Sunday, November 22, 2015

Roth IRAs and Emergency Savings a Clever 2-in-1

Sometimes, I feel like I'm being pulled in too many directions when it comes to deciding what to do with my money.  It feels like there is not enough money coming in to contribute to all of the places that I need to be.  I've paid off all of my credit card debt, but I still have student loan debt that I'd like to eliminate.   I haven't obtained an 8 month emergency savings account yet, and I'm concerned about saving for retirement.  I feel like I have to choose, but I'm torn.  On the one hand, the more debt I have, the more income I need, so eliminating that will free up some money.  On the other hand, my retirement isn't going to pay for itself, and right now, I have 30 years until I retire.  That makes this the perfect time to allow my money to really compound and grow for retirement, but if I delay contributing, I will just end up having to save EVEN MORE money later in order to catch up.  Still there is a THIRD side to my conundrum.  If I don't have a properly stocked emergency savings, any disaster that comes upon me will require me to wrack up a credit card balance.  I REFUSE to let THAT happen!  So, what's a person to do?

Kill two birds with one stone, that's what.  Open a Roth IRA and start contributing the max (or as much as you can).  In 2015, as long as you are earning income, and make less than $116,000 (or $183,000 if married) you can open one.  You are allowed to contribute $5500 per year ($6500 if you are 50 years of age or older).  That's $458.33 per month.  If you can pull it off, the benefits will be tremendous.

Now, I'm sure a few of you are confused about how this relates to your emergency fund, right?  In a Roth IRA, you are allowed to withdraw any money that you contributed without a penalty.  You just have to be sure that you don't dip into any of the interest that it earns.  The interest earned in your Roth IRA must be left very well alone.  Well, actually, there are circumstances where you can also take the earnings, but that is considerably more complicated.  My recommendation is to simply leave that part alone.

So, if you are strapped for cash, but feel the need to do SOMETHING to start saving, I recommend opening a Roth IRA and funding to the max (or as much as you can).  This can double as an emergency savings as long as you only withdraw the contributions (not earnings).  You are to avoid having to do this at all costs.

Part two of this strategy is to consider where you will open it.  If you open it at a discount brokerage, you can invest in a manner that will likely grow your money much more quickly, but if you need access to the money, it will take longer (3-4 days) for them to transfer the money to your bank account.  My strategy is to open a Roth IRA savings at my local credit union.  Right now, the interest rates are terrible, but I can get the money into my checking account the very same day that I call them.  In a true emergency, this is a bonus.  I will only fund this one up to 1 month of my expenses.  Then I will switch over to funding one at a discount brokerage to maximize my money's growth.

Eventually, I will be able to fund both of these things separately, but until then, this is a good strategy.

Update:  It is also important to note that you can contribute to your IRA for the PRIOR year all the way up to the day that year's taxes are due!  For example, I am writing this update in Feb. of 2017.  Right now, since I haven't maxed out my IRA for 2016, I can make a contribution, and have my financial institution apply it to the 2016 tax year.  This is perfectly legal.  If you didn't contribute to it at all last year, you can use this strategy, and it will allow you to take the Retirement Savings Credit, which could be a HUGE benefit on your taxes!

Sunday, November 15, 2015

How finding my "holiday magic" lead to starting a new holiday tradition

In my house, we are gearing up for the holidays.  We had already decided to stuff stockings for each other, and only to give one gift per person.  Furthermore, we set dollar caps on the amount to be spent.  That being said, I feel that we have done a terrific job of taking care of our monetary selves, but to be honest, I feel as though we were neglecting our emotional selves.

As a little girl, I always looked forward to Christmas as a magical holiday.  I'm not even referring to the myth of Santa Claus, or even the sheer amount of gifts under the tree.  I am referring to an emotional well-being that I've always felt as a result of the time I've spent with people I love and the sharing of stories and traditions.

When I reflect on that time, I realize that the gifts that I looked forward to were largely based on time spent with people, and traditions.  The problem is that many our holiday traditions are intertwined with a culture of overindulgence.  In order to replicate the "magical" feeling I had as a child, I felt the need to be honest in pinpointing that which created it.  My fondest, most magical holiday memories are watching a holiday program (children's play, ballet, singing Christmas tree, bands, choirs, or a holiday movie...), baking something with my mother or grandmothers (frequently something Norwegian, as that is my cultural background), music, and staying up late, in my pajamas, watching a movie with my family.  There are very few times, when the memory involved a gift.  When that did occur, it was usually a give that was the kind you cannot buy in a store:  the blanket my grandmother crocheted when I was an infant that was given to me as a teen, the wedding ring that my late father had given my mother, etc.  Really, if I am honest with myself, it was never about the money.

We have discussed this at my house, and have decided to try out a new holiday tradition.  The one gift each of us will be getting is a box with new pajamas and our favorite movie snacks.  We are going to decide on a favorite holiday film (possibly more than one) to watch, pop popcorn, and sit with our beverages and snacks of choice, and enjoy some time together.  I am already feeling the anticipation of my new PJ's, and hope very much that sour patch kids make the box.  I'm voting for Home Alone, and possibly some cartoons from my childhood.  Prior to the holiday itself, I think I want to make some Norwegian edible, and go see something live (maybe the Rockettes).  Even with show tickets this should cost us $200 or less, and the idea of it provides me with more happiness than the idea of expensive gifts.

I know that this has been a slightly different kind of post because it is less about advice, and more of my personal story, but there is a reason for this.  I want to challenge you to consider the source of holiday magic for you.  When you get to the root of it, does the source of your holiday bliss need to set you back financially?  I've discovered that mine does not.  My goal right now is to achieve financial freedom.  I want the freedom to choose what I am going to do with each and every day of my life.  I do not want to do anything out of obligation, and that is worth so much more than becoming intoxicated by December, and experiencing "holiday hangover" in January.

