Saturday, December 31, 2016

2016 Financial Year in Review

On so many levels 2016 has been a pretty difficult year.  It seems like each time I log into social media or turn on the news, I am hearing about some sort of heartbreaking loss.  While I know that many of you are looking forward to seeing 2016 go (and I must say that I pretty much agree), I'd like to take a moment to reflect.  Along the path to financial freedom, there are obstacles, and at times it seems like you're not getting anywhere.  It feels like a ginormous treadmill to nowhere...  But that's not true.  The path is taking you SOMEwhere.  It is taking you to the destination you choose.  I am choosing the path to financial freedom, and while 2016's victories can feel like a splash in the bucket, I feel that it is important to recognize them for what they are, VICTORIES!

So, without further ado, here are my 2016 victories:

  1. Started our Emergency Savings:  Remember, starting it doesn't mean it is complete!  This is still a work in process, but it is well under way!
  2. Contributed to a Roth IRA:  This is one of the best retirement accounts to have!  If you aren't contributing yet, you should absolutely start doing so!
  3. Picked up several "side gigs":  Side gigs are what help to keep us ahead!  It makes it easier to fund things with cash, paid debts faster, etc.
  4. Went to the UK and paid for it in cash!  Gone are the days of using a credit card for vacation.  This was literally the best vacation of my life because the bill was paid in full.
  5. Bought a new roof for our rental property and paid for it in cash!  A lot of folks finance an expense like this.  I saw it coming and arranged our finances to accommodate paying for it in cash.
  6. Maintained a life that is free of credit card debt.  It is one thing to pay off a credit card.  It is something else entirely to keep it paid off!
  7. Paid off 1 of 2 private student loans.  One down and one to go!  Hopefully before 2017 is over, I will have paid off the second one as well.
Now that I see what we've accomplished in 2016, I feel confident that my partner and I can do just as well in 2017.  It motivates me to set some goals for the year, and work toward meeting them.  For right now, I am going to take a moment and enjoy recognizing the work that we've done this year.

What have you accomplished this year?

Wednesday, December 28, 2016

Why powerful people donate...

My apartment is driving me crazy.  I feel like there are piles of clutter closing in on me.  That's what happens to me when I finally have a week off from my primary job as well as my side gigs AND the holidays are happening at the same time.  When I am working a ton, I put off "picking up" as much as I normally would.  Then, I take some time off, and find myself irritated by the disaster I allowed myself to create.  I also moved from a 1600 square foot house on the west coast, with my partner and cat, to a 1 bedroom, NYC apartment.  We pared down, but there is still work to be done.

In addition to being a personal finance writer, I am a believer in The Law of Attraction.  The basic idea that I am a powerful manifester of my own destiny appeals to me, and when I sit back and use my imagination to picture my ideal life, the one I am working to create, it always contains a lot less stuff than what I currently possess.  The answer to the question I haven't bothered to ask seems obvious, doesn't it?  Get rid of some of it!

Why don't I?  Why don't many of us, just get RID of it!?  Well, I am no psychologist, but if I were to dive into the rabbit hole of my own mind, I would say that it is some sort of fear or anxiety.  I grew up pretty poor, and it taught me a lot of habits that I wouldn't trade for the world, but a few that I am working to get over.  One of those habits in the "get over it" category is the feeling that I need to hold on to things.  When money is tight, we teach ourselves to hold on to what we have because it will be hard to replace.  As a result, it is really easy to get stuck in a trap of keeping things because I "might need it."  Now, the truth is that I am not in that position any more.  If I accidentally got rid of something and later found that I needed it, I CAN afford to replace it.

If I am holding on to possessions because I am fearful, than I am not behaving in a powerful way.  If I am not powerful with my possessions, I am not powerful with my money.

That was really important.  That's why I made it it's own paragraph.  If it didn't sink in, read it again:

If I am not powerful with my possessions, I am not powerful with my money.

If I am going to be financially free, I must be powerful with my money.  People that are powerful with their own money are very deliberate with their time, money, possessions, and other resources in general. With that being said, I need to be deliberate in creating the picture I see in my mind, the picture of my ideal life.  By ridding myself of things that I am only keeping "in case," I am choosing to be powerful with my environment, my possessions, and my money.  I am also making room for abundance, which I am also creating.

The last week of the year is the best time to "clean house" so to speak.  Spring cleaning is fine, but I think the best time is now.  This is the part where I step away from being so philosophical, and come back to some no-nonsense financial strategies..

If you haven't written a check to a charity yet this year, or have more to give, this is the time to do it, and have it count for this year's tax return, just get it done by December 31st (and get a receipt).  This is also a brilliant time to clean house!  Don't just clean up from the holiday chaos that may have erupted in your living room (as in mine), but go far deeper.  It is time to start a RID project (Reduce Inventory Drastically)!  Many of you can donate your unwanted items to a charity, and write the donation off on your taxes (if you itemize).  For those of you who itemize, the really simplified version of what happens is this:

Let's say you make $73,000 a year, and donate $6000 worth of stuff to a registered charity, your tax accountant will plug it into a formula (along with a bunch of other stuff) when they itemize your return, and it will reduce the amount of income Uncle Sam is going to tax you on.  So, rather than taxing you on the full $73,000 maybe Uncle Sam will only be taxing you on $69,000 (remember, it's a formula, not a dollar for dollar thing).  This can reduce your "tax bracket."  You know, the percentage of taxes you are on the hook for..  Maybe you were sitting at 25% before, and get it down to 20% by reducing your taxable income..  You see, this percentage goes up and down along with your taxable income.  When your taxable income goes up, so does the tax bracket.  Donating to a charity can make  these numbers go down.  You can makes this happen  by writing a check (some employers will actually match funds donated to a charity--ask your HR department if your company does this) or by donating some of your belongings.

