Are You Having Trouble Sticking to Your Budget?

October 18, 2016

I love what I do for a living, but there are definitely some drawbacks. My friends and family will come to me with financial questions but will run from me like I have the plague if they are not following my advice. In fact, a family’s or friend’s communication with me after I give advice is my best indication if they are actually following my guidance. I find the more voice mails I leave, the more likely they are not following my guidance. Such was the case with one of my young cousins.

Samantha is a recent college graduate in her early twenties that recently landed her first job. Immediately, the “I wanna have” disease took over and she quickly found herself barely able to make it from paycheck to paycheck. We sat down and worked on a spending plan based on her lifestyle. As a Starbucks fanatic, I am the last person to deny someone a pumpkin spice latte, but I encourage people to create a budget so you are not “latteing” yourself out of paying off debt, building an emergency fund or saving for retirement. She took my advice…or so I thought.

After not hearing from her for months, which is unusual, I finally got her on the phone and she admitted that she had been avoiding me because she was not following the budget. Once I told her that it was okay, that a failed budget only means re-strategizing, we looked at ways to help her stick to her spending plan. If you are having trouble sticking to a budget, consider doing the following:

1. Consider increasing some of the areas where you continuously overspend. Samantha struggled with eating out. She is young, single and in a new city. Her income allowed for some eating out so she decided to eat out 5 days a week, bring her lunch into work and eat at home twice a week.

She reduced her grocery budget and increased her eating out budget. Since part of the reason for her eating out was loneliness, I suggested having a potluck or pizza/home movie night with friends on one of the days when she eats at home to share the cost and for her to have company. Consider increasing your budget in areas where you constantly overspend. Remember, you have to make up for the overspending by decreasing spending in another area though.

2. Consider using cash for areas where you overspend. If you have areas where the problem is simply a lack of discipline as opposed to a need to increase spending, consider using cash. Some of the popular areas where people overspend are: groceries, clothing (this includes kids), eating out, entertainment, and gifts. If you overspend in any of these areas, consider using cash.

3. Find the method of tracking spending that works best for you. Samantha was tracking her spending with a great budgeting tool that she thought was too much work. She switched to her online banking budgeting tools, which streamlined the budgeting process for her. Her bank offered a robust app so she can stay connected to her budget online.

Consider how you want to access your info. If it is through your smartphone, consider online apps. If you want to not only budget but review investments and tackle debt, review online tools that can help you. If you are not sure where to start, consider doing what Samantha did and start with your bank’s online programs.

Remember to be patient when you start a new budget. There is almost always a need to make adjustments during the first three months. Hang in there and you will be a budgeting guru in no time!

Don’t Ignore Your Symptoms

October 10, 2016

“…the upside of painful knowledge is so much greater than the downside of blissful ignorance.”― Sheryl Sandberg

Do you ever get that nagging feeling that something isn’t right with your finances? Should you brush it off or dive deeper? On the blog today, my fellow planner Cyrus Purnell, CFP writes an intriguing guest post about the importance of not ignoring your financial symptoms:

Are you getting that nudge that things are not working the way they should in your finances? Don’t wait until a problem shows in your credit report or as a shortage in your checking account. Take the time now to diagnose where that nagging feeling is coming from.

I came into 2016 not feeling my best. I was tired all of the time. I was always cranky. My kids were walking on eggshells. I was sick more often.

I went in for my annual physical and there was no sign of anything wrong in all of my tests. But the way I felt told me something was wrong. When I would talk to my doctor and peers about it, their answer was pretty simple, “Oh Cyrus, you are just getting older.”

Thankfully, that answer was not good enough for me. I took steps to investigate why I was not feeling well. I began looking into everything from what I was eating to what time of day I was eating it. I started tracking my sleep. I plunged into reading blogs and listening to podcasts about health.

I finally figured out the culprits and gradually felt several years younger. I am convinced that if I stayed on the road I was on, the way I felt would eventually show up in the form of a bad diagnosis. While I did not enjoy feeling the way I was feeling, the discomfort probably saved me a lifetime of issues.

On paper, you may not be financially sick. Your income may be more than your bills, your credit score may qualify you for anything you want to purchase and when you compare your financial situation with your friends and family, your circumstances may look fine. In spite of all of this, you may still have anxiety about where you are financially. You may be experiencing financial stress.

In our own 2016 Financial Stress Research, we uncovered that 85% of us are experiencing some financial stress. Our research also showed that unmanaged financial stress can result in problems like depression, hours of lost sleep, and overeating. It is at the onset of financial stress, before it becomes unmanageable, that you want to take steps to do something about it. You can start to alleviate financial stress by taking a C.A.L.M.™ approach to cash management:

Create a plan. Create a new plan to manage your cash, calculating necessary expenses and establishing a way to track them. A financial coach, such as a CERTIFIED FINANCIAL PLANNER™ professional, a financial or credit counselor, or an employee assistance program counselor, can provide assistance as needed.

Automate bill payment and savings. Put everything you can on autopilot, setting up automatic bill payments for monthly expenses and transfers to emergency and other savings.

Lower nonessential spending and debt. Track expenses for several months, looking for opportunities to reduce spending on nonessential items and to make extra payments on debt.

Make progress. Make progress by focusing on small, achievable goals, accomplishing one before moving on to the next.

Don’t ignore your symptoms. Look at the early stages of financial stress as a gift. By paying attention to the early discomfort of financial stress and following the C.A.L.M. approach, you can meet the source of your financial stress head on and save yourself from a more difficult recovery down the line.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here and on Twitter at @cynthiameyer_FF.

 

How to Be Better With Money

September 16, 2016

The NFL season is underway, and I’ve seen more purple in Baltimore recently than I have in months. Everywhere I go, I’m seeing enthusiastic fans getting ready for the upcoming season. Before the first game of the season, fans of every team believe that THIS is the year that their team is going to win the Super Bowl. 31 of 32 fan bases will ultimately be disappointed. But at this time of year, hope springs eternal everywhere (except maybe Cleveland!)

I see the same “Let’s Get Started” level of enthusiasm from people who tell me that they have been a bit of a mess financially in the past but are ready to make progress now. I’ve heard countless people say “I’m bad with money” or “I have no clue what I’m doing financially.” I refuse to believe that they can’t, in a few quick and easy steps, develop lifelong habits that will take them to a place of financial security. I refuse to allow them to speak poorly of their financial habits.

I ask if they have ever played an instrument or a sport or any type of art. Almost everyone has tried something like that at some point in their life. I ask them to go back to their very first day of playing the clarinet or saxophone or whatever it is, and they laugh at just how terrible they were on that first day.

After I get them to talk about how they went from horrific to actually having a clue about what they’re doing, they understand that managing money is merely a skill that they haven’t practiced yet, and today is day 1 of their new talent coming to the surface. At that point, there is an enthusiasm that tells me they are ready. When I see and hear that level of enthusiasm, I know that they are serious about making progress.

The secret to building a foundation of financial success is keeping things simple and automating as much of it as possible. With automation, simplicity and just a little bit of work, managing your personal finances is rather easy.  Here are some steps to take:

Step 1: Get some basic facts together so that you have a starting point. 

  • This financial organizer will help you see the aerial overview of your financial life on one page.  What do you own vs. what do you owe?
  • This expense tracker can help you see how much money comes in during the month and how much goes out. With these two worksheets, you have a lot of useful data, and if you update these quarterly, you will start to see progress.

Step 2: Automate things.  