Sunday, October 18, 2015

Why you should contact your Tax Accountant now!

It's October, and I've been thinking about my potential tax bill.  You may find it strange that I am thinking about it now, when the calendar year hasn't even ended yet, but actually, now is the perfect time to consider it.  Let me explain.

If you have had an increase in your income in the past year, you may find yourself in another tax bracket.  Also, if you've had any "life changing" events, it could also impact your tax situation.  My situation is that my income is higher.  While I have enjoyed the higher income this year, I realize that it could make my tax situation drastically different.  Typically, I get money back, but this year it could be different.  So, I am going to contact my accountant.  

October 15th is the date that taxes are due for people that filed extensions.  Wait until after that date by a week or two in order to contact your Tax Accountant because they may be very busy right around that date.  If you have experienced any of the following:  income increase, inheritance, property sale, marriage, added dependent, less dependents, divorce, or other life changing event, you should consider checking in with your Tax Accountant  sometime in the next month.

Your tax professional can  help you assess whether or not you will owe the government come tax time.  It will be an estimate, but a fairly close one.  There are a few things that can be done during the course of the remainder of 2015 to help you minimize any potential tax bill, but first you have to know if you are in that situation or not.

The first step might be to make some transactions that make your Adjusted Gross Income (AGI) lower.  You see, your Gross Income is the amount you are being paid before taxes or any other withholding are taken out.  Your AGI, is the amount that the government is actually taxing you on.  The lower your AGI, the smaller the amount you are responsible for in taxes.  After that amount is set, there are an additional series of things that you get credit for.  These "credits" go toward your tax bill, lessening the amount you actually pay to the IRS.  Your tax accountant might tell you to donate more to a charity, contribute to a traditional IRA, tax-deferred annuity contributions, health savings account contributions, maximize any educator expense deduction, and several more.

The point is, if you've had an event that could change your tax picture, contact your preparer or accountant.   Your email should basically go something like this:

"Dear so-and-so, I wanted to check in with you before the end of the tax year.  I have had _____________ event come up this year, and I am not sure how it will change my tax situation this year.  Is there anything that I should do before the end of the year in order to plan accordingly?"

Then, they will have a few questions (most likely), after which you will have a solid game plan to complete within the calendar year.

Of course, there is one additional thing to be prepared for...  Paying the preparer.  It is possible that if it is just a quick check in, that they may not charge you, but if your tax planning takes them some time, you may have to pay a fee.  Don't let that possibility detour you.  Tax planning can save you a good deal of money.  Even if you have  fee for the consultation, the information is too valuable to pass up.

Until next time,
Happy Planning!

Sunday, October 4, 2015

Weddings: Saving money on out-of-town events..

Have you ever noticed that other people's lives tend to cost you a lot of money?  People graduate, have birthdays, anniversaries, and weddings.  You want to participate.  Some of you agree to the festivities without thinking of the cost because you can't imagine missing their event.  Others reluctantly agree to join the festivities, but secretly cringe, not knowing how you will finance your end of the obligation.

This month, I am attending an out-of-town wedding.  Out of town weddings come with a lot of expenses, some that are easy to overlook.  Planning ahead, and using these simple tips can help save you hundreds!

  1. Transportation:  Consider driving. While this won't work for events across the country, things that are in your region may be a drive-able distance.  I live in New York City.  The wedding I am attending is in Virginia.  In order to fly to this wedding, I would need to purchase two adult airfares plus rent a car at the other end (the wedding is not in a city with an airport).  Instead, I rented a car.  I got a cheaper rate by renting out of New Jersey, so I will spend the 30 minutes on public transit to get there.  I am paying $126 for the car rental for the entire weekend.  This is way cheaper than flying.  The miles are unlimited.  I will have to pay for gas.
  2. Transportation:  Consider a ride share.  Find out if there is anyone else in your area that is traveling to the wedding.  If so, they may want to consider a ride share.  I found a gal in Brooklyn that is also going.  She is going to ride with us, and contribute to the car rental and gas.
  3. Hotels:  Typically the bride and groom get a "block" reserved at a local hotel or two.  The hotel will set a price for all rooms in that block, and you have to reserve by a certain date in order to get a room at that rate.  You would think that this would be a discounted option, and it very well may be.  That being said, do some of your own hunting.  Check online well enough before that "reserve by" date.  See if you can find something near where the other hotels are, but less spendy.  The rates for the "reserved block" in this Virginia town were roughly $150 per night.  I did some searching, and found a hotel on the same street that looked nice enough for half that price.  I will be staying for two nights, and paying only about $150 for that entire time.
  4. Breakfast Counts:  When you are looking for hotels, look for one with free breakfast.  Don't pay a higher rate in order to get one, but you will likely find some choices that include breakfast.  Hotel breakfasts are typically not gourmet, but they have come a long way since the doughnut and coffee trend of the 1980's.  If you stay in the hotel two nights, and breakfast is included, you are saving the cost of two meals out.
  5. What to wear:  There is a good deal of pressure in this department.  Weddings are a time when people size you up to see if you look good, or have "let yourself go."  Don't get sucked into this madness.  Ask the bride and groom what level of formality it is, and select something from your closet accordingly.  Most likely you have something that is appropriate that you have ALREADY paid for.
  6. The Gift:  You are not to look at the registry until you set a dollar amount.  Mine is $50.  Once you have set your budget, you may look at the registry.  Personally, if I don't find something I like for my set amount, I will give them the cash.  People feel strange giving cash, thinking that it is "impersonal."  The truth is, the couple will appreciate it.  They will appreciate it for two reasons.  First, they will not get everything on their registry.  Maybe they asked for 4 bath towels, and got 2.  Things like this happen.  If a few thoughtful people have given them cash, they can use it to purchase items that were not selected by their guests.  Secondly, they might want to use the money for their honeymoon.
The above list represents what I plan to do to make it through this wedding in style, and without spending too much.  I will spend about $65 on the car rental, $150 on hotel costs, $40 for gas, $60 for food (2 lunches, 1 dinner for two of us), $50 for the wedding gift.  This brings my grand total to $365.  This is great compared to my original estimates.  When I priced this out for two people to fly, stay in the hotel that had the blocks reserved, etc. the price came out closer to $1500,  a definite budget buster!  My way creates a relaxing, stress-free, mini-vacation that I can fully afford!

