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.

5 Ways You’re Wasting Money by Trying to Save It

September 14, 2016

In its purest form, “saving money” means you actually take money that you’ve received or not spent, and you set it toward one of your goals. But sometimes when we try to save money by spending less, it can lead to over-spending. Here are five situations where our best intentions often backfire. Make sure you’re not falling prey!

1. BOGO: Buy one item, get the second half off – it’s so tempting, especially when it come to things like shoes and accessories! But chances are that you’ll end up talking yourself into something that you’re not crazy about just to take advantage of the deal. Plus the store is betting that you will pick a more expensive second item than you originally came to shop for, driving your bill even higher. Suddenly, a $40 purchase turns into $80, and you’re not even sure you like the bonus purchase. BOGO only works when you’re getting something free from buying something that you were planning to purchase anyway, like microwave popcorn or my favorite treat, ice cream.

2. Cheaping out at the parking meter: I know how annoying it is to feed the meter just to pop in for a cup of coffee. But those meter maids are omnipresent, and they are trained to ignore your pleas once they’ve spotted your car at an expired meter, even if you’re standing there with your keys in hand. (Don’t ask me how I know this.) Saving a dollar is NOT worth the $35 or more parking ticket that you’ll end up with when your good parking karma runs out. Feed the meter every time and for enough time.

3. Signing up for retail credit cards for the discount and then not paying them off: It’s one thing if you open the store credit card to get the discount and then pay the balance due in full. That’s smart. But only paying the minimum can negate any money saved due to the high interest rates charged. Whenever I use a store card for the discount, I either get back in line and pay off my balance right there (a lot of stores even accept debit cards for payment!) or I go home and do it online right away.

4. Carrying the wrong cell phone plan. When was the last time you checked your phone plan to make sure you’re using the best one? Carriers are constantly changing their offerings, so double check that you’re still on the plan that’s best for your usage. The last time I checked, I was able to add a gig of data for $5 less than my old plan!

5. Justifying impulse purchases because they’re on sale. Check your closet. How many items are you hanging onto because you haven’t worn them, but feel bad getting rid of them since you spent the money? I’d guess that most of those items were things you picked up and thought, “What the heck? It’s only $12!”

The next time you find yourself cruising the clearance racks, think twice. Is this actually something you need or want? How else could that money be used? Plug it into the Daily Savings calculator and see. Just $5 a day could add six figures to your long-term savings.

Finally, here’s a simple way to save a little extra money that my mom taught me: keep every five dollar bill that comes your way instead of spending it. It’s easier to stay disciplined with this if you have a plan for the savings. My mom uses hers for fun money when my parents travel. That way when she does find a good deal while cruising her favorite Ross store, it’s guilt-free!

 

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.

 

 

How This Millennial Couple Bought Their First Home Before They Thought They Were Ready

August 17, 2016

We often discuss planning for obstacles in our financial planning workshops, acknowledging that even the most perfect plans need contingencies. Life happens! So when our director of PR, Danielle, and her husband Adam discovered they were expecting their first child a few years before they had planned to start their family, they obviously had to shift some of their other plans. “Obstacles” aren’t always negative things!

Danielle shared with me that she and Adam had a 3 year plan that included purchasing their first home before having kids, so when they found out they were expecting, the home purchase plan was pushed back. When she announced they were closing on a home less than 7 months after their son was born, I had to know how they worked that out! Here’s what I learned and what we can all learn from prioritizing goals and examining our spending, in an edited interview with Danielle:

Me: When did you and your husband start thinking about buying a house?

Danielle: We’d been talking about buying a home since we got married in 2014 as part of a three-year plan, but when we found out we were having our little boy earlier than we’d planned, buying our first family home became a ‘when we can’ sort of goal that sat on the back burner for about a year. We kept saving but weren’t looking seriously and were even discussing renewing the lease on our apartment when we filed our 2015 income taxes. The straw that broke the camel’s back was our tax guy telling my husband, “You need more kids and a house” to write off as we were paying a ton in taxes. We started our search then.

Me: Did it happen on the timeline that you planned?

Danielle: Surprisingly, it happened before we had planned. We didn’t think we could afford a home or were ready for the responsibility. When we realized that we’d saved enough for the required down payment and could get a pretty low rate because of the current economy, we thought now’s the time!

Me: What were the initial financial moves you made to start the process?