  • Contribute to your 401(k) at an amount at least up to the company match. Then, enroll in the rate escalator feature to increase your contribution by 1% annually – either on 1/1 or on your anniversary or your birthday. Just pick a day and enroll in it.
  • Open a savings account at a credit union or online bank, one that is NOT where your checking account is and get a direct deposit going there. The amount isn’t important. A $5, $10, or $20/pay deposit will suffice. It’s the momentum that’s important and the speed bump! When you have your savings account at the same bank as your checking account, it’s way too easy to log in and slide money from one account to the other.
  • A great tool for “accidental savings” is the Acorns phone app. It rounds your transactions up to the next dollar (so if pay $1.86 for a coffee, it adds $.14 and slides it over to Acorns, where you can invest in a very conservative portfolio). I “accidentally saved” a couple thousand dollars that were used as a part of my down payment on the house I just bought.

Step 3:  Stay alert and updated.

  • For your credit score, CreditKarma.com and CreditSesame.com are great free tools to stay on top of any changes in your credit file.
  • AnnualCreditReport.com allows you to get a copy of your credit reports at no cost once/year. Make sure that everything there is actually yours!
  • Mint.com can show you on a daily basis all of the transactions in all of your accounts from the prior day. (I launch that app from my phone every morning while I’m still half asleep and before I hop out of bed.) This is a great way to make sure that no one is accessing your accounts without your knowledge.
  • The financial organizer and expense tracker above are excellent tracking tools. Keep a binder full of reports that you can look back on in the future to see where you started and where you are. You’ll be shocked at the progress, and when you see it, you’ll want more of it.

For anyone who has ever said “I’m lousy with money,” I say “You are no longer allowed to say that! EVER!!!” Your new phrase is “I’m always learning to be better with my money.”   With that new phrase and these tools, you can transform your financial life in relatively short order.

What Our Planners Would Tell Someone Just Starting Their Career

September 02, 2016

Last week, I wrote about conversations I had with some newly hired recent college graduates. That post was about steps I talked about with them in our one-on-one coaching sessions   (all good stuff, if I must say so myself…and I must!) After I had written that and before it went live on our blog site, one of our other financial planners sent an email to the planning team to ask what advice they’d give someone starting their career today – a “what would you tell your 22 year old self” kind of email. Here are some of the responses from our planning team along with some of my editorial commentary (in italics):

Create a budget. I despise the word “budget.” I prefer “spending plan.” Figure out how much money is coming in and develop a spending plan that comes in well below the cash inflow.

Create a plan to move up or out of your current position in 3 years to stay relevant and in control of your career and salary. Always improve your skill set and fight for your own career. No one else will do it for you.

Start a side business based on your passion to help accelerate your debt payoff, increase savings and fund other financial goals that your salary might not cover. That side business could turn out to be what becomes your full time pursuit and source of greatest wealth in the long term, but you won’t have that chance if you don’t ever start it.

There is no need to show off to your friends because you are the one that landed the new job with cool title. The people with the flashy cars and lifestyle are usually either getting support from family members or are fueling that lifestyle with lots of debt.

Build friendships with those that are financially like-minded and encourage each other. It’s hard to be the only one that orders water instead of drinks almost every time you go out because you are the only one that has a spending plan. Don’t let peer pressure cause you to lose your spending discipline.

Use the same creative mindset you had in college as it pertains to money. If you could figure out a way to have a great weekend and only spend five bucks back in school, why should it change now that there is income. I joke that I had more cash flow when I was a starving college student than when I was a professional financial planner with a great job.

Get on a plan ASAP to pay off any student loans. It definitely needs to be a part of the budget. A time frame for them to be paid off would be best. Don’t just elect deferment or forbearance because it’s an option. Truth.

Set up an intentional savings account, even if it’s just $25 to start. Set up a transfer of at least $25 a paycheck to get in the habit of seeing how painless it is. Then boost it to get to $2,500 within the next year. An emergency fund can prevent the need to tap into credit cards when the car needs brakes and tires.

Don’t take on a deluxe apartment or mortgage until the student loans have been dealt with. They’re a mortgage in their own right. Live way below your means. Americans spend way too much on housing as a rule.

Get the match at work at the very least if you have student loans and try for 10% or more deferral if you don’t have student loans or after they’re under control. Early saving is HUGE in your financial future.

Be thoughtful about what you spend your money on. You work hard for it. Set a 30 minute weekly money meeting with yourself to go over your finances. Whether you’re just starting out or have been in your career for decades, this is just flat out solid advice.

This is a lot of info, but it’s an especially useful list for recent grads just getting started. The decisions they make now will have a huge impact on the rest of their financial life. My daughter is beginning her senior year of college so in less than a year, she’ll be graduating, and I’ll be printing out this blog post and last week’s to help her get her financial life started in the best way possible.

 

 

4 Financial Moves I’m Glad I Made in My 20s

August 31, 2016

It’s easy to dwell on the shoulda, coulda, woulda’s of our past – those things we wish we’d done differently. But I’m also a big believer in reflecting on what went right! After all, if history is bound to repeat itself, wouldn’t we want the good stuff to repeat as well? So here are the financial moves I made in my earlier years that I would be glad to repeat.

Contributed to the match in my 401(k) since day 1. It’s worth noting that with my first two employers, I actually didn’t get to keep my full match as I left the companies before I was vested, but I still had the money I’d saved to start my nest egg. I also had the established habit of saving as I went on to higher-earning jobs, where I eventually qualified for and got to keep the match. So even if you’re quite certain you won’t be around long enough to keep matching dollars, you should still save enough to earn it. You never know when plans might change, and it’s silly to give up the chance at free money. Isn’t that why we buy lottery tickets?

Aggressively paid off credit card debt. There have been two occasions in my life when I used credit cards to get through times of income challenges. Both times I also reached a point when it was time to pay them off, and I committed to an aggressive monthly payment in order to eradicate the debt as quickly as possible. I also put any windfalls toward the debt, including things like tax refunds (Remember the “stimulus” checks we all received in 2001? Mine went straight to VISA), work bonuses and freelance income. I also made sure my spending reflected my desire to get out of debt and saved the luxuries as my reward for financial dieting. The Financial Finesse Debt Blaster calculator is a great way to make a debt pay-off plan.

Participated in my employee stock purchase plan. I’ve worked for three publicly traded companies that offered employee stock purchase plans, which basically allow employees to buy stock in the company at a discount through payroll deductions. This is another example of free money but was also a fun way to build up some side savings that made me care a little bit more about how my company did beyond just my own job. I never invested more than I could afford to lose, so in all three cases, I was just saving a small amount, but it was worth it to have that little investment nest egg that I could access before retirement. Caution though: make sure that your investment in any one company doesn’t exceed more than 15% of your total investments. If your employer match goes into company stock too, keep an eye on when you may need to diversify out of the stock.

Earned my BODYPUMPTM certification. What the heck does teaching a fitness class have to do with finances? Well, since I became a certified instructor in 2005, I’ve not had to pay for a gym membership, plus I get paid to work out. It’s not a ton of money, but it’s better than paying to work out! I try to make the most of it by transferring 50% of my BODYPUMPTM pay into a separate savings account. I can’t quantify the health benefits of teaching three times per week, but suffice to say, I probably wouldn’t make it to the gym more than once a week if I wasn’t paid to be there, so it’s worth it for the health benefits too.

How about you? What financial moves did you make early on that are paying off today? Please share them with me on Facebook or Twitter.

Did you know you can sign up to receive my blog posts every week, delivered straight to your inbox? Just head over to our blog main page, enter your email address and select which topics or bloggers’ posts you’d like to receive. Obviously I suggest at least ‘Posts from Kelley.’ Thanks for reading!