Feel free to add any money saving tips of your own when it comes to out-of-town events!

Sunday, September 27, 2015

The "Holidays" are coming... Are you worried?

Sometimes I feel like there are all of these "extra things" that are costing me money.  This past month included back-to-school shopping (I teach in a high school), and an out-of-town visitor.  Next month I have a friend getting married out of state, and then we find ourselves full-blast into the Holiday spending extravaganza.  Our lives are all different, but there is one common thread here.  We all experience "extra things" that cost us money on a regular basis.  In fact, I bet if you stopped to do a little calculation, you will find that it is literally a monthly expense.  That being the case, you should have a category for it in your budget (we will talk budgets soon).

Well that might be fine and dandy, but I just got out of credit card debt.  I know that I don't have this "extra" category in my budget.  I will create it, but it doesn't currently exist.  The "extra things" are still coming, right now, in the form of the holiday season, and I am determined that they are not going to cause me to go backwards on my progress.  We will discuss budgets, other people's vacations, etc. in another post, but today let's talk about the holidays.  They are coming up, and I, for one, am not going to let them get me! So, how am I going to do it?

1.  Take care of the future.  Start that "budget category" for the "extra things."
2.  Menu planning.  My household size is 2, and we spend on average $60/week on groceries.  This is already a great number, and we already plan our menus, but that being said.  I am going to make a point to throw in more of our "cheap but healthy"  meals so as to get that number down by $20/week through the end of October.  I know that this will be difficult to do in November and December, so I am going to offset some of those costs now.  If I start this week, a $20/week savings  creates $100 over the next 5 weeks that can be applied to my "extra" category.
3.  Thanksgiving... This holiday is expensive in a sneaky way.  We don't buy gifts for each other, so we don't consider it far enough in advance, but if you are hosting, suddenly, it costs a small fortune!  Well, I plan to have a feast without spending a fortune.  The secret?  Don't make 20 dishes.  Have a gathering, either at your home or someone else's.   Create a sign-up list.  Maybe the host is in charge of the Turkey, stuffing, and mashed potatoes.  They also make their home look  nice an inviting (don't spend money on it).  At that point, the host is done cooking.  Hosts are notorious for telling people they don't need to bring anything.  Not this year!  All guests should be in charge of bringing a side, or dessert item.  They should sign up in advance so there are no surprises.  All guests should bring a few small to-go containers.  At the end of the party, each guest should take-away at the very least, lunch for the next day.  If you happen to have a huge "Thanksgiving budget" carry on!  If not, try out my strategy.  Thanksgiving parties are fun, and don't have to cost you a ton!
4.  Holiday Gifts...  Have this conversation now!  In my household, we are buying ONE gift for each other, and stuffing a stocking for each other.  We have a maximum we are allowed to spend.  Granted, we are a household of 2 adults.  Those of you with children will inform me that this will absolutely NOT FLY at your house.  If you have children, have your kids draw names for gift giving for each other.  Parents, set a dollar amount per child.  This is not to exceed what you actually have.  Under no circumstances are we to use our credit cards for this. Include your kids in this gift conversation.  Take the opportunity to teach them about financial responsibility.  That is the most important gift that you can give them!  You have to teach them (by your example) what it means to be financial responsible through the holidays.
5.  Get an "extra job" for the holiday season.  Now is the time to apply.  I have done this before.  Holiday help doesn't make a ton of money, but you can use that as your holiday budget.  I probably made an extra $500-700 last time I worked a holiday retail job.  I used that for two things.  Holiday spending, and future vacation money.  That way, I didn't have to use my regular paycheck for those things.
6.  Opt out of all of those holiday gift exchanges.  No one thinks you "don't like them" because you didn't do the office holiday gift exchange.  Just opt out.  Save the money.
7.  Don't obligate yourself to "guilt gifts."  You know what this means.  We all buy those last minute gifts for people because "they might be buying us something."  I want you to advertise to other people the following "Do not buy me a gift."  Tell them.  Taking the obligation away from them will also alleviate you of that same obligation.  You are to tell them that you are scaling way back on your gift-giving, and that you would like them to give you the gift of their company, but that's it.  No present.

Those are just a few of the things that I have done, and will do to help myself avoid a "Holiday Disaster."  I'd love to hear any strategies that have worked for you or your family over the years!

Thursday, September 24, 2015

Bonus Post: Free Online Personal Finance Course!!! (Limited Time Offer)

Alright folks, I want to let you know about a resource that is available to you for free for a limited time.  Suze Orman's personal finance course is available to you for free, but you must sign up by 9/25 8pm EST.

Go to:
Enter giftcode:  TODAY

I have signed up.  There are seven lessons in an easy to use format.  This presents a great opportunity to for each of us to get some things in our financial lives organized.  Join me in the journey, and sign up for this fabulous, free resource.

Saturday, September 19, 2015

How I saved over $10,000 on my dental bill!!!

About a month ago, I went to the dentist.  I, like most Americans, greatly dislike going to the dentist.  I am afraid of painful procedures and painful fees.  We all have to go to the dentist though.  There isn't much way around it.  Well, there is, but the alternative is even worse in the long run.

I decided that I wanted to go to a local, neighborhood operation, and I saw a dentist that was nice enough.  By the end of the appointment he had recommended three fillings, two crowns, two root canals, and didn't tell me anything about how much it would cost me.  Apparently, we needed to schedule another appointment for the next week, and we'd cover that information then.

