Over the past 30 years I have given many presentations about money. As a way to describe massive losses of money from small expenditures I coined the phrase "hemorrhaging from your capillaries". Capillaries are tiny blood vessels and it is hard to imagine how you could bleed to death but it's the image I want to create of losing significant cash through passive, unconscious spending on seemingly insignificant items.
Folks meet with me wanting to save for a house down payment, college education or retirement BUT they are living paycheck to paycheck and cannot find those dollars to put towards their goals. To help, I suggest they practice "conscious spending". For one month to pay close attention to where their money goes.
Here are a few suggestion where you might find hidden savings:
- If you take $200 or $500 from your ATM can you account for how you spent that money? Keep the ATM receipt and record your spending on the back of it. Any surprises?
- How much do you spend on lunch out each week? Brown bag it once or twice. Leftovers usually taste better.
- Add up the cost of your daily Starbucks latte. Maybe go to Starbucks MWF and visit MacDonald's TTh.
- How many magazines come into your home? Do you make time to read them all? Cancel one.
- When you go out to dinner and the cute waitress or waiter suggests appetizers, specials, desserts do you succumb and run up a bill that surprises you? Try using cash instead of your credit card to limit how much you spend.
- Does your bank charge you a monthly fee for a checking account? Maybe you qualify for a simpler one with fewer components and no fee.
- Have you added up what you paid in credit card interest? Paying down those cards could free up hundreds of dollars.
I'm not suggesting you deprive yourself; I am recommending that you PAY ATTENTION. Before you can find those dollars to fund your dreams, you must become aware of how you spend your money to avoid hemorrhaging from your capillaries.
Be $ Smart - track your incidental spending to find money to save. Then take those savings and invest them!
Friday, October 2, 2015
Know Thy Credit Card
I recently shopped at store where the salesperson offered me 15% off my purchase if I opened a charge account with them. Since it was a large purchase I accepted the offer figuring I could save a few dollars.
The bill arrived mid-month after I had paid all my bills and the due date was the first of the month, before I normally pay bills. The bill got lost among piles of paper. I ended up with a $50 late payment fee and interest charged on my purchase!
I promptly called the company, explained that I was a new customer and requested they change my billing date. They also, as a courtesy to a new customer, removed the late fee. The bill now comes at the end of the month with payment due mid-month along with all my other bills.
Credit cards provide great convenience and must be used wisely.
Here are a few credit card tips:
- Establish the same due date - call each company to adjust your billing cycle. This helps keep you current even if you pay all bills online.
- Keep fewer cards - too many cards may have a negative impact on your credit card score.
- Know your Debt to Credit ratio - if you have several cards and your debt balance is low that will influence your score positively. Low balance is key!
- Be aware of Length of Credit History - when you pay off your debt do not rush to close the account. The length of credit history is a positive towards your credit score. It could earn you lower interest on loans.
- Add up the interest - take each credit card bill for the past six months and add up all the late fees and interest you have paid. That can be a shocker!! What could you have done with all that money?
- Read the fine print - when the credit card company mails Terms and Conditions it's telling you something has changed. Make note of new late fees, interest rate, due dates, penalties, etc.; it could save you lots of money.
Be $ Smart - keep more money in your pocket by staying up to date on the terms of your credit cards.
The bill arrived mid-month after I had paid all my bills and the due date was the first of the month, before I normally pay bills. The bill got lost among piles of paper. I ended up with a $50 late payment fee and interest charged on my purchase!
I promptly called the company, explained that I was a new customer and requested they change my billing date. They also, as a courtesy to a new customer, removed the late fee. The bill now comes at the end of the month with payment due mid-month along with all my other bills.
Credit cards provide great convenience and must be used wisely.
Here are a few credit card tips:
- Establish the same due date - call each company to adjust your billing cycle. This helps keep you current even if you pay all bills online.
- Keep fewer cards - too many cards may have a negative impact on your credit card score.
- Know your Debt to Credit ratio - if you have several cards and your debt balance is low that will influence your score positively. Low balance is key!
- Be aware of Length of Credit History - when you pay off your debt do not rush to close the account. The length of credit history is a positive towards your credit score. It could earn you lower interest on loans.
- Add up the interest - take each credit card bill for the past six months and add up all the late fees and interest you have paid. That can be a shocker!! What could you have done with all that money?
- Read the fine print - when the credit card company mails Terms and Conditions it's telling you something has changed. Make note of new late fees, interest rate, due dates, penalties, etc.; it could save you lots of money.
Be $ Smart - keep more money in your pocket by staying up to date on the terms of your credit cards.
Costs of College
Back to school brings parents a sigh of relief in one sense but it also brings to mind the cost of higher education.
If your student is bright and talented, there is a possibility he/she might qualify for Merit Aid. Be aware that some elite colleges may not offer merit aid to all students. Merit aid might be only offered for certain majors, e.g. engineering or computer science or particular talents, e.g. music, dance, athletics.
Parents need to research those colleges offering merit aid and learn the criteria needed to quality.