 

 

My Advice to Recent College Grads

August 26, 2016

At one of our client sites, I was able to meet with about a dozen new hires, all of whom are very recent college graduates. They are starting their first “real jobs” and want to get their financial lives off on the right foot. During training, it was suggested that they sign up for a one-on-one financial coaching session, and many of them took HR up on that suggestion.

I had a blast during those sessions because most of the kids (yeah, I’ll call them that because I have a daughter roughly the same age) who came in said that they had no idea how to handle their new income. They were fine while in college, working summer jobs or some part-time jobs during school for spending money. But being out in the real world, with real responsibilities like bills to pay and student loans coming out of deferral, was a wee bit scary for many of them.

While they all had different incomes and amounts of student loan debt, there was a lot of common ground with this group.  My daughter is only a year behind them, so I can already see the conversation we are going to have next summer when she lands her first job. In that discussion, I’ll ask her to do a few of the things that came up in the sessions last week.  For recent college graduates or anyone looking to get their financial life started on the right track, here are some principles and tools that I think can help build the foundation of the financial life that should lead to long term financial security.

Spend less than you make and know where your money goes.

Mint is a great free tool to track spending. With the alerts feature, get a text message when you hit your monthly budget for one or two “hot spots“ in your budget (where you think you might overspend). The Mint app on my phone is how I start almost every morning. You can also go old school Excel with this Expense Tracker. However you do it, understand where your money is going and make sure that you spend less than you make.

Automate your savings.

Make sure that you are contributing to your 401(k) in an amount that is equal to or greater than your employer’s match.  If possible, get your contribution plus the match to be 15-20% of your compensation. If you can’t do that right away, enroll in the rate escalator feature of your 401(k) or make it a habit to increase your contribution by 1% every time you get a pay increase.

Set up a savings account in a bank or credit union that isn’t your primary bank. The goal is to create a speed bump between you and your money so that the savings grow all the time. Once the account is set up, get a direct deposit (something small like $10, $20, or $50 per pay so that it’s not a burden) going into that account with each paycheck. That’s going to be your long term emergency fund and perhaps the down payment on your first house.

Always know your credit score.

No one should ever have to pay for their credit score. That’s a sentence that I firmly believe. The good news is that with free services offered by Credit Karma and CreditSesame , you can track your credit score and see your credit reports at any time.  (Checking your own score is NOT going to count as an inquiry and have a negative impact on your score.) Both sites also have great alerts, phone apps and tips for how you can increase your credit score over time.

Pay down debt rapidly. Debt is NOT your friend.

Use this Debt Inventory to keep a record of who you owe and how much. Enter your current debts and save it as “August 2016” debt. Then when you get your next batch of statements, update the sheet and save as “Sept 2016.” Update until they are at $0. Print them out so that you can track the progress you’re making on a monthly basis.

Pay only the minimum on all debts except the one with the highest rate of interest. Circle that one with a red pen and consider it your enemy. Throw every ounce of financial energy you have into eliminating that debt. When it’s gone, lather – rinse – repeat.

As the foundation of a long term secure financial future, these steps will help get you to a place where you’re never really worried about money. While they look very simple (because they ARE!), most people that I meet with are not doing these very basic steps. If you start your career with them, you will get your financial life well ahead of most of America and of your peer group.

 

 

A Debate on 401(k) Loans

August 04, 2016

Asking questions and challenging assumptions are important components of financial self-defense. That’s why I was glad to see one reader take the time to raise some interesting points contesting some of what I wrote a couple of weeks ago in a blog post called “The Hidden Downsides of a 401(k) Loan.” Since other readers may have similar concerns, I thought it would be useful to address them. Besides, I love a good, friendly debate! Here are the 401(k) loan downsides from the original post, the reader’s critiques, and my responses:

Downside #1: You lose out on any earnings:

Critique: “You are wrong because the 401(k) loan continues to be a plan asset – bearing a fixed rate of interest. Instead, you should have encouraged her to reallocate so as to maintain her asset allocation (equity position) – treating the 401(k) loan principal as the fixed income investment it is.”    

My Response: Yes, it’s true that the 401(k) loan continues to earn a fixed interest rate, but that’s interest you’re paying yourself. If you take money out of your savings account and then pay it back with “interest,” I wouldn’t call that earnings. Reallocating the remainder of your 401(k) balance is an interesting idea though that could help make up for the lower earnings.

Downside #2: Your payments may be higher.

Critique: “Are you seriously suggesting that a cash advance using a credit card (with interest rates of 15% – 30% or more) is a better liquidity solution because the minimum monthly payment might be less if you stretch repayment out over 20 – 30 years instead of 5 years?  That is so obviously bad financial advice I don’t know what to say.”     

My Response: I certainly wouldn’t say that a credit card cash advance is generally better than a 401(k) loan. I’m simply pointing out that using a 401(k) loan to pay off high-interest credit card debt could actually increase your cash flow problems because the payments on the 401(k) loan may be higher than the credit card debt.

Downside #3: You also can’t eliminate a 401(k) loan through bankruptcy.

Critique: “Are you are suggesting that when entering into a debt obligation, one consideration should be that if the combination of mortgage, car and 401(k) debt become unsustainable, you should anticipate being able to stiff the creditors? Remember that a plan loan is secured debt, secured with your vested assets. So, you can default on a 401(k) loan anytime you want (just stop repayment) – you don’t even have to declare bankruptcy.  However, I am not sure why you would want to stiff yourself.”

My Response: I’m suggesting that if you’re considering filing for bankruptcy protection, you may not want to use a 401(k) loan to pay off debt that would otherwise be discharged in the bankruptcy. (As for “stiffing creditors,” keep in mind that creditors assume the risk that you may employ this legal protection and charge higher interest rates accordingly.) It’s also hard to default on a 401(k) loan when the payments are withheld from your paycheck.

Downside #4: You may not be able to take another loan.

Critique: “Really. If the plan only provides for a single loan, your recommendation is to borrow all you can and put the amount you did not need at this time into a passbook savings account or a money market fund? That is almost as bad as your recommendation concerning credit card debt. However, I will agree with you that this is one likely result where, based on “expert” advice, plan sponsors amend their plans to limit access to a single loan.”  

My Response: If you’re going to take your only allowable loan and have no other emergency funds, you might want to borrow more than you need and put the remainder in savings. This can help you avoid accruing high interest debt or even worse, missing car or rent/mortgage payments in the event of an emergency. At least with a 401(k) loan, you’re paying yourself the interest.

Downside #5: You may be subject to taxes and penalties if you leave your job.

Critique: “The better response is for the plan sponsor to amend the plan to permit repayment post-separation. In the 21st Century we call this electronic bill payment. Your response confirms that service providers/recordkeepers have failed to keep pace with 21st Century electronic banking functionality.  The other response is to prepare for any potential change in employment by obtaining a line of credit.”

My Response: I agree that plan providers should offer electronic bill payment after leaving employment, but if your employer doesn’t, you need to be aware of the risk of getting hit with taxes and early withdrawal penalties on the outstanding balance. Also, lines of credit can be cancelled. This is even more likely if you lose your job or if the economy is weak, which are two times when you’ll probably need it.

Downside #6: You’re double-taxed on the interest.

Critique: “When you receive a payout of interest earned on investments, it is taxed just like interest on any other fixed income investment. In terms of tax preferences, if you secure the plan loan with a mortgage, the interest you pay on your plan loan may be tax deductible. And, importantly, if the plan loan is secured with Roth 401(k) assets, the interest you pay may be tax free at distribution – just like it would be for the interest received on any other fixed income investment where Roth 401(k) assets were the principal.  So, no, interest is not “double taxed”.”