Well, I wasn't going to schedule a procedure and not know how much it would cost me so, he sat down with me and gave me the following information.

All of theses treatments cost over $11,000 before insurance.  My insurance contributes about $1300 for these treatments.  This would leave the average person owing over $9000.  Well, I was told that since I am a teacher, they'd give me a special deal.  After I added the amounts that I would really have to pay, they totaled about $3000 (after insurance paid out).  Well, that sounded like an improvement, but I still didn't have $3000 sitting around.  I am just getting started on my emergency savings account.  I haven't built it up that far yet.  At this point, I was feeling overwhelmed.  I was freaked out about needing three fillings, two crowns, and two root canals.  I was also freaked out about not being able to afford them.  So, I made another appointment, and went home.

I am not the kind of person that can just sit and do nothing, so I sprung into action. I decided to get a second opinion.  I made an appointment at NYU's dental school.  It would cost me $95, and they don't take insurance, but they would provide me with paperwork to submit for insurance reimbursements.  The next day I cancelled my follow-up appointment, and contacted my dental insurance company to do my homework on the way my policy works (see last week's articles "5 Questions to Ask You Dental Insurance Provider").

Skipping forward,  I went to the dental school, and learned that I do NOT need three fillings, two crowns, and two root canals!  At this point, they say I need two fillings.  Now, I will be candid about this, it is still possible that this could change because at a dental school they have several checks and balances, and my student-dentist has the support of the overseeing dentist (who agrees with this diagnosis), but still has to defend our "treatment plan" to yet another supervising dentist above him.  Regardless, I assume this treatment plan passes the supervisory inspection.  That being said, my grand total will be $730 (this is for both fillings, a cleaning, and a full exam).  I should be reimbursed by my insurance for roughly half of it.  So, I started out getting a printout suggesting that I needed $11,000 worth of treatments, and am ending up paying roughly $300 out of pocket.

Now, I typically publish some sort of "to do" list for you....  So, let me give you my take-aways.

1.  Get a 2nd opinion.  Not all dentists have the same fee schedule.  Also, some dentists (or any health care practitioner) over-diagnose.  Remember, a dentist that runs his/her own practice has to set his fee schedules taking his/her overhead into account.  This might make some of you uncomfortable, but the truth is that in this country healthcare is a business that is out to make money.
2.  Consider a dental school.  I say this for multiple reasons.  First, the fees are lower.  Second, an educational environment has a different goal than a solo practitioner.  A school wants to educate.  It is not in their best interest to over-diagnose.  Schools tend to be fairly conservative, and do not like to treat things that are not necessary.  Yes, a student will work on you, but they have a licensed dentist check their work at every step.  You are in good hands.
3.  Make sure the fees are explained to you before you are about to get the work done.  The first dentist didn't plan on sharing any of this info with me until I insisted.  This would have been a huge set back.
4.  Invest in dental floss.  I know this one sounds silly, but several dentists have told me that flossing daily is the number one way to avoid having lots of work done in the future.  Besides, dental floss is way cheaper (and more pleasant) than a root canal.

Anyway, I hope my personal experience has given you some insight.  This sort of situation can be scary, and sometimes that fear overrides our attention to our wallet.  We MUST get the healthcare we need, but we must also be careful not to get procedures performed on us that we do not need.  We also have a right to shop around for someone that can do the work for cheaper.  Obviously we can't "drag our feet" on these matters because this is about our health, but I have to say, I am SO glad that I got a second opinion now, I  will only spend a few hundred dollars out of pocket rather than several thousand.  That was definitely worth the time and energy I spent doing my homework!

Saturday, September 12, 2015

Dental Insurance: The Top 5 Questions to Ask Your Provider

If you are anything like me, you would rather do just about anything than go to the dentist.  It's an uncomfortable situation at best.  You finally decide to put your adult suit on and go in because you think that a life of eating mashed potatoes and bananas does NOT sound better than going to the dentist. They poke, they prod, and then they tell you that you need work done.  "No problem!"  You think to yourself, "I've got dental insurance."  So, you think nothing of it, and schedule the work to be done.  Some time goes by, you get the work done like a responsible adult, and they present you with the bill.  It is gigantic!  How did this happen?  You have DENTAL INSURANCE?

Personally, I think the word "insurance" is misleading when it comes to your dental plan.  Most dental plans in the U.S. pay out very little.  It is important for you to know how to navigate your own dental insurance plan to get the most out of it, and more importantly, avoid having a huge bill that you cannot pay for.

I am going to briefly walk you through a list of questions that you need answered about your dental insurance plan, and why you need to know this information.  Attaining this information will probably be pretty easy if you either call into the helpline of the insurance provider, or use the insurance provider's website.

1.  Do I have to use a dentist that is on a specific list?
This may seem like a ridiculous question, but it is very important.  Sometimes, if you use a provider on a certain list, the fees will be more in your favor.

2.  What happens if I use a dentist that is not on this list?
Using a dentist that is not on their list may not be as big a deal as you expect.  They may say that you "have to" use a dentists from the list, but they might also say that it is not a requirement.  They might tell you that a dentist outside of their network is fine, but you will be required to pay up front, and then submit for reimbursement.  In fact, that is how mine works.  I found out that I can see any dentist I choose, but if they are outside of the network, I will pay and submit for reimbursement.  This has saved me a ton of money because, I have chosen to get my work done at the local dental school, and submit for reimbursement (more on this in next week's post).

3.  What percentage does the insurance pay, and what percentage am I responsible for?
You could learn that your insurance company will pay out 80% of certain types of work, leaving you responsible for 20%.  If your insurance works that way, you will want to know this.  A dentist in my area charges $2750 for a ceramic crown.  If you are responsible for 20% of it, that means you will pay $550.  My insurance does not work this way, but I have had insurance in the past that did, and there were instances where my 20% created more of a bill than I was prepared for.