Danielle: We had to get our financial ducks in a row, so to speak. First, we checked our credit scores to see what kind of a rate we could get. My husband works in mortgage, so we had a pretty firm grasp on what we could qualify for and what the best program was for us based on our income and down payment savings.

We crunched the numbers to decide what our maximum monthly payment could be and then after dreaming a bit, settled on what a comfortable payment would be, and started looking. I am SO glad we stuck to the lower amount, even after looking at some awesome homes in our peak price range! We also decided to pay off some credit cards to make sure we could qualify since my husband’s income, being commission-based, could get complicated through the loan process.

Me: Did you make any changes to your spending in order to save for a down payment?

Danielle: Yes! We had been cutting back for about a year prior to looking, like going out to eat less and cutting our cable back from the full package to a basic package while using Netflix instead. I also have a hybrid car, so I started charging it more instead of filling up for more mileage on less money. We cancelled magazine subscriptions we weren’t using, and I cancelled my gym membership because our apartment complex had a pretty nice one on the premises.

My husband and I are pretty impulsive, so saving money is hard for us, but we knew we had to change those habits – especially if we were going to be responsible for a mortgage! We have been working hard to do that and it’s paying off. We also said “NO” a lot more to friends who invited us out for social events. Not only were we trying to save more in general, we were expecting a baby so we knew saving needed to be our number one priority!

Me: What tips or tricks did you learn from working at Financial Finesse that helped in this process?

Danielle: I have learned so much about simple ways to save money that can really equal large amounts of savings. I remember sitting at the counter with my husband and talking about where we could cut back. At first, it felt like nowhere!

But when we really began to break it down, we found hundreds of dollars every month we could save. That was pretty cool. I’ve also learned a lot about using credit wisely and keeping your debt to income ratio balanced, which paid off in the home buying process.

Me: Was there anything you wish you’d known before about buying a house that you have learned?

Danielle: Yes! I didn’t realize how difficult it is to buy a home in a competitive market like Southern California. It was extremely frustrating and at times, I couldn’t help but feel like the industry is pretty biased in some areas.

We were finding it was hard to even get our offers looked at. We were beat on several homes by all-cash offers, which is to be expected. What caught us off guard was that we were being completely overshadowed by offers that were being written by an agent acting as both the selling and buying agent.

This seemed crazy to me. How is this legal? It made it impossible for anyone who wasn’t working with the selling/buying agent to get a look.

When we lost a home we really wanted because the agent held off on even showing our offer to his client in order to give his buying clients a chance to put theirs in first, we learned our lesson and ended up going through the selling agent ourselves on the home we finally did get. As a result, we had to pay our agent outside of contract for all of his work with us AND the selling agent for getting our offer accepted. We were so desperate at that point, we went ahead with it, but if we weren’t needing a home (our lease was up in 3 weeks at this point!) we probably wouldn’t have done it.

Me: How does this change your financial picture going forward?

Danielle: It has helped us lay down our roots to really start planning for our future. We look around our new place and think, “Wow this is ours!” and it feels so good to not be paying someone else’s mortgage! Now that we have a home with a comfortable payment, we are focused on saving for our son’s education, preparing for more children and saving for our retirement someday. It was definitely the right decision for us even though we didn’t anticipate making the move for another year.

Me: What words of advice do you have for other young families who are thinking about buying their first home?

Danielle: Do your research. Don’t rely on what listing agents are sending or telling you. Go to open houses yourself and talk to the agents.

Get a scope of what the seller is looking for. It’s always good to get as much information as you can about what you’re going into. Compare loan rates at different financial institutions and ask about first-time home buyer programs.

Also, don’t skimp out on the inspection! My husband and I spent nearly $1,000 on three different home inspections because we decided to go with a very thorough inspector instead of a cheaper, less thorough one. As a result of what he found, we backed out of two homes that would have ended up being financial nightmares for us down the road.

Finally, start saving now. We didn’t honestly think we could buy a home this soon after having our son, but saving was pretty painless, and it wasn’t nearly as hard as we expected to cut back on things we rarely used anyway. Pick 2-3 small expenses you can cut and start there. You’ll find that it’s kind of fun to see how much you can save every month!

Thank you so much to Danielle for sharing this experience and wisdom! For tips on applying for a mortgage, check out Five Things to Know About Applying for a Mortgage. Now you tell me – what things did you learn as you saved and shopped for your first home? Anything you’d do differently? Please email me, share on our Facebook page or send me a tweet @kclmoneycoach.