My Response: I agree with the point about interest from Roth 401(k) accounts not being double-taxed. However, most 401(k) accounts are pre-tax and so the interest will be taxed on the interest when it’s eventually withdrawn. Since that interest was paid by you with money you already paid taxes on, I would call that “double taxed.” That’s one reason why the loan isn’t completely free (the other being the lost earnings from point #1).

Conclusion: The employee I was talking with decided to dip into her savings rather than borrow from her 401(k) due to the double taxation of her interest.

Critique: “Since she could take out multiple loans, there was an “emergency option” even if she borrowed this time. And, assuming the tax status of interest paid to the condo was the same as the tax status of interest paid on a plan loan, the calculation you should have performed was whether, after the loan was repaid, her total net worth (inside and outside the plan) would have been higher. In this case, because the condo rate was 3.75%, she might have been better off using that liquidity option – but nothing in your response suggests you proved which alternative was superior.”

My Response: I do think her choice was the most likely to maximize her net worth the interest she gave up on her savings was less than the the 3.75% the non-401(k) loan would cost her and what her 401(k) could be expected to earn (plus the taxes on her interest payments). That’s why she made the decision she did.

Final point: Finally, don’t forget that the real purpose of your 401(k) is retirement.

Critique: “Your suggestion is that people should avoid using plan assets for any purpose other than post-employment income replacement.  However, if you (self-) limit liquidity, people will only save what they believe they can afford to earmark for retirement.  Those who limit their saving by earmarking money for retirement are more likely to fall short of their savings goals. Importantly, reasonable liquidity access has been shown to increase (not reduce) retirement savings.”

My Response: I’m simply saying that you should understand both the pros and cons before taking a 401(k) loan. In some cases, the 401(k) loan may indeed make the most sense. However, I do think that the 401(k) is not the best vehicle if you’re saving for liquidity. After all, putting your emergency money in your 401(k) could leave you short in an emergency since you can generally only borrow up to half of your vested balance (up to $50k) and the loan will have to be paid back at a time when money might be tight. Saving first for emergencies in something more accessible like a savings account is not going to make or break your retirement.

None of this is to say that 401(k) loans are always a good or bad idea. It all depends on the situation. Just make sure you’re making an educated decision even if it means having a little debate with yourself (or a qualified financial professional).

 

 

7 Signs You’re Living Beyond Your Means Even If You Can Pay All Your Bills

August 03, 2016

I’m pretty sure most people understand that the first step in achieving financial security is to spend less than you make. Sometimes easier said than done, but it’s the only way you can save any money and avoid high interest credit card debt. What a lot of people don’t get though is that just because you’re able to pay your bills each month, it doesn’t mean you’re not living beyond your means. If your bank account balance gets dangerously close to zero right before payday, you’re not “getting by,” even if you don’t overdraw and are technically making ends meet. Here are 7 other signs you’re living beyond your means, even if you are able to pay all your bills on time, and what you can do about it:

1. You’re not paying off your credit cards every month or you don’t have a plan in place to pay them off. Use the Debt Blaster to get a plan going and then stick to it.

2. You don’t have an emergency fund. This is your first line of defense against long-term financial issues. Get started on this ASAP.

3. You say you can’t afford to do that thing you really want to do. This was actually the wake-up call for me to realize that I was living beyond my means even though I was making ends meet. I really, really, really wanted an iPad and a new bike, which added up to about $1,000. I said I couldn’t afford it and yet I was spending that amount monthly on dining out and booze. If you tell yourself you can’t afford something you really want, and that thing would be reasonable for someone of your income, lifestyle and life stage to have, that’s a sign you need to examine your spending and start living within your real means.

4. Unplanned expenses like a traffic ticket or a family member’s destination wedding send you into a tailspin. If the first thing you think of when you hear a cousin is getting married at an all-inclusive resort in the Caribbean is, “How rude! I don’t have the money for that!” you are not “making it” financially. There needs to be wiggle room in your cash flow for things like this. Here’s a good way to plan for it.

5. You’re taking out 401(k) loans to pay off other bills. Even though you’re paying interest to yourself, this is still a form of debt. If you’re borrowing against your savings, you’re not living within your means.

6. You’re not on track to retire at 65. Ideally, you’d be financially able to retire before you are mentally ready, but 65 is a good age to shoot for if you’re still in the earlier parts of your career. Here’s how to find out if you’re on track. If you’re not, the earlier you start saving, the sooner (and easier) you’ll get on track.

7. A job loss or medical emergency would severely alter your future. If going without even just one paycheck would send you into late fees with all your bills, it’s time to get a system in place that helps you save for these unexpected events.

The best and easiest times to escape the paycheck-to-paycheck lifestyle is when you experience any type of windfall like a tax refund, an unexpected bonus or even just your annual single-percentage increase at work. Be strategic with that money and use it to find some space in your finances, rather than just adjusting your spending to match. You don’t have to wait for a windfall to do this though. Even just a small change each day that you mindfully use to put away a little extra adds up.

 

Building a Strong Financial Foundation

August 02, 2016

One of my favorite things to do is to talk to employees or honestly anyone about their finances. I find that some of the best guidance I give comes from other people. I also get a lot of insight as to why people find themselves constantly in a financial hole.

As I was doing a series of financial consulting appointments, I started to notice a trend in people wanting to make the right financial decision but not in the right order. My mantra to all is to look at building your finances like building a house. If you do not lay the right foundation, your house will crumble at the first sign of stress. For instance, if you start paying off debt with no savings, eventually life is going to happen and you will either have to stop paying on your debt to take care of the emergency or worse, get into even more debt because there was no cash to take care of the expense. Here are some steps to lay down a strong financial foundation:

1. Create and stick with a monthly spending plan. The greatest resource you have to help you achieve your financial goals is your income. If you do not have a written plan for how you are going to spend your income, you may overestimate how much you can spend and have nothing left over for emergencies.

Having a monthly spending plan is an important foundation to your finances because you need to know how much money you really have to use towards goals. It will also give you insight into how much you need in savings and how much you can actually save.Consider using websites like Mint to create a realistic spending plan to account for your spending.

2. Have an emergency savings account. An emergency fund is a foundation to a great financial plan because it makes sure you can take care of the unexpected like paying your mortgage if you suddenly lose your job or replacing your transmission without having to go into debt. I actually label my emergency savings account as “debt free insurance.” I found labeling the account is a constant reminder to my husband and myself that the purpose of it is to protect us from having to use debt to cover emergencies. This also prevents us from getting tempted to use this account for non-emergencies.

If your emergency account is at ground zero, break up your goals. First, shoot for a goal to get $1,000 into the account as soon as possible to cover minor emergencies and then set a goal of at least 3 months of expenses. Consider setting up automatic payroll deductions to reach your goal.

3. Pay off high interest credit card debt. For many that carry high interest credit card debt, they will save more money by paying off the 13-20% interest than they will make in an investment averaging 6-10%. No debt also means that your money can go towards your financial goals and not your creditors’ bottom line.

I had a meeting with a wonderful young woman who was contributing regularly to a Roth IRA but was carrying credit card balances with over 20% interest rates. I told her the best investment she can make is to pay off her credit card. We used the DebtBlaster Calculator to come up with a strategy to pay down her debts. She was surprised that she could pay off her debt in less than ½ the time by paying off her higher interest rate first, adding an extra $100 a month and committing ½ of her average tax refund amount to her debt.

As you look to getting your house in order, make sure you lay a foundation that can withstand the test of financial stress. It may not be fun. However, your foundation will help you withstand the financial crisis that will inevitably come and help make sure that whatever else you build does not buckle at the first sign of financial stress.