4.  Is there a maximum annual payout?  If so, what is it?
Many dental insurance plans will pay out a certain amount per calendar year.  You need to know if this is the case.  If your insurance plan has a maximum annual payout, it could be, say $1000.  If you need more than just a filling or two, these funds can be eaten up very quickly.  Remember the fee listed for the crown?  This could wipe out your entire allotment for the year.

5. When does the "new year" start?
If your insurance company uses a maximum annual payout, you need to know how this "calendar year" runs.  Is it January- December, or something else?  Why is this important?  If they will pay out $1000 per calendar year, and it runs January-December, than means a NEW $1000 starts in January.  This is also a use it or lose it kind of system.  That means that money does not roll over from one year to the next.  For example, if you need a crown, and a couple of fillings, and it is November.  You may want to get the crown done in November, which uses up your $1000 for the year.  Then make an appointment for January (when your new money has come into play) to get the two fillings done.  A dentist in my area charged $395 for a filling.  If I only got a payout of $1000 per year on my insurance, and I tried to get the fillings and crown done in November, I could be left holding the bag on a lot of money.  Using this example, it would be worthwhile to spread the work over a couple of months and take advantage of both calendar years.

When I investigated my own insurance plan, I found out that if I use a dentist on their network, the dentist bills them directly, and I pay only my portion.  If I use a dentist outside of the network, I pay, then submit for reimbursement.  My insurance does not have an annual maximum payout, nor does it operate using a percentage.  They pay out using a fee schedule.  So, I got a copy of that and learned that they pay $75 for fillings, etc.

Once you've got the answer to the above questions, get a schedule of fees from your dentist.  If he or she does not have something printed up that they can hand you.  Ask them a few simple questions.  How much do you charge for a filling, a crown, a root canal, an extraction, bridge work, etc.  

After you are armed with all of this information, you should compare these fees with what your insurance will pay out.  You may find that if you need a cleaning and a filling, most of it is covered, but anything beyond that will be very expensive.  At least if you are armed with this information, you will be able to plan appropriately, and successfully avoid sticker shock.

In next week's post, I will cover the importance of shopping around for dentists based on their fee schedules, and why a dental school may, in fact, provide the best dental care for you and your family.  Until then, happy health, and happy saving.

Saturday, September 5, 2015

Taboo Topics: Why Talking About Money is NOT Impolite!

When I was younger I remember hearing people say that it isn't polite to talk about sex, politics, or money. Perhaps people were saying this because these topics can feel very personal.  When I stop to think about what we as a society have gotten from not discussing these topics, it makes me think we had better START TALKING!

When it comes to our money, we are afraid to say "I can't afford it," or "I don't have the money," or even  "I'm in debt."  Somehow, we tie our person worth to our ability to keep up with the Joneses.  Boy do I understand how difficult that is!  I live in New York City, which is very expensive.  I have had friends that like to go out on the weekends, see shows, have dinners out, and it's been hard for me because I want those things too.  Sometimes it makes me feel like a party pooper to decline invitations to do those things and say "I'm sorry, I just don't have the money for that."  While they are going out I am at home with my Netflix subscription and a $10 pizza as my weekly treat.

I decided a while back that I wasn't going to "not talk about money" because it "isn't polite."  I started saying "I'm watching my money," or "I'm trying to pay off a credit card."  Once I gave myself permission to say it out loud, I noticed something.  Other people were relieved.  I was being truthful, and very willing to talk about it.  That seemed to be infectious.  I noticed the people around me saying things like "So, do you want to just do dinner and game night at our place?" or "Me too!  I felt like I was the only one!"  Once I gave myself permission to be honest about my circumstances, others seemed to be willing to do the same.  I feel good about that because keeping up with the Joneses is a bit of a cycle.  Someone in my social circle does something or invites me to something, I am afraid to say I can't afford it, I do it anyway, I get more debt, then the next invite comes..."  I've cut that cycle.  In breaking the cycle, I've helped other people to do the same.  Don't get me wrong, I am only responsible for my own choices, but  there is strength in numbers.  If one person is willing to "talk about money" regardless of whether or not it is taboo, perhaps that is at least a step in the right direction.

I've even gotten bolder about "talking about money."  I just ask questions of my friends.  We are taught that we shouldn't ask other people about their money because it is their "personal affairs," but I'm not sorry that I ask.  I called a friend of mine and asked her point blank about her life insurance.  She has a small child that I love very much, and I was concerned.  I instigated a conversation with a different friend who was divorced, and had survived a bankruptcy.  I knew that she had done an amazing job of rebuilding her life and her credit.  I wanted to talk with her about the possibility of her buying her own home.  I felt confident that she could do it, and I thought that if she did, she would set herself up well for her future retirement.  I could give you plenty more examples of times I've been "nosey" and inquired about the finances of my friends.  Maybe this is an annoying habit I've acquired.  I do not regret it at all, and I have never had a friend upset with me for asking.  In fact, typically the person thanks me for bringing it up.

Perhaps this week's article sounds a bit more like a rant, but I've been thinking a bit about this.  We need to talk about money, just like we need to talk about political issues, sexual issues.  Ignoring these things has not proven to be much of a benefit.  Ask the questions of the people you care about, and practice saying your truth.  I have started saying "I'm watching my money" and "That's not in my budget right now" when it applies to my life.... and you know what?  Pizza and Netflix night is serving me well, and who knows, perhaps a few friends will crash my party!!!

Saturday, August 29, 2015

The Vacation You Want Vs. The Vacation You Need...

This past year has presented some challenges for me that has left me feeling exhausted.  It was the kind of exhaustion that gets under your skin and into your bones.  Most of the exhaustion has come from a great number of changes, many of which are good:  a new position teaching high school English, a move across the country, turning our house into a rental (and unexpected repairs that came along with it), and a number of other things.  Sometimes even the most wonderful changes can leave a person feeling extreme fatigue.  When this happens, we have to do something to rejuvenate ourselves because let's face it, we can't be of any use to others when we are running on empty...  When we get to this point, many of us find ourselves uttering the words "I need a vacation!"