Financial Aid (need-based) may be available based on the student's family situation. The formula: cost of attendance - the Expected Family Contribution = need, determines eligibility. The EFC, the result of two formulas from FAFSA and CSS Profile, is the amount a family can afford to pay each year.
Parents need to learn their EFC early and develop a strategy to make their student eligible for aid.
Student loans are both a help and a curse. Over time, the interest can add tens of thousands of dollars to the cost of college. Parents borrow from home equity, retirement plans and Parent Plus loans all adding the interest costs to the college expense.
The key is to borrow the bare minimum, search for the lowest interest rates and pay off everything as soon as possible!
529 Plans are an effective way to plan for college:
- They can be set up as a systematic deposit.
- Depending on your state, they may offer a tax credit.
- The gains are not taxed when used for qualified college expenses.
- They reduce the amount of money taken in loans.
Be $ Smart - do some homework, plan ahead, be aware of the extraneous costs of college and borrow as little as possible.
If your student is bright and talented, there is a possibility he/she might qualify for Merit Aid. Be aware that some elite colleges may not offer merit aid to all students. Merit aid might be only offered for certain majors, e.g. engineering or computer science or particular talents, e.g. music, dance, athletics.
Parents need to research those colleges offering merit aid and learn the criteria needed to quality.
Financial Aid (need-based) may be available based on the student's family situation. The formula: cost of attendance - the Expected Family Contribution = need, determines eligibility. The EFC, the result of two formulas from FAFSA and CSS Profile, is the amount a family can afford to pay each year.
Parents need to learn their EFC early and develop a strategy to make their student eligible for aid.
Student loans are both a help and a curse. Over time, the interest can add tens of thousands of dollars to the cost of college. Parents borrow from home equity, retirement plans and Parent Plus loans all adding the interest costs to the college expense.
The key is to borrow the bare minimum, search for the lowest interest rates and pay off everything as soon as possible!
529 Plans are an effective way to plan for college:
- They can be set up as a systematic deposit.
- Depending on your state, they may offer a tax credit.
- The gains are not taxed when used for qualified college expenses.
- They reduce the amount of money taken in loans.
Be $ Smart - do some homework, plan ahead, be aware of the extraneous costs of college and borrow as little as possible.
Wednesday, August 26, 2015
To Co-sign or Not to Co-sign
The fall semester's tuition payment is due this month. Many students must take out student loans to make that payment. Most take advantage of having a co-signer on their loan as it allows them to be approved for the loan or to qualify for a lower interest rate.
You may feel obligated to co-sign or just magnanimous but there are a few risks involved for you as the co-signer:
1. It may limit your access to other forms of credit as this loan increases your debt ratio.
2. You may incur higher interest rates on future borrowing as the student loan is considered part of your debt obligation.
3. It is very difficult to remove a co-signer from the loan.
4. It may change your relationship with this person as now they will feel obligated to you or you may find yourself nagging him/her about payments.
5. Upon graduation, if the student does not find gainful employment or decides to ignore paying, you could be totally responsible for this debt.
These reasons hold true for car loans, boat loans and credit cards.
Be $ Smart - protect your credit worthiness, know the risks before co-signing a loan.
You may feel obligated to co-sign or just magnanimous but there are a few risks involved for you as the co-signer:
1. It may limit your access to other forms of credit as this loan increases your debt ratio.
2. You may incur higher interest rates on future borrowing as the student loan is considered part of your debt obligation.
3. It is very difficult to remove a co-signer from the loan.
4. It may change your relationship with this person as now they will feel obligated to you or you may find yourself nagging him/her about payments.
5. Upon graduation, if the student does not find gainful employment or decides to ignore paying, you could be totally responsible for this debt.
These reasons hold true for car loans, boat loans and credit cards.
Be $ Smart - protect your credit worthiness, know the risks before co-signing a loan.
Prepare an LOI
LOI = Letter of Instruction, not laughing out loud or lots of luck.
It goes along with your will and ties together loose ends that have not been addressed through your will or trust.
In an LOI you can mention to whom you would like to leave a piece of jewelry, your favorite tools, a piece of art, an expensive watch, etc. This helps your executor know your wishes and reduces any family friction as to "who gets what"!
You may also state certain requests and preferences in your LOI about funeral arrangements, services, burial or cremation as well as songs, prayers, rituals and family traditions.
If you are young and in good health with no intention of dying you may pose these questions to your parents or grandparents. You certainly want to honor their wishes and encouraging them to put these wishes in writing provides immeasurable relief to those left behind with the job of distributing their estate.
It also opens the door to:
Bring up inheritance issues for discussion.
Decide what "fair" means.
Ask family members what items they would like.
Consider how to deal with family dynamics and conflicts before they arise.
Be $ Smart - make your wishes known by preparing an LOI to ease the task for your loved ones.
It goes along with your will and ties together loose ends that have not been addressed through your will or trust.
In an LOI you can mention to whom you would like to leave a piece of jewelry, your favorite tools, a piece of art, an expensive watch, etc. This helps your executor know your wishes and reduces any family friction as to "who gets what"!