 

Are You Taking Good Things Too Far?

July 29, 2016

The latest craze that has swept my family is the Pokémon Go app. My kids run around trying to “catch” Pokémon at different locations. I’m happy they are outside and active, but I have to admit that I don’t have the foggiest idea why they consider this even remotely fun. They walk around and occasionally ask me to take them to a nearby neighborhood so that they can catch these things. (I use “catch” liberally because it’s all virtual, with no one really catching anything.)

They can catch their Pokémon thingies while I sit at an outdoor table at a local coffee shop. I find it a little strange, and in a horrible twist to this silly game, criminals are now setting up shop near Pokémon characters and robbing unsuspecting game players. What started as a fun thing has turned into a fun thing that needs to be used with caution because of some unanticipated consequences. A lot of things that start out as a purely positive have some unintended consequences that create some negativity.

I’ve seen that with a few people recently. I’ve had two meetings with people who are doing a wonderful job of saving for retirement. They ran retirement projections and learned that they needed to pick up the pace as it relates to saving for retirement. They cranked their contribution percentage WAY up so that they could catch up to where they think they should be. That is 100% admirable, and they are operating with the best of intentions.

Their unintended consequences? Both of them are saving so aggressively in their 401(k) that they are struggling with day-to-day cash flow. One is depleting his savings account on a monthly basis just to cover basic living expenses, and the other is using a credit card for groceries in the last few days before her paydays. A noble effort to save for retirement has taken a somewhat sinister turn in these examples, and I’ve had to have a few “I applaud your effort, but maybe it’s one step too far….” conversations.

The good news is that they realized that they may have gone a bit too far, and when we talked about bringing the 401(k) contributions down just a bit in order to make day-to-day cash flow a bit more manageable, they were completely receptive. In each conversation, we had a nice laugh at how some good things can be taken too far. (If you don’t believe that, see how many chocolate chip cookies you can eat before you start to feel like it’s been one too many.)

The lesson here for all of us is that after a few cookies, it makes sense to stop and catch your breath. The other lesson is that some great financial behaviors can be taken to an extreme. Are you saving so much for retirement that you aren’t able to enjoy the here and now? I’ve heard so many stories about people depriving themselves of life experiences in order to save for retirement, only to die just prior to retiring. Are you spending so much in the here and now and enjoying life experiences that you are woefully behind the curve for your retirement goals?

Neither is a good place to be. What’s the old phrase? ”In all things, moderation.”

Even good financial behaviors should be used in moderation! If you’re wondering if you’re taking something just a bit too far, chances are that you are. Whether you ask a financial professional or just hit our Facebook page and ask, get another perspective on your situation to make sure that you have all of the moving parts in your financial life working together.

 

What To Teach Your Kids Before College

July 26, 2016

This time of the year is brimming with the excitement of future college freshmen over their new adventure. Talking to them is fun – hearing about their hopes, dreams and expectations of their freshman year. The more I started listening, the more my excitement wore off and disbelief settled in. I started to realize that some parents have this expectation that they can teach their kids zero about finances, give them an account with a few thousand in it and expect their kids to become financially responsible and budget properly. Here are some tips to follow instead:

1. Summer jobs are great economic teachers. If your student has a summer job, use it to teach your child invaluable lessons such as what their future careers may be for life if they drop out of college with no plans, that the gross vs. net difference in a paycheck is big and guidance on how to budget their money. Use websites like Mint, YNAB, or even the budgeting tools where you and your family banks to help your child create a budget.

2. Show your child the economic realities of college. Most people think about tuition, books and room and board. To some degree, that is only the beginning.

Every organization, fraternity or sorority your child is thinking about joining may have a fee, some to the tune of over $600 a semester. There are also those pesky fees like student health center fees, student activity fees, orientation fees, new student fees, technology fees and whatever other fees the college thinks up to charge. Use checklists like this one as a guide to possible costs.

3. Come up with an “oops I screwed up plan.” Okay, let’s be honest. None of us were financial wizards when we went to college. A lot of us overspent in our attempt to fit in and alleviate home sickness. Talk to your child before they mess up about how you will handle it the first time and come up with what you will do if they make the same mistake twice.

One of my friend’s parents told her daughter that she would consider the first time she makes a financial mistake a lesson learned. The second financial mistake will result in the “Bank of Mom” shutting down. My friend figured that at worst, her daughter would still have food from the cafeteria to eat, a dorm room bed to sleep in and feet to walk to class.

Don’t wait.Working on a contingency plan now will save you from unnecessary and probably emotionally charged conversations in the future. Take the time to work with your kids on a financial plan for college to not only save your wallet but to save your sanity.

What to Do When You’re Expecting

July 19, 2016

When my husband and I got married, we wanted children, but we had to face the reality that it would be difficult to have children due to prior medical issues. Apparently, God had a different plan for us and I found myself surprisingly pregnant within two weeks of trying. We were happy with the news but after the joy wore off, I started putting on my planner hat to figure out how to plan financially for the new baby. I’ve always believed in learning from other people’s experience, so I started asking friends of mine who were parents what financial guidance they would give to a woman pregnant with her first baby, knowing what they know now.  The list started pouring out:

1. There are enough surprises to being a new mom without medical bills being one of them. Contact your healthcare provider to find out how you are covered for medical visits, including vaginal and c-section deliveries and well-baby care. Once you have the numbers, consider increasing your contributions into a health savings account (HSA)  or a flexible spending account (FSA) to cover the costs with pre-tax money.

2. You only get one time to be a first-time mom so take all of the leave offered to you. Contact your employer to clarify how much time you can take off and how much you will get paid during the time off. Many companies offer paternity leave so find out the rules for the baby’s father as well. If the leave is unpaid, figure out how much time you want – factoring in that you may want to take leave before the baby comes and/or your bundle of joy may be late (mine was almost two weeks pat due) into your numbers.

3. What is your ideal maternity leave? Do you have lots of friends and family to help out or do you need to outsource? If you are the primary cook of the family, do you need to budget an eating out, food delivery or frozen food budget? Do you want a nanny or baby nurse to help you out? Would you like a cleaning service to help you for the first few weeks?

Start thinking about what costs are involved in each of these options. Delivered prepared meals can run over $300 for two a day. A baby nurse could cost upwards of $200 a day. Average cost of maid services can run upwards of $157 for the service. If your budget is tight, consider asking for frozen meals or even for people to pitch in and pay for a cleaning service as part of your baby shower gift or reach out to your local place of worship for help.

4. Once you have your numbers, start to work on a budget for when you are on maternity leave as well as a budget for when you return to work.  Account for possible medical costs, any gaps between your pay before maternity leave, and the costs that come with a new baby – endless diapers, wipes and if needed, formula. After you go back to work, you’ll also have possibly new work clothes (it took me forever to fit back into my pre-baby clothes), daycare (for a year, I called my daughter my little mortgage payment) and additional doctor visits. Any parent with kids can tell you that with the first baby, as soon as they sneeze, you are crying and heading to the doctor. With baby number #2, as long as they aren’t spitting up blood, you don’t even bother.

5. If your budget shows a shortfall, take the total amount needed and divide it by the months you have left and that is your savings goal. Start thinking about what you can cut back on now to save the funds. Can you reduce your cable and cell phone bills and eat out less? Can you use vacation days to get additional paid time off?

What did I learn from all this? Overall, the best guidance centered around thinking through what your ideal maternity looks like, putting those ideas into tangible dollars and realistically assessing your finances to see if it is doable. Taking these few steps will make your first few months with your bundle of joy less financially stressful.