...And we're probably right...

Now be careful of the "vacation trap."  Just the though of planning a vacation drums up images of exotic locations, palm trees, dinners out, drinks with little umbrellas in them....  Then we find ourselves searching the internet for discount tickets to the French Riviera or a resort in the Bahamas.

You are to stop and go no further.

I know, I get caught up too.

This is when we all need to have a very frank conversation with ourselves about the vacation we want versus the vacation we need.  These two things are not always the same.

Step 1.  Review your financial goals and your honest progress toward them.
In my case, this is easy.  I wanted to be out of credit card debt by the time school started again in the fall.  When I considered my progress toward this goal I realized that it was attainable, but it would take most of my extra cash to do it.  I could not divert these funds to another cause and still meet my goal.  Besides, if I have credit card debt, I can't afford the vacation.  Tough pill to swallow, but true.

Step 2.  Think through the vacation that you want, and compare it to the money that you actually have available (only after completing step 1)...
I really want to take a trip to Europe (Italy to be specific) with my partner.  I have done my research, and know how much money that I realistically need for this vacation.   I cannot plan this vacation this summer and still meet my goal in step one.

Step 3.  Be honest about the best thing for you...
The best thing for me is to put  Europe on hold, and create a savings plan to work toward that goal.  I also know that I need a vacation.  I gauged my own exhaustion, and know that this is more than a want.  The absolute best thing for me to do in this case is to get creative and plan a vacation that I can pay for without getting in the way of my financial goal.

How did this turn out for me?

I wanted Europe, but I did not do that.  What I did do, is take a couple of camping trips where I could relax in a different environment.  I also paid off all of my credit card debt this summer.  I feel like I made the best choice for my family because now this Europe trip can happen without being a setback.  Of course we have other financial goals, but this is a huge one that was checked off the list.  Now, I can start planning that vacation of my dreams and save for it in the process...

How successful are you at balancing want versus need when it comes to vacation planning?

Saturday, August 22, 2015

"Smallest Balance First" Method: Eliminating Credit Card Debt

There is one chore that I cannot stand doing...Laundry...  Thankfully, I live in NY, and I use the drop-off service (I did the math, it turned out that doing it myself wasn't really creating much savings).  The thing that I hate the most about doing laundry is the fact that it never looks like any progress has been made.  On the other hand, I love doing the dishes because I immediately see something change.  I find that very motivating.  Why am I telling you about my housekeeping likes and dislikes in a personal finance article?  Simple.  We can learn a lot about ourselves financially, but looking at ourselves in non-financial situations.

Last week, we took a look at the "debt snowball" method of paying off credit card debt.  There is really no way to go wrong with that method, unless of course you run into motivation issues.  On one hand, paying off your credit card debt, and becoming debt free should be pretty motivating on its own, however; there are situations where the debt snowball can make you feel like you are attacking a never ending pile of laundry!

For example, perhaps you have created your list of credit cards, the balances, interest rates, and minimum payments, and you are looking and something like this.

  1. Retail Store Credit Card----$4500 (bal.)----19.99%---$75 (min. pmt)
  2. Airline Credit Card----------$3000 (bal.)----14.90%---$65 (min. pmt)
  3. Credit Union Card-----------$1200 (bal.)-----7.90%----$25 (min. pmt)
Notice, these bills were ordered from highest interest rate to lowest.  This the way you would look at it if you were planning to use the snowball method.  The idea is that the Retail Store Card listed above is costing you the most in interest every month.  It is the most expensive of the three debts.  So, you then take a look at your other bills, and find that after making all minimum payments, and all bills paid, you can put an extra $400 per month to eliminating the balances.  Next you identify that if you use the snowball method, you will put that $400 to the Retail Card, you start punching numbers into the calculator on your cell phone, and learn that it will take you almost a year to get rid of ONE credit card.  You feel immediately defeated, right?

Well, first off, you need to realize that it will take TIME to get out of debt. It is sort of like losing weight.  It is easy to put weight (debt) on, but takes a while to get rid of it.  That being said, you might consider trying a different method.

Try a Smallest Balance First method.  Put your extra $400 toward the Credit Union Card, while paying minimums on all of the others.  In roughly 3 months, you will have eliminated the balance on that card.  Then, you will start to apply the $425 you were applying the Credit Union Card to the card with the next smallest balance (the Airline Card).  You will continue on in this way, until you have eliminated all credit card debt.  

Using the above scenario, you will effectively eliminate the balances on two credit cards using the smallest balance first method, in the same amount of time it would have taken you to eliminate the balance on the Retail Store Credit Card using the snowball method.

While you are not eliminating your most expensive debt first,there is something to be said for the motivation that comes from seeing progress happen very quickly.  Take a good look at yourself.  If you are the kind of person that can't stand doing laundry because you feel like you never see any progress, perhaps the smallest balance first method is for you.

Saturday, August 15, 2015

Debt Snowball: Eliminating Credit Card Debt

Sometimes paying off credit cards can make you feel like you are standing at the bottom of Mt. Everest staring upward.  Now, those of you outdoorsy types know that you don't just wake up one morning and say "Gee, I think I will climb Mt. Everest today!"  It takes planning and preparation.  The same goes for paying off credit cards.  There are a couple of different strategies that help greatly in this type of planning.

One of these methods is sometime referred to a "debt snowball."  I've also heard it called a "debt ladder."  Regardless of what you call it, this method is highly effective for paying off debt.  It can be used with regards to all of your debts, but for now, we will just look at your credit cards.

The very first step is to prepare to make a list.  You will access to your most recent credit card statements.  Write down the name of the credit card, the balance, the percentage of interest that you are paying on it, and the minimum payment.  Do this for each card.