 

 

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.

 

 

3 Lessons Millennials Can Learn From Previous Generations

May 26, 2016

With the recent release of our research report on the generations, our current Think Tank Director and former Financial Finesse blogger Greg Ward makes a second appearance to discuss what millennials can learn from previous generations…

I recently received an interesting call from a young woman asking how much the average person her age has saved for retirement. She was 35, and while I understand the nature of the question, I think it is a very bad one to ask. You can search “how much has the average 35 year old saved for retirement” and you’ll find a variety of articles (e.g., The Motley Fool and Personal Capital), but comparing yourself to others is a recipe for creating false expectations. Not only that, but the average balance is based on the average American who makes an average salary, and this is a terrible benchmark when it comes to planning for retirement. As our latest retirement research points out, less than 20% of Americans are on track to achieve 80% income replacement—a reasonable goal for most people—so why on earth would you want to measure your progress to this?

I find it interesting that millennials feel the need to compare themselves to other millennials. Wouldn’t it make more sense to compare themselves to older generations or at least listen to them? Ask any pre-retiree what they wish they had done to be better prepared for retirement and most will tell you that they wish they had started saving earlier. So while some may think that saving money in your youth is a waste of time, older generations will tell you it is the best way to achieve financial independence. Here are three things I want the next generation to know when it comes to planning for retirement:

#1 Save early, save often, and save as much as you can.

Albert Einstein is known to have called compound interest “the eighth wonder of the world,” so what could be smarter than listening to one of the smartest people who ever lived? The more you start with, and the earlier you start, the more you’ll have later in life; pretty simple, huh? The more you save when you’re younger, the more you will have when you get closer to retirement, which gives you more flexibility in what kind of work you do, how long you do it, and what kind of lifestyle you’ll have when you are done.

#2 Be aggressive.

Piggy backing off of number one, don’t let youth be wasted on the young.  You may be nervous about stock market fluctuation and who can blame you? After all, you witnessed several of the most volatile stock and real estate market years in recent history. That said, you have the most opportunity to recover from these short-term events, so you must take advantage of your youth and save with the intention of keeping this money invested for a long, long time. The longer you can keep money in the stock market, the more likely you will see the types of returns that have been produced historically.

#3 Stop comparing yourself to others.

Some will make more and have to save more. Others will make less and not need as much. Some look forward to a simple lifestyle. Others plan to live the high life. Higher income earners will receive less from Social Security as a percentage of their income than lower income earners.

YOU are unique! You have to plan your life around who you are, how much you make and what you want your future to look like so the best thing you can do right now is decide for yourself what you want your retirement to look like and plan accordingly. Then use this retirement estimator to determine whether or not you are on track.

As my oldest of four children prepares for college, these are the things that I am teaching her. Now I offer them to you as well. If you, the next generation, adopts these principles, you will give my generation hope that the impending retirement crisis will likely be averted.

Quiz: Are You Underearning?

May 23, 2016

Are you constantly scrambling to make ends meet? While there can be many causes to budget problems, including sudden unemployment, overspending and big credit card or student loan balances, one frequently overlooked trouble spot is how much you earn. “Underearning” is the persistent state of earning less money than you are capable of earning, given your education, experience and the economic environment, in a way that negatively affects your financial health.

What’s the difference between underearning and living the simple life…or underearning and choosing to work in a lower paying non-profit or public service job in your field? The key is whether or not you are earning as much money as you need to meet basic living expenses. Underearning is not the same as poverty, although persistent underearning can lead to poverty. Underearning is a type of self-induced deprivation of financial wellbeing.

It is not dependent on profession or income. The medical school graduate who takes a job making less than she needs to pay her rent and student loans is underearning. People can appear financially successful, but still live paycheck to paycheck with a negative net worth. If you can meet all your basic expenses (housing, food, transportation, clothing, health insurance, etc.), save enough for retirement, and have some money left over for enjoying life now without going into debt, you aren’t underearning, even if you don’t make a high wage.

Underearning behavior is a symptom of an underlying belief system. It generally comes from a personal sense of unworthiness and/or lack of self regard, which manifests as an inability or unwillingness to seek appropriate compensation for one’s efforts. Underearning can include active activities such as the PhD in computer science who works in the bicycle shop and lives at home with his parents or the mother who spends all her time volunteering at her children’s’ private school while building up a huge credit card balance paying the tuition.