 

 

3 Reasons We Spend Beyond Our Means

June 29, 2016

While the US personal savings rate is higher these days at 5.4% than it was a year ago, Financial Finesse’s research shows that 34% of people are living beyond their means or spending more than they make. Some of this overspending is due to factors beyond their control like medical expenses or other emergencies. But in many cases, it’s more from a lack of planning ahead combined with rationalizing what one can “afford,” a measurement that is often more emotional than based in reality.

For example, when it comes to meeting up with friends after work for happy hour, I’ll go to great trouble to avoid paying $15 for parking or a taxi cab, but don’t think twice about ordering a glass of wine that costs the same. When I stop to question this logic, it sounds nuts. How can I mindlessly afford $15 for a glass of wine but schlep for several blocks from the bus to avoid spending the same amount for more convenient transportation? We make the same kinds of bargains with ourselves all the time. If you’re looking to save more money by cutting back on spending, it’s important to be aware of these three reasons that often cause us to compromise our savings goals:

1. It feels good. Emotional buying is a lot like emotional eating. When we’ve had a bad day or are tired, sad or sometimes even ecstatic, our emotional mind tends to rule out our rational thoughts. But while a purchase may temporarily lift your spirits, it won’t solve the emotional need you’re seeking to fill.

One way to overcome this trap is to build a “bad day” spending amount into your monthly budget. I have a friend who keeps a fifty dollar bill in a hidden fold of his wallet for those days. Another way is give yourself visual reminders. I keep a sign in my office that reminds me, “Until you make peace with you are, you’ll never be content with what you have.” Rather than trying to buy your way to happiness, think about what’s really missing and take the baby steps to get closer to that.

2. The Pinterest effect. Social media has taken celebrations like weddings and even simple backyard barbecues to a whole new level of creativity and even competition to have the prettiest, the hippest, and the most impressive decorations and ideas. I cannot believe the themes some of my friends pull off for their kids’ birthday parties. To me, it’s a modern day version of keeping up with the Joneses times ten.

If your 5-year old’s classmate has a farm-themed party complete with pony rides, there’s an element of peer pressure to match or better that with your own kid’s party. That’s fine if it’s part of your budget, but if it stresses you out to think of what you’ll have to pay for a bouncy house or to have a live Elsa show up to the party, take a step back and assess your priorities. Your child won’t miss what’s NOT there, and you can use the money you save toward their education. “I wouldn’t mind taking out student loans if it means my parents had thrown me extravagant birthday parties as a kid,” said no college student ever.

3. We all love a good “deal.” It’s a proven fact that when large retailers go out of business, they often hire liquidation firms who come in and actually mark up prices so that they can “discount” them in an effort to clear items out of the store. They’re banking on buyers’ perception of getting a deal and it works. Same goes when you’re shopping online and buy more simply to qualify for free shipping.

When you find yourself buying something that you weren’t actually seeking out, take a pause and first consider whether it’s something you need and can afford. Try to fast-forward in your mind to the next time you’re cleaning out your closet or packing up to move and whether you’ll be glad you have that thing or wish you hadn’t purchased it. If you do decide it’s something you need, then do a quick check on your smartphone to make sure the price is actually a deal. Stores call this “showrooming,” which means they hate it when people do this, so try to be inconspicuous, but if you do find a lower price online, see if the retailer will honor it.

Finally, when you do find yourself overcoming the urge to spend, don’t let that money find itself being wasted somewhere else. Consider turning that victory into actual savings by transferring the amount you were considering spending into your savings. It adds up and you’ll never regret saving more.

 

The Father’s Day Gift That Keeps On Giving

June 16, 2016

Are you looking for a last minute gift for Father’s Day? Instead of another necktie that he probably doesn’t need, why not a gift that keeps on giving: financial wellness? Of course, none of us can actually give someone financial wellness, but the next best thing would be our CEO’s new book What Your Financial Advisor Isn’t Telling You.

Don’t worry. If your dad is like mine and acts as his own financial advisor, this book could still apply because much of it covers essential personal finance information that financial advisors typically don’t tell their clients like how to build wealth in the first place. (Advisors generally won’t work with you unless you already have some wealth for them to manage.) If your dad does have an advisor, the book discusses how to best work with an advisor, how to know if he has the right advisor, and how to find a new one if necessary. Specifically, here are some topics that would be particularly useful for dads:

Life Insurance and Estate Planning. These are important topics for dads because they’re still typically the primary breadwinners in their families, and men generally don’t live as long as women. To really see the value of estate planning for dads and what specific steps they can take, see this blog post by my colleague Greg Ward.

Basic Money Management:Money is often cited as a top source of stress and an issue that couples fight about. It can be particularly difficult for new parents. Among all the other challenges are the additional expenses and possibly a loss of income if one parent takes some time off work. Having a better understanding of money management can lead to lower stress and more marital bliss for both mom and dad alike.

Investing. In my experience working with couples, the husband usually manages the family’s investments. However, it turns out that most would probably be better off letting their wives handle this since research has found that on average, women are better investors than men. This is because hormones like testosterone and cortisol can contribute to more overconfidence and less patience in men, which leads them to invest more in things they don’t fully understand, take bigger risks, and trade more frequently (which costs more money). Learning more about investing from an unbiased source can help them overcome their biology and become better investors.

What Your Financial Advisor Isn’t Telling You or a similar personal finance book can be a great Father’s Day gift that benefits the whole family. At the very least, it will be sure to cost you much less than the $116 average that people spend on a Father’s Day gift. You can always use those savings to buy him a nicer tie next year.

 

 

When Not to Pay Down Debt

June 09, 2016

In her new book, What Your Financial Advisor Isn’t Telling You, our CEO, Liz Davidson, writes about how paying off debt can be your greatest investment. As they say, a penny saved is a penny earned so if you pay down credit card debt at 19% interest, it’s like earning 19% guaranteed tax-free. But as with most financial planning guidelines, there are exceptions. Here are some situations where paying down debt may NOT be your best investment:

You can’t pay your bills. If you’re in severe financial difficulty, make sure you prioritize keeping a roof over your head, your car in the driveway, the lights and water running, and food on the table even over paying the minimum on your debts. Don’t jeopardize you and your family’s basic well-being to pay down debt that you might have to liquidate in bankruptcy anyway. In fact, if you think you might file for bankruptcy, don’t borrow or take withdrawals from a retirement account to make debt payments since those assets are generally protected in a bankruptcy.

You don’t have sufficient emergency savings. To avoid the problem above, you’ll want to have some emergency savings. You should have enough cash to cover at least 3-6 months’ worth of necessary expenses.

You can consider your ability to borrow from a retirement plan or the Bank of Mom and Dad as part of your emergency resources but not lines of credit since they can easily be cancelled, especially if you’re in between jobs or the economy is weak. This money should be someplace safe like a savings account or money market fund. Yes, the interest you’ll earn is probably much less than the interest you’re paying on debt, but how do you value avoiding eviction or foreclosure on your home?

You’re not contributing enough to max your employer’s matching funds. The only thing that beats saving 19% interest is earning 50% or 100% on your money. If you’re not maxing the match, you’re leaving free money on the table and getting behind on your retirement saving.

Your debt is costing you less than 4-6% in interest. If the interest on your debt is below 4-6% (after any tax deductions you get for the interest), you could probably earn more by investing extra savings (particularly in a tax-advantaged account) than you’d save by paying down that debt. That’s why they call low-interest mortgages, car loans, and student loans “good debt.” If the interest rate is between 4-6%, your decision depends on how aggressive an investor you are. Conservative investors would likely be better off (and happier) paying down the debt, while more aggressive investors are likelier to earn more by investing instead.