Next, reorder your list.  The first card you should list is the one with the highest percentage rate.  The one with the lowest percentage rate should be the last one on your list.  Your list might look something like this:

      1. Department Store Card--$550--19.99%-----payment:  $25
      2. Airline Credit Card-----$4500--14.90%-----payment:  $75
      3. Credit Union Visa------$3300----7.90%-----payment:  $70
Now, the next step also requires a little bit of work on your part.  You need to figure out how much money you have leftover after paying all of your bills.  This includes those minimum credit card payments.  We will do more work on budgeting in the upcoming months, but for now, let's assume that you've calculated this.  For the sake of example, let's say that you find that you have an extra $200 each month.

You are to pay all of your bills, including all of those minimum payments first.  Then, you are to apply the $200 to the first credit card on the list.  That is the one with the highest interest rate.  The reason is because regardless of balance, that is the credit card that is costing you the most money each month.  You will continue to do this each month until you have eliminated credit card number one.

Once the first card has been paid off, move on to number two.  Now that you have paid off number one, you have $225 available.  You are no longer responsible for the $25 minimum payment, and you still have your extra $200 to use.  So, here's what you'll do.  Again, make the minimum payments on all credit cards, then make an extra $225 to the one with the highest interest rate.  Keep doing this until you have eliminated the balance on that card.  Using the above example, that frees up an additional $75 per month (eliminating the balance on credit card two).  Now you have a total of $300 per month to apply to the final credit card after you've paid the initial minimum payment.

Now, there are a couple of other things that you can do in order to maximize your effectiveness in paying off credit card debt.
  • Use all bonuses and tax refunds to pay off credit card debt.  I know this is harsh, but if you have credit card debt, you have somehow lived beyond your means, and you need to wipe the slate clean as quickly as possible.
  • Transfer balances to lower interest rate cards.  Calculate carefully.  Most of the time there is a fee for a balance transfer.  It may not really be worth transferring a balance to a lower rate if the fee is too high.  Also, this is not a green light to go a head and open more credit cards all willy nilly.  More credit cards can get you in trouble if you aren't very calculated and very careful, however; if used carefully, and researched well, doing a balance transfer could greatly speed things up.  I have used this method successfully, and it has saved me time and money.
One important thing to note is that while you are paying off your credit cards, they should not be in your wallet (see last week's post regarding the freezer method).  You should not be spending money on them, or you are sabotaging your own progress.  Also, there is one exception to the above method of ordering your debt.  If you have any credit cards with a low interest rate that is only good for a limited time (perhaps you took advantage of some special offer), you need to place that in the number one position.  If you don't eliminate that balance by the agreed upon date, the credit card company will charge you a higher rate, and most likely backdate that all the way to the time you took advantage of the offer in the first place.  That could be a very expensive error!

This method can be highly effective for paying off credit card debt.  One of it's strongest features is that it aims to eliminate your most expensive debt first.  Simply put, the card with the highest rate costs you more in interest per dollar charged than any other debt.  

The "debt snowball" also helps you to combat lifestyle inflation.   Lifestyle inflation, in its simplest terms, is the idea that when people have more disposable income, they tend to find ways to spend it (dinners out, entertainment, etc).  By reallocating the minimum payment dollar amount to another credit card after you've paid one off, you've prevented yourself from spending that money on something else. 

I just paid off a credit card, and only have one to go!  One more step on the path to financial freedom.  For those of you that are also working to pay off your credit cards, how is your progress going?

Saturday, August 8, 2015

Credit Cards On Ice: The First Step To Controlling your Credit Card Debt

Today's article is in celebration of a personal financial achievement.  I have paid off a credit card!  One down, one to go!

There are a couple of wonderful strategies for paying of credit cards that I'd like to share with you over the next few posts in hopes that you might find one that works for you: the debt snowball and the smallest balance first methods.  Regardless of which method you choose, the first step is the same.

Freeze your spending...  Literally!  Take your credit card out  of your wallet, place it in a freezer bag, fill it with water, and put it in the freezer.  Strange sounding advice right?  I heard of someone doing this once, and I though it was brilliant.  Besides, this strategy is very intentional.  There is absolutely no way that you can impulsively buy things on credit if your credit card is in the middle of a block of ice.  You will have to sit and wait for it to thaw out.  In the mean time, you will have enough time to really consider if you really need that item you are thinking of buying.

Note, I said need rather than want.  If you are working on paying off your credit card debt, one of the most important things to work on is want vs. need.  If you need it,  you should have it built into your monthly budget, and should not use a credit card for it.  If it is a want, you should wait.  I have several wants that I am waiting for, but right now, indulging in those wants will keep me from my goal of being free from consumer debt.  Eventually, I will get some of those things, but right now, I am evaluating my wants.  For example, I want to be free from the burden of my credit cards.  I also want to go on a vacation, and have a couple of destinations in mind.  Right now, I know that if I choose the vacation, I will be saddled with my credit card debt for another year.  My desire to be free of my credit card payment overrides my desire to go on vacation.  Now that I have made this choice, I will be free of credit card debt by roughly the end of the summer.  This choice also means that next summer, I will not be in the same position.  At that point, I will have moved beyond the credit card debt issue, and be working on something else, which can include at the very least, a modest vacation.

Now, this may all sound great to you, but you are still unsure of whether or not to freeze your credit card.  Perhaps that sounds too extreme for you...  Okay, I get it.  At the very least, take the credit card(s) out of your wallet.  Lock them up somewhere.  If you don't carry them around with you, you cannot make an impulse purchase.  However, this will not save you from yourself when you are at home.  We live in a highly digital age, and you can buy almost anything from the comfort of your couch.  If you are not going to freeze your credit card, (or cut it up) you must be prepared to exercise a lot of willpower when it comes to online shopping.  If you have that kind of willpower, you have my blessing.  If you don't, the answer may be in your freezer.