It can also include passive activities such as failing to turn in rebates after purchases, forgetting to submit benefits-related expenses for reimbursement, or paying excessive brokerage fees for investment management – areas where many busy professionals fail to fully maximize. According to Barbara Stanny, author of Overcoming Underearning: a Five Step Plan to Lead a Richer Life, those who underearn, “devalue themselves, giving away their time, knowledge, skills.” The good news is that because underearning involves some level of self-sabotage, bringing self-awareness and compassion to changing behaviors that deflect money can lead to a full turnaround.

Do you think you might be underearning? Take the quiz below to find out. Rate your answer to each question by assessing how often you engage in that behavior:

Never                   0 points

Rarely                   1 point

Often                    2 points

Almost Always     3 points

____I regularly accept lower-paying work which does not reflect my education and experience.

____I only work part time.

____I don’t think employee benefits are an important part of my compensation.

____I work all the time but I never seem to have enough money.

____I spend most of my week volunteering for causes and organizations.

____I believe most people who have money are greedy.

____I believe most people who have money are unethical.

____I resent people who have money.

____I believe that people who have money only have it because they are lucky.

____I don’t think my skills are worth much.

____I have never asked for a raise.

____I don’t make as much money as I think is fair.

____I feel poor.

____I would be embarrassed to tell my friends how much I really make.

____My income does not cover all my basic needs (food, clothing, shelter, transportation, healthcare).

____I do not save for retirement.

____I have trouble maintaining an emergency fund.

____I only pay the minimum payments on my credit cards and don’t pay them off.

____My income is not enough for me to pay down my debts.

____My student loans are in forbearance or on an income-based repayment plan.

____I incur library fines for not returning books or movies on time.

____I forget to use available coupons or discounts for things I usually purchase.

____I forget to submit rebates or expense reimbursements for which I am eligible.

____My salary is less than 90% of the median salary for those in my profession.

____If I am self-employed, my business is losing money.

____If I own a business, I do not pay myself a sufficient salary.

____Once I find a new job, I want to leave it soon.

____I believe that if I spend money on myself, no more will come in to replace it.

____I believe I will never have enough money.

____I have an advanced degree (e.g., graduate school or professional) but generally earn less than the median U.S. income (about $54,000 for 2014).

____Total Score

How did you do?

0 – 15 points                      Underearning is not a big problem. Congratulations!

16 – 35 points                    Some underearning behavior or limiting beliefs around money

36 – 55 points                   Underearning behavior contributing to financial challenges

55 points or higher           Serious underearning limiting financial wellness

Is underearning something you would like to address? In next week’s post, I’ll write about steps people can take to begin challenge limiting financial beliefs and earn an income that corresponds to their capabilities.  In the meantime, start with the two books listed above. Send me your thoughts or questions at [email protected] and follow me on Twitter @cynthiameyer_FF.

 

7 Things I Didn’t Do When I Was in Debt

May 11, 2016

It may surprise you to know that since graduating from college, I’ve dug myself out of credit card debt not once, but twice. The reasons I got into debt are best saved for future posts, but both times I got out because I reached a point where I basically put the cards away and settled in for the long haul of paying it off. In both instances, becoming debt free again involved some significant lifestyle sacrifices. Here are 7 things that I do today, some big and some small, that I DIDN’T do when I had debt:

1. I didn’t take cabs. One of the things I love the most about living in Chicago is that there are literally at least four ways that I can get from one place to another. When I was facing a $12,000 credit card balance while trying to build a business and working a minimum-wage retail job in 2011, I rode my bike everywhere. If I couldn’t ride, I took public transportation. Riding in a cab was out of the question unless my personal safety was in question. These days I’m more inclined to hop in a cab to save time or if I’m tired, but I still try to avoid paying to get from place to place if I don’t have to.

2. I didn’t go on vacation. This is a tough one, especially since I had a sense of YOLO exacerbated by the fact that I have some pretty major personal travel goals, but part of the reason I was in debt was due to meeting some of those goals. Sure I went places. Friends and family got married and I didn’t miss that, but I’ll always remember the time a close friend got married in Florida and while I attended the wedding, I was unable to extend the visit into a real vacation because I couldn’t afford the extra nights in a hotel or the time away from work. These days, we plan ahead for travel and don’t go if we can’t pay ahead of time.