None of this is to suggest that paying down high-interest debt isn’t generally a good idea. These are just the exceptions. If you’re able to pay your basic bills, have sufficient emergency savings, are maxing the matching in your retirement plan, and have high-interest debt, paying it off IS your best investment.

How to Teach Your Kids About Money With An Allowance

June 08, 2016

Do you remember the financial lessons you learned from your parents or other close adults while growing up? No doubt your own financial habits and mindset are influenced to this day by the actions and attitudes you observed as a child. This is a good reminder that your adult behavior around money will most certainly affect your children and other young people who look up to you.

One great way to have a positive influence, even if you’re still on your own personal journey to financial security, is by paying an allowance. There is an ongoing debate about whether an allowance should be tied to household chores or not, but many people agree that it’s a great way to teach children about money and financial responsibility. Regardless of whether you believe children should work for their allowance or whether it should be a gift, here are some tips to make the most of this lesson for your kids.

Be consistent. One of the greatest things an allowance can do is teach your kids how to budget, which requires consistency of income. Whether you pay weekly, biweekly or even just monthly, do it on the same day and in the same amount so they understand the value of making their money last. Caving and paying kids early could be akin to payday loans, which is the exact opposite of what you want to teach your kids.

Help them set goals. This can help them see the value of skipping short-term wants, like candy, in exchange for reaching longer-term goals like a video game. One suggestion is to require kids to put one-third of their allowance into savings and one-third toward a charitable need like an animal shelter or church, with the remaining third available for immediate spending.

Introduce them to banking. Open a savings account for your child’s longer-term savings and show them how to check their balance online, pointing out how interest (however miniscule) accumulates, allowing their money to compound. This is also a great way to demonstrate that the ‘M’ in ATM doesn’t mean “magic.” That cash gets in there somehow!

What if you don’t have the money to pay an allowance? This was sometimes the case in my earlier years, but there are still ways to pass along the lessons even if you can’t pass along cash:

1. Use a grocery allowance. Allow your kids a certain amount of the grocery budget that they can spend on special treats or even for their breakfast foods, which you need to buy anyway. I’ll always remember watching a mom do this at the store. When her son selected an expensive yogurt smoothie, I heard her explain how that was a fine, healthy choice, but if he wanted that instead of the less expensive store brand yogurt for breakfast, he would have to put back the juice he had already chosen. The trade-off was tangible and clear.

2. Keep a written tab. If you don’t always have the cash available on allowance day, simply keep a written record by adding that week’s amount to your child’s tab and then when you buy something for them, subtract it from the tab. This isn’t a bad way to go even if you do have the funds as it’s closer to the way we are paid and spend money in modern times anyway.

3. Remember that it’s often more about the practice than the amount. Perhaps you can’t afford to pay the average $67.80 per month that’s the current going rate. Even just $5 a week can teach the lessons.

These are some great ways to use an allowance to raise financially responsible adults, but I know there are others out there. How do you teach your kids about money? Please let me know via Twitter at @kclmoneycoach or post on our Facebook page.

One Great Reason to Be Optimistic About Millennials and Money

June 06, 2016

Can millennials avoid the financial mistakes of the baby boomers, like not saving enough for retirement and taking on high consumer debt? Our recent 2016 generational research report shows there are some reasons for optimism. For a first-hand account of why, I didn’t have to look any farther than Financial Finesse’s own Maneeza Hasan, our marketing manager.

Maneeza is 29 and single and recently rented her own apartment in the LA area after living overseas for a few years. She paid off her student loans early, has an emergency fund, and has made good progress in her retirement savings. Maneeza has certainly got it together more than I did when I was her age. Here’s what she told me when we sat down to talk about her financial life:

What do employers need to know about what is important to millennials?

Millennials have gone through one of the most brutal recessions in history. They desperately want to have financial stability so they can start having families, investments, houses, and more. Helping them get out of student loan debt and paying them a great salary would keep millennials at the job. Otherwise, there are a ton of other ways to make money these days, and millennials will take on all of them if that would result in the stability they are seeking.

What are the biggest financial challenges that people your age face?

I think getting a financially stable job that is enough to provide a good life is the biggest challenge. It’s very easy for millennials to be “underemployed”, and this causes a lot of necessities and luxuries to go out the window. In addition, most people get into serious levels of student loan debt trying to acquire this stable income.

When you got out of college and started working, did you feel prepared to deal with all your financial challenges? What do you wish you had known?

I was fortunate in finding a very well-paying job (even though I had to move halfway across the world to find it) right out of college. This allowed me to take care of everything (student loans, savings, traveling, etc.) very easily. I wish I had known more about taxes before I graduated. I feel like I never got any real education on how taxes work.

What’s more important to you personally, enjoying life now or saving for the future?

Saving for the future. Enjoying life now happens regardless due to birthday parties, holidays, etc. with friends and family. For me, my savings are the only thing that will help me level up into a better and better life.

Do you want to own your own home? If yes, when would you like to buy?

I would like to own my own home, but I’m wary of being tied down. The world is constantly changing these days, and it is scary to sign up for a 30 year loan. I’d pretty much just want to do it if it was a really good investment. Ideally, I’d want to buy a home once I was married, but if I was stable enough to do it on my own, I would.

How does being multilingual and multicultural influence your financial decisions?

Well, growing up in New Delhi for the first 7 years of my life exposed me to a lot of dire poverty. My family wasn’t poor, but you can see it every day in the city. Being an immigrant to ambitious parents taught me to sacrifice a lot and do what needs to get done to reach that next goal, so I’ve been raised to save, save, save.

Ironically, this saving/investing mentality has resulted in incredible experiences. Living and visiting so many countries has given me a great perspective on the financial reality most people in this world face. That keeps me humble and focused on spending my money on the things that are really important.

If the blog authors could speak directly to people in your generation, what should they say?

Just really help them develop a good game plan for gaining that stability. Most people come up with some really bad ideas that they end up having to pay for years and years. Find low cost ways to get a good job or job training, go to college, etc. Also, be patient when it comes to having their own place, marriage, kids, and helping out family.

Most people want to do these things before they are financially ready. Share basic knowledge like Roth IRAs (I’m a big fan), high interest checking/savings accounts, cheaper options for TV/Internet. Great blog posts can help get them in that mentality of looking for the next financial “hack” until it becomes a habit and a natural part of their lifestyle.

What is the biggest mistake you see twenty-somethings make with their money?

I don’t see them focused on their finances in general. Some think money is just a bad thing, and some just don’t prioritize it. They just live on what they earn and focus on other aspects of their lives. Having an “investor” mentality would make a huge difference in their lives and set them up for their thirties very well.

Do you agree with Maneeza’s assessment of millennials? Email me your comments at [email protected]. You can also follow me on Twitter @cynthiameyer_FF.

 

 

How to Manage Financial Stress in a Chaotic World

June 03, 2016

Periodically, there are times I look at my daughter’s life and think it’s a great time to be her. Right about now is one of those times. She is doing a study-abroad session in Italy, and since I travel for work a lot and know my way around airports, she asked me to take her to the airport.

We live in Baltimore and we use BWI as our “home airport” so I am there quite frequently. I knew that her flight was booked from Philly instead of Baltimore, but when I put the trip into my calendar I simply typed “Take Jordan to Airport” in Outlook about two months ago. As time moved forward, the Philly part slipped my mind, and when I put her bags into my car, I immediately headed toward BWI. 

As we got to BWI, my daughter’s face went white, and she gasped “Why are we here?” (She had been texting her classmates and making sure that she had packed everything.) It was at that moment that I realized my error.

