, I had their undivided attention and I started talking to them about some of the things I wished I would had known when I first started working.

The best job is more than the highest salary. When I looked for my first job, the only thing I considered was the salary. I never stopped and considered that a lower salary that pays more benefits could net me a higher total compensation than a higher salary with crappy healthcare benefits. As you consider your next job, think carefully about the offer. How much will your new employer cover for healthcare benefits?

I also never considered my ability to grow my career. A higher future salary could easily outweigh a lower starting one. Consider how many opportunities you may have to progress in your future organization.

Your location will determine how far your money will go. One of the young women I spoke to was currently working in Georgia and thinking about a lateral career move to New York City. Being from Brooklyn, I told her she has to consider the difference in income and encouraged her to do a paycheck calculator to see what her net pay may look like with a move.  She was shocked at how much her net pay decreased.

Next ,I encouraged her to use a cost of living calculator to compare how far your income will go in one state or city vs. another. She needed almost a $30,000 increase in salary to maintain the same lifestyle she had in a small town in Georgia in New York City. If you are deciding on a move, consider doing a paycheck calculator and a cost of living calculator so you won’t go into sticker shock when you move.

The lower you keep your lifestyle now, the better quality of your lifestyle in the future. Remember that where you live now may not be where you will live in a few years so keep your home expenses to about 25%-30% of your net income so you have money left over for other goals and possibly a move. I pretty much went stupid when I got my first professional job. I convinced myself that I had to look the part and spent thousands on a wardrobe. You can look professional without going broke by shopping for high quality professional clothes at consignment shops.

Fortunately, I kept my old car though. This was probably one of the best decisions I made. I was easily able to make the move for a great career opportunity because I kept my expenses so low. If you end up getting a loan, consider following the 20/4/10 rule – put a 20% down payment, finance for no more than 4 years, and make sure the total monthly vehicle expenses (principal, interest and insurance) are no more than 10% of your gross monthly income.

Understand that good money management equals financial success. I wish I would have prioritized my finances better. I would have created a monthly spending plan that outlines ALL of my spending (including car maintenance, vacations, and gifts), saved 3-6 months of expenses, contributed at least enough to get my 401(k) match and attacked debt sooner. Use calculators like the Debt Blaster to come up with a game plan.

If you’re just starting your career, you have a tremendous opportunity to shape your financial future. Taking these steps before making a financial decision can go a long way to building a lifetime of financial success. You can do it!

 

 

 

How to Survive and Thrive in a Pricey City

July 12, 2016

I was born and raised in Brooklyn, NY – before it was trendy. When I was growing up Red Hook, the underpass of the Brooklyn and Manhattan Bridges were places you did not want to go to at night. It seemed like overnight the worse and somewhat cheaper parts of town became the most sought after and expensive places to live.

These changes are what attracted my cousin to move to Brooklyn later this year. As I was talking to her, I realized that she was excited about the idea of living in New York, but the reality of the financial change from her move had not quite sunken in yet. I told my cousin about financial changes she had not fully factored into her move such as:

Paycheck Sticker Shock: My cousin was moving from Florida to Brooklyn. She knew that she was going to experience a major shock in expenses, but she had not factored in the change in her take home income due to taxes. Unlike Florida, New York City and some other major cities have state and city income taxes. She was shocked to see about a $600 a month estimated decrease in her paycheck once she moved there. For anyone moving to a new state, using calculators like the one from Smart Asset to gauge what your new income will be can help you better manage your finances.

Caviar Tastes on a Tuna Fish Budget: My cousin grew up watching The Cosby Show and fell in love with the brownstones featured on it. She knew the rent would be high but she almost passed out when I told her that a one bedroom apartment in Brooklyn Heights could easily run over $2,500. I told her to first do a budget to see how much she can afford. Her budget did not support $2,000 in rent so we researched apartments on  websites like Apartments.com,  which helped her set realistic expectations of where she could afford to live.

We brainstormed ideas like renting a room, living in a basement apartment, taking in roommates or living on the outer edges of Brooklyn. We also searched apartments that were in rent controlled/stabilized buildings to protect her from crazy rent increases. I encouraged her as well as anyone moving to a new city to research the cost of housing and realize that it may be a choice between a longer commute or more expensive rent.

Ditch the Car: My cousin grew up in a place that required her to have a vehicle. It never occurred to her that she may not need a car. She was shocked when I told her that my mother, a typical New Yorker, does not have a driver’s license, and I was 24 before I got mine.

I encouraged her to get to know the mass transit system in her area and estimate the cost of maintaining her vehicle in Brooklyn. Between the extra cost of car insurance, gas, parking and the hassle of alternate side of the street parking, she decided it was not worth it and ditched her car. The extra savings helped her to afford an apartment closer to where she worked. Call your insurance company to find out the cost of insurance in your new location, look up the average gas price, the average cost of parking and the hassle of finding parking to see if it is worth keeping your car.

Finally, I encouraged my cousin to do a comprehensive budget, not only factoring in the cost of living but also vacations, since she will either have to rent a car or fly home. She created a budget that helped her get her apartment and even have a little fun. Because of all the preparation she did, she was able to enjoy her new location without going broke in the process.