Sunday, August 2, 2015

Retirement Basics: Social Security Retirement Basics

Many of you work in certain industries where individuals are left to  their own devices regarding taxes and the reporting of income.  It is tempting to leave much income "off the books" for a number of reasons (one being to avoid "paying in" come tax time).  This is a dangerous choice.  Not only is illegal, but it can cost you dearly in the future.

At some point in life, you may want to retire.  I know for many of you, this is pretty far into the future, but claiming your income correctly is one simple step in retirement planning.  The income that you earn and report now, will impact your social security benefit at retirement.

Social security offers a retirement benefit that can seem confusing to navigate.  Here are some of the Social Security Retirement basics.

  1. You must work for 10 years.  Social Security Retirement Benefits operate on "credits."  You must have a minimum of 40 credits in order to be eligible for retirement benefits.  If you do not earn 40 credits in your working years, you will not be eligible for a social security check.  You can earn up to 4 credits per year that you work.  You must have earned $1220 (in 2015) to have earned 1 credit. 
  2. If you die, your dependents may collect your social security.  Again, you must have collected enough credits, but assuming that you have, you qualified dependents can collect your benefit.  See special rules about who might be a qualified dependent for purposes of social security retirement benefits.
  3. The minimum age that you can collect your retirement benefit is 62.  This being said, you can file for this benefit at age 61 and 9 months.  Age 62 is considered "early retirement" and results in  a retirement benefit that is approximately 25% less than it would be at full retirement age.
  4. Your spouse can claim your benefit even if he/she has never worked.  This assumes that you are either collecting your retirement benefit, or are eligible for it.  Your spouse must be at least 62 years of age in order to collect.  You can collect your own benefit at the same time.  So, both individuals can be collecting a retirement check based on one person's benefit.
  5. "Full Retirement Age" is 67 years old for those who were born in 1960 or later.
  6. If you suspend your social security payment at full retirement age, you will receive a higher benefit by 8% each year plus it will be recalculated based on any earnings that you had in that time frame (until you reach age 70)
  7. Automatic payments begin at age 70.  If you haven't begun to collect your benefit by this time, they will kick in automatically.
  8. A special "trick" for married couples...  If you and your spouse are both full retirement age, one of you can apply for their retirement benefit and suspend the payment.  Then the other can apply for only the spousal benefit.  This allows both individuals to delay collecting their own benefit, which will also result in a higher payment once collected.
I know that was a lot of information, but understanding the basics of how your retirement benefit works is really important.  There is also a Medicare benefit to consider, but we will leave that to a future post.  Right now, there are a few things that you can do.
  1. Report all earned income on your taxes.  You must pay in to social security in order to collect in the future.
  2. Read your annual statement.  Social security provides you with an annual statement.  This provides you with important information.  It tells you if you have enough credits to qualify, how much you can expect your payments to be at various ages, and much more.
  3. Research exceptions, special rules, and payout calculators on the government's social security website.  This will give you the most accurate information that pertains to your specific situation.  This website is  It is a terrific website, and has a lot of information that has been used in this article, and more.

 A few simple steps will ensure that you qualify for a retirement benefit, maximize your payout, and get the most out of your social security retirement benefit.

Friday, July 24, 2015

Groceries on $60 per month: Why I am starting a personal finance blog...

Groceries on $60 per month
Why I am starting a personal finance blog

I was chatting with a group of friends a number of months ago, when the topic of my love for personal finance came up.  Almost immediately, one friend announced “I remember that you were the one that taught me how to grocery shop!”  Suddenly, a distant memory resurfaced in my mind.  I could clearly picture us both with hand-held baskets in hand, as we had just entered Fred Meyers.  I was a cute, 19-year-old blond, and she was an equally cute 18-year-old red-head.  We were standing in the produce aisle when our first lesson began.

“Are you sure we can really do this for $10?”  She asked.  You see, I rarely spent more than $10 per week on groceries in that day.  It was the late 90’s and groceries weren't exactly cheap, but I liked to eat healthy, live on a budget, and most importantly, I had a system.

I was also a vegetarian.  According to my system, eggs were priority #1.  They are cheap protein and very versatile.  Next up is produce.  Fruits and veggies are not to be ignored for fear of their expense.  Heart surgery is more expensive than an apple.  Remember that!  Quickly scan the produce section for sales.  Sometimes seasonal items are on a killer sale.  If not, default to a bag of baby carrots, a bunch of bananas, or a few apples.  That should be about $5.  Half of the budget.  Now, decide on the “starch of the week.”  For a couple of bucks, you can choose a bag of rice, a box of pasta, or some potatoes.  Then, I would always buy the generic English muffins that cost $1 for 3 packages, an 8 oz. block of generic brand cheese, or a condiment to tie some things together.  That could be marinara, canned tomatoes, sour cream, butter.  I’d choose one on sale based on which starch I selected, and what I was running low on at home.  This totals $10.  This budget assumed two things, no sales tax in Oregon, and that I had some typical things like condiments at home.  About once per month I’d spend another $10-20 to replenish some things like oil perhaps that had run low.

So there it was, my $60 per month system for groceries for one.  It had been years since I had thought of this, though my frugality and attention to money hasn't faded. 

Someone once told me that they were amazed by what I could do financially with very little.  I had to really stop and consider what they meant.  I did not come from money.  So, I started from nothing.  On an annual salary of $25,000, I bought a house in Portland, OR, paid off my credit card debt, and took a trip to Mexico.  I am proud to say that my salary has shot up considerably since then, but I am still very much on a journey with my personal finances.

I am still learning, though I must admit that I am very knowledgeable about matters concerning money.  Because of this savvy, I have decided to start a personal finance blog.  Please follow my blog if you are interested in short articles on a variety of personal finance topics, in addition to updates on my own journey to financial freedom.