I needed to get to Philadelphia and FAST! I fired up my Waze app, drove well in excess of the speed limit and got her to Philadelphia well in time to get through TSA and customs well for her flight. It was not a stress-free endeavor, but all’s well that ends well. It ended well, so now I’m looking back wondering if there was anything that could have prevented my “stupid human tricks” or a lesson to be learned.

Once she was safely at her gate waiting to board her plane, we had a chance to recap our crazy mini-adventure and think about how it could have been a quicker and less stressful event. She could have reminded me that it was Philly because she knows I sometimes go on “auto pilot” because of a busy calendar. I could have been more descriptive in my Outlook calendar and done a quick check-in with her before leaving the house, saying “we’re off to BWI…correct?” Just a little bit better communication could have prevented a mini-crisis.

I see this with couples that I talk to on a regular basis. They are both working hard to earn their incomes, raise their kids and plan for the future – but sometimes things get missed in the chaos that is life in today’s world. Financial stress is one of the leading causes of marital disagreements and when it becomes too much to bear, it can frequently lead to divorce.

When one spouse handles the financial affairs and the other is completely disinterested and uninvolved is when I see the stress level being the highest with couples. The financial manager often feels unsupported and the financially uninvolved partner can feel powerless or at the mercy of the financial manager. There’s a simple way to avoid that. Weekly, bi-weekly or monthly financial meetings are a great financial management tool, can be done quickly and can keep two people on the same page.

Here’s all you need for a successful family financial meeting: a calendar (I love the ones from the mall kiosks that you see every year around the holidays), 10 minutes and a pen. Since I’m single, I schedule a financial meeting with myself every other Saturday. I pull out my calendar and using June 2016 as an example, will write my “Payday” on the 15th and 30th. I’ll write “mortgage” on the 1st, “utilities” on the 22nd and every other recurring bill that I have on the date that the bill is due. There are sometimes random bills that come up and aren’t in my monthly budget like car insurance, which I pay quarterly or doctor bills if one of my kids has had a visit recently.

When I see it all laid out on my financial calendar (I don’t put anything else on that calendar and I use my phone for all of my other calendars), it helps me stay on track. I’ve shown this system to some of my married friends and some couples that I’ve worked with to help them solve their financial stress. When they see how easy it is, they promise to try it.

I’ve heard from quite a few couples that both partners, the financial manager as well as the uninvolved one, feel much lower stress levels and the “fights about money” go away or are tremendously reduced after implementing this system. For anyone who is struggling with how to reduce the level of discord around your financial life, try this easy way to engage either yourself or your partner in a discussion about money. A calendar, 10 minutes and a pen are WAY less expensive than a divorce!

The Top 5 Mistakes People Make When Paying Off Debt

June 01, 2016

As someone who has dug myself out of credit card debt a couple times, discussing the best way to get out of debt isn’t just some academic exercise. It’s sharing what worked for me, considering the fact that nobody’s perfect. However, in the process of working with people who are struggling with credit card debt, I’ve noticed some common mistakes they make that if avoided, could really accelerate the arrival of their Debt-Free Day. Here are five ways people mess up their debt pay-off plans:

1. Neglecting to address the root cause of the debt first. Most credit card debt stories start one of three ways:

  1. A job loss that doesn’t lead to any spending cuts
  2. An accumulation of unexpected expenses like vet bills, travel for family emergencies, car repairs, etc
  3. Reimbursable work expenses that come in after the bill is due and aren’t applied against the balance

Before you can really implement a debt reduction plan, you have to first address the reason you got into debt in the first place. This is typically a lack of an emergency fund compounded by living beyond one’s means.

First, you have to find a way to make sure you’re spending less than you make each pay period, while also setting aside an amount each month to build up that emergency fund. This might require temporarily canceling services like cable, taking a break from dining out or even selling a lesser-used car. Then find a way to stay within your means using something like the No-Tracking Budget.

2. Continuing to use cards while paying them off. I have seen so many people try this, thinking they would just pay off the new charges each month plus an added amount toward the old balance. It’s often driven by a desire to earn credit card rewards like airline miles or cash back. I don’t care what kind of record keeping system you try, this never works, and the resulting extra interest far exceeds any rewards you earn. You have to stop using credit cards in order to pay them off. No way around it.

3. Using low interest promo offers to pay off old cards, then running up the new card. When done correctly, using cards with promo balance transfer offers can be a great way to expedite your debt pay-off plan. Where it goes completely off track is when people either continue to use the card that was paid off or when they use the new card for purchases, thinking they might as well take advantage of the low promo rate. (See point number 2. If you really want to get out of debt, you have to stop using debt in order to get there.) Then use the Debt Blaster calculator to make your plan.

4. Worrying too much about their credit score. There are multiple factors that affect your credit score, but carrying a balance on your credit card is not required to boost your score. It’s the ratio of your balance to limit and the timeliness of your payments that matters. Besides, your credit score really only matters when you’re trying to borrow money and sometimes when applying for a new job. When working on a debt pay-off plan, the primary number you should be focused on is the total balance of your debt (and making it go down), which will naturally improve your credit score.

5. Making payments willy nilly. When little windfalls occur such as tax refunds, work bonuses or even income from a side gig, it’s a great idea to direct that money toward paying down debt. But I often see people just randomly throwing this extra money at balances without looking at the overall picture. When you find yourself with unexpected extra cash, first make sure that you have a little safety net in place to help in times of unexpected extra expenses. Once you have the safety net in place, go back to your Debt Blaster calculator and see where the payment will have the most impact on your pay-off timeline. That’s what the “New Lump Sum” field is for.

Above all, the most successful debt pay-off plans start with an actual plan. Figure out how much you can afford to pay each month toward the debt, then treat that lump sum amount like a fixed bill until all the debt is gone. Once you’ve paid it all off, you’ll already have a nice amount that you can direct toward saving for other goals.

What Climbing Mt. Everest Can Teach Us About Budgeting

May 31, 2016

Budget – the word can strike fear in the bravest soul. A budget for some is like climbing Mount Everest. Many have tried, many have perished, and the ones who get to the top are never the same again. As I was watching a documentary about Mt. Everest, the similarities between the ones who made it to the top and lived to tell about it and the ones who did not or perished are striking similar to those that successfully use a budget and those that have struggled to stick to a budget:

Unrealistic Expectations. Some of the failed climbers set unrealistic expectations about their own physical health, mental stamina and timeline to climb the mountain. Likewise, I have found one of the reasons why people fail to stick to a budget is that they create an unrealistic one. Look, you eventually are going to buy clothes and eat out. Even if it is not that often, put a dollar amount in the category. If are not sure where to start, look at your spending for last year, divide that number by 12 and use that number as your starting point for your monthly budget.

Not planning for the unexpected. Many climbers did not have a plan for how they would handle sudden changes in weather. Like the climbers, many people do not buffer what I called the “expected unexpected events.” We all know at some point our cars will need repairs and we will need to call a plumber. We just do not know when these things will happen. If you don’t  know how much to save, consider reviewing your bank account for car maintenance and home repair transactions for last year, dividing it by 12 and using that number as a starting point.

Not changing your plan. Successfully climbing Mt. Everest means making adjustments to your plan since your route may change or the terrain might take a climber longer than expected. As our lives change, the budget needs to be adjusted. Where I live in Georgia, my gas bill is higher in the winter and my electricity skyrockets in the summer. Also in the summer, I have to account for summer camp expenses. Review and adjust your budget to account for the highs and lows of your expenses throughout the year.

Of course, sticking to a budget is a lot easier than climate Mt. Everest. We can still learn a lot from it though. Making these adjustments can help you experience the “high” of financial wellness.