3. I didn’t shop at Nordstrom. I honestly didn’t even know what the inside of a higher-end department store looked like until I was debt-free. If I needed to buy clothing, I shopped at discount outlets or Target. It didn’t feel right to me to spend money on luxury brands while I was still paying down debt. Now I’m more of a Nordstrom Rack aficionado but only if I can turn around and pay off the charge card the day after I shop.

4. I didn’t drink $12 per glass wine. When I went out with friends, I usually stuck to cheap beer or limited myself to one glass of wine before attempting to move the party to a BYOB situation. Nothing sucks up extra money like alcohol and while these days I can afford to be picky about what I drink, I definitely couldn’t afford to be a wine snob when I was debt-ridden.

5. I didn’t get my nails done. To me, having manicured fingers and pedicured toes is a luxury. And while no one can make my nails look as nice as a pro, this was not a “need” in my book while I was in debt. I did my own or occasionally traded my mom for a good foot rub. (We still do that!)

6. I didn’t get massages. I am well-aware of the health benefits of a good massage and during my years of credit card debt, a fair share of birthday and Christmas gifts were massages, but it was not something that I scheduled on a regular basis. If I could afford a massage, I could afford to pay more on my debt.

7. I didn’t get my hair colored.  I’ve been coloring my hair since the age of 25, and I really appreciate having a colorist fill in my roots every 6 weeks or so. Back in the day though, I did it myself with color kits purchased at BOGO sales at the drug store.

This is what worked for me and my values and it may not work for you. But if getting out of debt is a top priority, then I encourage you to take a look at where you’re spending your money and see if you can cut out one or two of these things in order to increase your payment. For motivation, plug it into the “New Monthly Amount” of the Debt Blaster calculator to see how much sooner you can be debt-free.

 

Detox Your Finances

April 26, 2016

Every spring, I get the itch to clean. It drives my family crazy but I cannot stand clutter. If I see an item either not being used or not organized for a future purpose, I am probably throwing it away. The great part about my habit is that my family is scared to leave anything out so I rarely have to pick up behind anyone. My reasoning is that everything is either working towards a goal or working against a goal – in this case, clutter.

Finances can be looked at the same way. Either what you are doing is working towards your goals or working against your goals. This is a great time to detox your finances of anything that may be toxic to you reaching your financial goals. If you are not sure where to start, consider this as a starting point:

Did you get a big tax refund or owe Uncle Sam a check? The goal should be to break even – not give the IRS an interest–free loan or owe money. Use the IRS withholdings calculator for guidance on how much withholding to claim on your W4. This is extra money that could be used for financial goals like savings, getting out of debt or college.

Do you feel like your money goes into a black hole the second you get it? Consider detoxing your budget of expenses that are wrecking havoc with your finances. These are what I consider to be the most toxic:

Eating Out: This is like a vortex that sucks money from you. Consider bringing your lunch to work 2x a week. If you go out with friends, eat before and have a large appetizer or salad or soup

Cable: There are so many options today that make it easy to cut the cable cord. Consider streaming devices like Google Chromecast, Apple TV, Amazon Fire TV or Roku to stream TV and movies through services like Netflix, Hulu, and Sling TV so you won’t go into television deprivation.

Mobile Phone: Contact your cell phone provider about discounts on your cell phone package.  Another consideration is to use tier 2 carriers such as Cricket, Metro PCS, Boost or Straight Talk that generally work with the same cell phone towers as the bigger carriers like AT&T, Sprint, T Mobile and Verizon but at a fraction of the cost.

Are you looking to make a major purchase like a house or car? Get an annual free credit report from all three reporting agencies from websites like annualcreditreport.com. Once you get your credit reports, review them for toxic information using websites like Nolo.com. If you find errors, you can dispute them online. As you review, pay close attention to the following:

  • Review your personal information to make sure all of your information is correct – your name, Social Security number, marital status, etc.
  • Review the your account history to make sure that it is accurate.

Don’t just do spring cleaning. Take the time to detox your finances as well. It can help rejuvenate your New Year’s resolutions and help ensure that all of your finances are working towards your goals.

 

3 Reasons To Make After-Tax Contributions To Your Retirement Plan

April 25, 2016

Updated for current tax figures

Are you lucky enough to have the option to save after-tax money in your employer’s retirement plan? Most employees probably haven’t given it a thought, and not many utilize the option to save more than the current $18,500 pre-tax annual employee contribution limit (plus another $6,000 if you are 50 and older).