You may also state certain requests and preferences in your LOI about funeral arrangements, services, burial or cremation as well as songs, prayers, rituals and family traditions.
If you are young and in good health with no intention of dying you may pose these questions to your parents or grandparents. You certainly want to honor their wishes and encouraging them to put these wishes in writing provides immeasurable relief to those left behind with the job of distributing their estate.
It also opens the door to:
Bring up inheritance issues for discussion.
Decide what "fair" means.
Ask family members what items they would like.
Consider how to deal with family dynamics and conflicts before they arise.
Be $ Smart - make your wishes known by preparing an LOI to ease the task for your loved ones.
Wednesday, July 15, 2015
Strategies for Filing for Social Security
Financial planning is a wonderful profession that allows me to help people plan for the future - homes, education, travel, retirement, etc. Over the past five or more years there has been a growing movement to maximize Social Security benefits by employing little known strategies.
There are provisions that allow a couple to add thousands, tens of thousands of dollars to their future retirement income - when you learn the best time and way of applying for Social Security.
If you are too young to even think about SS, then pass this information along to your parents or aunts and uncles. If you are already receiving SS then pass this along to younger friends and your children. There is nothing illegal; but the folks at SS offices, as knowledgeable as they might be, are not aware of some of these provisions.
For example: File & Suspend
A husband reaching 66 (or 67) may file for SS and then suspend receiving payments. By filing, it then allows his wife to file for spousal benefits, receiving a monthly check for the equivalent of half his benefit. He then waits until 70 before activating his benefit which has grown by 8% each year giving him a higher monthly amount and increasing the survivor benefit for his wife.
Or someone who has been divorced may receive a higher benefit if he/she applies for spousal benefits from the ex-spouse and allows his/her benefit to grow until age 70, It has NO impact on the amount the former spouse receives! But you must have been married 10 years or longer. So for anyone contemplating divorce and nearing the 10 year mark, delay the final divorce decree until you reach 10 years.
Be $ Smart - Find a trusted financial planner who is familiar with Social Security Strategies. You may reap many years of benefits that will far exceed his/her fee!
There are provisions that allow a couple to add thousands, tens of thousands of dollars to their future retirement income - when you learn the best time and way of applying for Social Security.
If you are too young to even think about SS, then pass this information along to your parents or aunts and uncles. If you are already receiving SS then pass this along to younger friends and your children. There is nothing illegal; but the folks at SS offices, as knowledgeable as they might be, are not aware of some of these provisions.
For example: File & Suspend
A husband reaching 66 (or 67) may file for SS and then suspend receiving payments. By filing, it then allows his wife to file for spousal benefits, receiving a monthly check for the equivalent of half his benefit. He then waits until 70 before activating his benefit which has grown by 8% each year giving him a higher monthly amount and increasing the survivor benefit for his wife.
Or someone who has been divorced may receive a higher benefit if he/she applies for spousal benefits from the ex-spouse and allows his/her benefit to grow until age 70, It has NO impact on the amount the former spouse receives! But you must have been married 10 years or longer. So for anyone contemplating divorce and nearing the 10 year mark, delay the final divorce decree until you reach 10 years.
Be $ Smart - Find a trusted financial planner who is familiar with Social Security Strategies. You may reap many years of benefits that will far exceed his/her fee!
Words of Wisdom
With graduations just behind us we often think of offering guidance to young people as they embark on life's journey. Here are two thoughts to pass along which I found in a WSJ column.
The path to long-term wealth includes:
- living within your means,
- a commitment to putting away so much money each year,
- allocating those long-term savings wisely among stocks, bonds and cash using low-cost, passively managed mutual funds, index funds and ETF's,
- and keeping costs (fees and taxes) associated with those investments as low as possible.
Be aware of "life-style creep".
As you climb the corporate ladder or wend your way through a career, each pay raise will bring new opportunities and choices.
How you handle those raises can be critical.
Think about spending the new money in ways that will bring enjoyment, but not commit you to an immediate and future higher spending level.
Commit to spending "just" half the raise for enjoyment and allocating the other half to ongoing savings.
Reaching financial independence will get easier and come sooner as well.
Be $ Smart - Over-spending and over-eating have consequences; diets are never fun.
The path to long-term wealth includes:
- living within your means,
- a commitment to putting away so much money each year,
- allocating those long-term savings wisely among stocks, bonds and cash using low-cost, passively managed mutual funds, index funds and ETF's,
- and keeping costs (fees and taxes) associated with those investments as low as possible.
Be aware of "life-style creep".
As you climb the corporate ladder or wend your way through a career, each pay raise will bring new opportunities and choices.
How you handle those raises can be critical.
Think about spending the new money in ways that will bring enjoyment, but not commit you to an immediate and future higher spending level.
Commit to spending "just" half the raise for enjoyment and allocating the other half to ongoing savings.
Reaching financial independence will get easier and come sooner as well.
Be $ Smart - Over-spending and over-eating have consequences; diets are never fun.
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