4 Things I Wish Someone Told Me Before I Graduated From College

May 10, 2016

As I talk to my friends’ graduating children, I am always struck by the hope in their faces. They believe that they control their futures and that their lives will be better. It makes me think about my own graduation and reflect on what I wished someone would have told me about finances:

#1- I will actually have to pay back the money I was taking out in student loans. I do not remember thinking about paying back my student loans. I probably thought that the student loan fairy dropped into my college’s financial aid office after graduation and deleted my debts. If I had known how long and painful it would have been to pay back my student loans, I may have made different choices. I encourage parents to sit down with their kids, calculate repayment costs, estimate their starting salary and give them a cold dose of reality as to what their paycheck may look like after taxes and deductions come out.

#2- The car I stupidly bought after college graduation will become the story I tell people about what not to do when you graduate. I worked so hard to graduate and my car was old so I purchased a car I really did not need. It was cute and in the showroom and the second I saw it, I said “I do.” What I did not realize was that I was also saying “I do” to a 5 year car loan that took almost a 4th of my income at that time. I wished someone would have told me that the car I get will dictate my ability to save money, take vacations and contribute to my 401(k) plan.

#3- A business wardrobe is not a reason to get into credit card debt. I was lucky enough to land a job with a large corporation but I realized that I needed to get business clothes. I used this as an excuse to run up $3,000 in credit card debt on a new wardrobe. I think this included a Coach bag and wallet that I never used. I wish someone would have told me that credit card debt is not necessary and worked with me on a plan to pay it off

#4 – The earlier you contribute to a 401(k) plan, the less you need to contribute. I wish someone would have told me how important it was to contribute early, the power of compound interest and how starting with even a small amount makes a big difference, especially when your employer is giving you free money in the form of a match to help you save for retirement. Talk to younger people about how your choice to save early has helped you or about your regret in not starting earlier. Run an estimate for them so they can see how a little makes such a big difference .

Looking back, I wished I would have gotten a cold dose of “adult” reality. I wished I would have known that being on my own meant that my financial choices had consequences that can easily be taken care of if I had been willing to buckle down and pay off my debts instead of using credits cards to upgrade my lifestyle. The best gift you can give a college graduate is to help them start off their futures on the right financial footing. Work with them on a budget, encourage them to pay off credit card debt, teach them the importance of contributing to a 401(k) plan and help them come up with a game plan to pay off their student loans before their children are in college.

 

 

How to Get the Best Deal On a Car

April 27, 2016

My first car was a beat-up 1987 Ford Tempo that I called Shirley Tempo (nerd alert!). I paid cash to a family friend who had been using her as a loaner at his auto repair shop. Shirley got me around town in high school but when I went to Kalamazoo for college, my dad helped me negotiate for a slightly newer Geo Metro (aka “Ginny Geo”) – a car that could make the 200 mile trip without breaking down. By senior year, Ginny’s radiator was shot, the door locks didn’t work and my mechanic deemed her “unsafe to drive.” Needless to say, I was anxious to get a “big girl” car now that I had a “real job” upon graduation.

As soon as I returned from my graduation trip the summer after college, I found myself at the Saturn dealer test-driving a fully loaded coupe. Of course, I was in love and I signed a lease on the spot for Sally. Fast-forward a few months when my student loan payments kicked in and I was wishing I’d done a little more shopping around for that car. Sally was super fun to drive, but her payments were WAY outside my budget.

As my husband and I begin shopping for a bigger car now that his sedan is starting to wear out, we are being much smarter about this purchase. Here are some of the tips we’re using to find the best deal on a new ride:

  • Shop at the end of the month. The car sales guy actually told my husband this. They have quotas to meet, so if you head to the dealer toward the end of the month when the pressure’s on to meet that quota, you should be able to negotiate a few thousand more off the price. That could be a negligible amount to the dealer, but a nice chunk in your bank account.
  • Consider buying certified pre-owned. You’ve probably heard that a new car loses more than 10% of its value the minute you drive it off the lot. By getting in line as the second owner, you are paying significantly less for an almost-new car that still has warranty protection.
  • Know the wholesale price. If you just can’t resist a new car, at least know what the dealer paid for it. This is easy to find now by searching the make and model of your dream car along with the phrase “factory invoice price.” That way if the sales person tries to tell you they’re “losing money on this deal” when you’re negotiating (and you should at least try), you’ll know if they are trying to pull as fast one.
  • Remember that a car is NOT an investment. A car is what we CPAs call a depreciating asset. This is financial speak for it loses value over time and unless you’re a car collector, you will be selling the car for less than you paid for it. Remember that when you’re thinking about financing. (Try to pay as much in cash as you can).
  • Get full value for your trade-in. We took our car to CarMax and they gave us a trade-in estimate for no cost. This is just a best guess, but gives you a starting point when negotiating with the dealer. Edmunds and Kelley Blue Book are good online sources and you might also take it to a dealer to see what they will offer you. Depending on the make and model of your car, the dealer may be seeking used cars. SUVs are particularly hot right now due to low gas prices.
  • Don’t get cheap and choose an insurance deductible that’s too high for your savings. If you have a $2,000 deductible, you should have $2,000 on hand in case something happens. Use these best practices from my colleague Tania, who learned the hard way to make sure you’re properly covered.

Finally, as exciting as buying a new (to you) car is, try not to be impulsive. Take your time in researching and test driving to make sure you’re getting the best deal while also making a purchase that fits your lifestyle and budget. That new car smell fades pretty quickly. A too-high car payment takes a LOT longer to wear off.

 

 

How To “Budget-Bust Proof” Your Spending Plan

September 01, 2015

Okay, I am going to call this Confession Tuesday. I have spoken to so many people that struggle with creating a budget. I can hear the guilt and even shame in what seems to them like their inability to live within their means. Continue reading “How To “Budget-Bust Proof” Your Spending Plan”