In fact, many people are not even aware that they may be able to save additional money in their employer-sponsored retirement plan, in some cases up to the annual total defined contribution limit (from both employee and employer) of $55,000 (plus $6,000 catch up if 50 and older) or 100% of your compensation, whichever is less. Sure, the likelihood of saving that much for many people might be small.

However, if you are already contributing the maximum in pre-tax and Roth contributions, here are some reasons to save more after-tax:

Automatic savings

Saving for an early retirement or financial independence? Let’s face it. It’s unlikely you’d save that much or invest on such a consistent schedule if you had to write a check every two weeks to a mutual fund company.

That’s one reason your employer can be your best financial services provider. Saving after-tax money in your retirement plan can be as easy as clicking a button or signing a form to choose what percentage of your salary you want to save. Every paycheck, you’ll defer money into after-tax savings and invest them in plan funds, just like your regular contributions. Little by little, you’ll save and grow that extra money without having to think about it.

Ability to withdraw contributions

You should generally be able to withdraw after-tax voluntary contributions, subject to the plan guidelines on withdrawals, even before you’re 59 1/2 and without meeting a specific need like you often do for a hardship withdrawal. That means if you have an emergency, you will be able to access those funds.

However, you may not be able to withdraw associated earnings growth, and if you are, those earnings – but not your original contributions – would be subject to taxes and a 10% penalty if withdrawn prior to age 59 1/2.

Tax-free rollover to a Roth IRA

You’ll reap the biggest rewards from your after-tax contributions when you leave your company or retire. Assuming you’ve been saving for a while, your after-tax balance will contain two components: your original after tax contributions and the tax-deferred earnings growth on those contributions. The IRS allows you to separate those two components out during the rollover process, so you can do a direct rollover into multiple destinations: rolling the tax-deferred earnings growth into a traditional IRA and rolling your after-tax contributions into a Roth IRA.

That’s right. You read that correctly. Your after-tax voluntary contributions can be rolled into a Roth IRA, where any future earnings growth will then be tax-free (assuming you leave the money in the Roth for at least five years and until after age 59 ½ ). You may even be able to convert your after-tax contributions immediately to Roth and have all future growth tax-free (but then you give up the ability to withdraw it early).

Here’s an example: Jane is already contributing the maximum $18,500/year to her pre-tax 401(k) plan at XYZ Company. She wants to save extra for retirement, so she saves an additional $10,000 annually in after-tax voluntary contributions in the plan.

After 10 years, Jane has about $144,000 from her after-tax contributions ($100,000 in contributions and $44,000 in growth). She also has about $260,000 in pre-tax savings and growth from contributing the maximum. When she leaves XYZ to take a new job, she can roll her plan balances into multiple destinations: $100,000 into a Roth IRA and $304,000 into a traditional IRA or her new employer’s 401(k) plan.

Fast forward another 15 years to when Jane retires. Without adding any more money to her Roth IRA and receiving a 7% return, her account is now worth about $285,000. That’s an additional $185,000 of tax-free growth, all because she originally saved after-tax money in her 401(k) plan.

 

 

5 Areas That May Need Some Financial Spring Cleaning

March 31, 2016

With Easter weekend behind us and spring officially in the air, it’s time for some spring cleaning. Don’t forget about cleaning your financial life too. While it’s much easier to see the clutter in your home, the clutter in your finances could have much bigger consequences. Here are several areas that may need some cleaning up:

Your expenses. If you’ve never taken a look at what you spend money on, it can be a real eye-opener. Start by gathering at least 3 months’ of bank and credit card statements and record each expense. You can also use a tool like Mint or Yodlee MoneyCenter to track your spending online for free.

Then go through your expenses and see what areas of waste you can cut. Are there things you’re spending money on that you don’t really need? If you do need it, can you get it in a way that costs less? You can get some ideas for savings here.

Your credit report. It’s been estimated that about 70% of credit reports have errors that could be hurting your score. If you haven’t done so in the last 12 months, you can order a free copy of each of your 3 credit reports (TransUnion, Equifax, and Experian) at the official site: annualcreditreport.com and report any discrepancies. You can also improve your score by getting current on your bills and paying down debt. Just be aware that old debt falls off your credit report after 7 years and making a partial payment or even acknowledging the debt to the creditor can restart that clock so if it’s getting close and you’re past your state’s statute of limitations for being sued by a creditor, you may just want to wait it out.

Your retirement account. Do you have retirement accounts that you left at previous jobs? If so, your overall retirement portfolio may not be properly diversified or you may be paying more than you need to in fees. Unless you have employer stock or are taking advantage of some unique investment option in the plan, you might want to roll those accounts to your current employer’s plan or into an IRA to make them easier to manage.

Your savings and investment portfolio. Many people have accounts they’ve opened or investments they’ve bought for different reasons over the years and now their savings and investments are a cluttered mess. Having 10 different bank accounts or 5 US stock funds isn’t diversification. Here are some simple ways to make sure you’re properly diversified.

Your legal documents. Tax documents only need to be kept for 7 years at the most. After that, you might as well just shred them. Estate planning documents should be checked to make sure they’re still up-to-date. Once your spouse finds out that your ex is still listed as your beneficiary or your youngest child wasn’t included, it may be too late.

How about you? Have you spring cleaned any of your finances? If so, share your experiences in the comments section below.

 

How to Trick Yourself Into Better Financial Behavior

March 29, 2016

A friend of mine once told me that any goal you want to achieve is about 80% behavior and about 20% head knowledge. We all know what to do to take control of our finances – spend less, dump consumer debt, and save more. However, as simple as it all sounds, it is not easy. Life and our emotions can get in the way of your goals.

I say if you can’t beat it, trick it. With April Fool’s Day just days away, take the following steps to trick yourself into better financial behavior: (Some may sound crazy but they work.)

1 . Can’t get the ball rolling on saving? Consider saving by setting up a payroll deduction into a savings account. That way you save it before you even have a chance to spend it.

2. Struggling to keep your hands off your savings? Try to use the hide feature on your online account to hide your savings account. If it is out of sight, it might be out of mind.

3. Still feel like you can’t trust yourself if the savings is at the same bank with your checking account? Consider moving your savings account to a different bank where you do not have immediate access to funds. Just don’t forget it’s there for when you do need the money.

4. Do you have a budget but have a hard time actually following it? Consider identifying areas where you overspend (eating out, groceries, clothes, etc) and using cash for those items. It makes you more mindful of your spending and it creates an automatic boundary.

5. Do you want to increase your retirement plan contributions but feel nervous about the increase? Consider contacting your retirement plan provider about a feature called auto-escalation. This gives  you the option to automatically increase your contributions annually, in many cases by as little as 1%. Tip: If you typically get an annual pay increase, consider timing the automatic increases a month after your pay increases so you won’t feel the difference.

A lot of times, we know what we need to do with our finances. The hard part is actually doing it. These steps may seem simple but they could be just the boost you need to help you reach your financial goals.

 

 

 

Who Consumers Really Need to Protect Themselves From

March 10, 2016

This week is National Consumer Protection Week so you might have been hearing a lot about how to protect yourself from fraud, scams, identity theft, etc. This is important information but the reality is that the biggest threat to us as consumers is staring at us in the mirror. Here are some ways we sabotage ourselves and what we can do to protect ourselves: Continue reading “Who Consumers Really Need to Protect Themselves From”

4 Things An Actuary Can Teach Us About Money

February 08, 2016

In a post last week about how choosing the right life partner can be the most financially wise choice you ever make, I wrote about how my husband Steve is my financial inspiration. He truly is a “financial hero,” who’s made wise choices about money his entire life. I am continually impressed by his natural talents as a money manager. I came to my financial beliefs and behaviors the hard way, learning from missteps I made in my 20’s…not Steve. He was born this way – a sensible, long term, evidence-based investor.  Continue reading “4 Things An Actuary Can Teach Us About Money”

How To Become A Millionaire In Just 15 Minutes

January 19, 2016

You can’t help but talk about the lottery with a jackpot sitting at about $1.5 billion dollars. One of my colleagues, Teig Stanley, was talking to me about a recent conversation he had with our colleague, Doug. Here is what he said: Continue reading “How To Become A Millionaire In Just 15 Minutes”

How Far Would You Go To Get Rid Of Student Loan Debt?

September 17, 2015

A colleague of mine recently shared this article titled “How Far Would You Go to Get Rid of Your Student Debt?” that focused on the extreme lengths many people were willing to go to get rid of their student loans. It’s not surprising when you consider that the average college student graduated this year with over $35k in loans. If they pay just the 4.66% interest rate on federal student loans for undergrads, they’ll pay almost $9k in interest by the time they pay it off in 10 years. But if they can put an extra $300 a month towards their debt, they’ll pay it off in under 5 years and save more than half the interest. They can then put those payments towards buying a home or becoming financially independent. Continue reading “How Far Would You Go To Get Rid Of Student Loan Debt?”

The Future Gift – One of the Secrets of Amazing People

September 15, 2015

Recently, I was talking to one of my fellow financial planners, Teig Stanley, about how his day was going. When he told me he was going to a funeral parade, I asked for more information since that is not a normal weekend activity. His comments about his friend who passed away, Manfred, and life in general were so thoughtful that I wanted to share it in his own words: Continue reading “The Future Gift – One of the Secrets of Amazing People”

When 0% Interest Looks More Like 44%

September 14, 2015

I happened to overhear the following conversation while visiting my local coffee shop the other day:

“Hey, nice laptop. Where did you get it?”

“We have this program at work where we can buy computers, electronics, furniture, appliances, and other stuff and pay for it with monthly deductions from our paychecks. This laptop will be paid for in 12 months, and I never had to use my credit card or pay any interest.”

Buy now and pay interest-free over 12 months with convenient payroll deductions? Sounds like a great way to buy, right?

Maybe. Maybe not.

The issue

Often touted as “employee purchase plans” or similar programs, companies engaged in this business can make it sound as if this is a great alternative to credit cards or personal loans to purchase items such as computers, household appliances and more – until you take a closer look at the total cost of the purchases you make under these programs. Granted, there are employee product purchase plans that allow employees to buy products at a significant discount. But too often, those who cannot obtain credit or who aren’t willing to save up cash for a purchase, buy these items at greatly inflated prices when less costly alternatives may be available.

An example

A popular employee purchase program offers a 40” named-brand LED television for $849.99 or “only” $70.83 per month over 12 months — all conveniently deducted from one’s paycheck, of course. There will also be additional charges for shipping and taxes, according to information buried in the fine print.

On the other hand, this same item can be purchased from a large online retailer (whose name is similar to a very large river in South America) for only $479! This is a savings of $371 or a whopping 44%. Of course, for someone who doesn’t have $479.00, that monthly payment of $70.83 can look pretty attractive. However, even for consumers who have poor credit or no credit, some creative thinking can help them find less expensive options for making these purchases.

Exploring the alternatives

For instance, there is Mom’s well worn and time-tested advice: save up for it and then buy it, particularly if the item is not something you absolutely must have to support your career or education. Using the earlier example of the monthly payments at $70.83, if we instead saved $70.83 in a savings account, it would take a little less than seven months to accumulate the much less expensive $479 purchase price offered by the online retailer. And if we kept saving $70 each month, we could use that money to build or improve our emergency fund, save up for a future vacation, pay off some credit cards, contribute to an IRA, etc.

But what if the item you want to buy is something you absolutely need right now? For example, my fellow java junkie at the coffee shop may have needed that laptop for some college courses she was taking in order to improve her career prospects. In that case, waiting seven months or more to save up for the purchase may not be practical.

When you can’t wait

Some other alternatives she could have considered instead of the expensive payroll purchase plan include borrowing from family members (a bit awkward at Thanksgiving), or she could consider borrowing some money from her 401(k) plan at work. There are pros and cons to borrowing against an employer’s retirement plan, of course, such as missing out on future investment growth or taxes and penalties if the loan is not paid back on time so we certainly do not want to use 401(k) loans as ATMs for frivolous purchases. But for overcoming occasional and relatively small financial tight spots, a 401(k) loan that you borrow from yourself and pay back over time may be a practical solution.

Better still, when you need or want to buy some new things, why not sell some old stuff you no longer use or like? An old fashioned yard sale still does the trick and modern technology can also help us quickly turn household items, collectibles, or heirlooms into quick cash. Social media sites are popular options for advertising your sale items, and there are well known websites such as ebay.com and craigslist.com you can use.

While you are busy thinning the herd and selling off excess possessions, this is a good time to also review your personal spending plan and see where some additional trimming can be done. In my case, cutting back on the weekly trips to the coffee shop can save me a tidy sum, though I may miss out on some interesting conversations.

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