I do itemize my taxes.  So, this RID project of mine is going to do a number of things for me.  It is going to help me to gain power with regards to my money, possessions, and environment.  It is going to reduce my taxable income, and help me to save some money on my taxes.  Finally, it is going to bring me much closer to the picture in my mind--the picture of my financially free life.

(Side note:  You might want to take a picture of what you donated for your tax records, this will help with assessing the fair market value of the goods (which is what you receive credit for, not what you paid when you bought them), oh yeah and make sure you get a receipt for the donation. )

Sunday, December 18, 2016

Why You Need An Emergency Fund

A friend of mine has been having quite the year.  She has spend the majority of this year battling a life-threatening illness, and I'm thrilled to say that she has recently (within the past month) received news that she has won her medical battle, and is recovering nicely.  No sooner does she receive this wonderful news than she finds herself on the side of the road (the freeway no less) with car that has decided it will no longer run.  There she is, emotionally distraught and alone.  People are kind enough to pull over to try and help, but the car won't start.  She has to call a tow company, and has her car towed to her mechanic's garage.

Everything about this scenario stinks.  It's embarrassing.  It's frustrating.  It's expensive, and unfortunately, it's extraordinarily common.  The towing expense alone could set you back plenty, not to mention the mechanic's bill.  If this happened to you, would you have the funds to cover it?  Would you have to charge it on a credit card?  This is where your emergency fund comes into play.  You absolutely need one of these.  It's not about whether or not one of life's "what ifs" occurs, its about WHEN, because an emergency WILL happen eventually.  Whether it be a medical bill, a car problem, or something else unforseen, you can guarentee something will come up eventually.

On the positive note, this friend HAD the money.  She's been diligently squirreling away little bits of money every month for a few years now.  While her emergency fund is smaller than she would like, it has been enough to see her through a difficult year.  Can you imagine what would have happened to her if she hadn't been saving these little bits every month?  What would happen to you if you were in her shoes?

Emergency funds are about more than life's "what ifs."  It is about no longer living in fear.  I have lived in fear in the past, fear of a car issue, getting sick and not having enough PTO to cover it, fear of a roof leak, you name it.  I always felt like I was walking on financial eggshells.  I no longer feel that way.  One of the reasons that I no longer feel this way is because I do have an emergency fund.

Now that you know why you need an emergency fund, read Roth IRAs and Emergency Savings a Clever 2-in-1 for an easy strategy to make the most of your savings!

Sunday, December 11, 2016

Retirement Planning: Do I really need to contribute to a 401K?

There's all of this pressure out there about retirement accounts, and how to save.  You have SEP's, IRA's, Roth IRA's, 401K's, 403B's, TDA's...  The list goes on and on.  It can really make your head spin.  In this blog, I DO talk about which accounts to use, and when, but there is one much more fundamental question that we have not addressed.

Do I actually NEED a 401K?

The short answer is "no."  You don't actually need a 401K.  Are you having a heart attack yet?  I can't think of many financial advisers that would like the fact that I'm telling you that right now.  In fact, I can feel the cyber "stink-eye" coming my way.

There is a big BUT coming..  You were waiting for that weren't you?  You could almost feel it, I bet.

You do not need a 401K.  You need to replace your working income with another income source.  You need "passive income," if you will.  Passive income is income that you receive without actively participating in a business.  This could be investment income, rental income, etc. 

To further illustrate my point, a story... 

Once upon a time, people graduated from high school.  Once gainfully employed, the person would dedicate their lives to one company, work there for 30+ years, collect a gold watch, a "going away" party, and a pension with which they would live out their retirement.  This pension would act as a steady paycheck from the company they devoted their lives to, only they didn't actually have to punch the time-card any more.  Great deal, right?

Well, it is a great deal, but like many beautiful animals on our dear earth, that deal is more or less extinct...    Employees stopped working for the same companies for their entire careers, and employers stopped paying pensions...

Enter the 401K...  So, out rolls this new idea.  Employers offer this "investment opportunity" to employees.  Employees contribute their own money to it, and let it grow for retirement.  In order to entice employees to pay into this investment, the employer (sometimes) agrees to contribute some matching funds as well.  

So.....What was the point in this little story, you ask?  To point out to you that YOU are most likely already funding your OWN retirement.  There are a few employment situations that offer a proper pension plan, but if you aren't in one of them, you are on your own.

If your employer offers you a 401K plan that has a match, you need to contribute AT LEAST enough to get the maximum matching funds.  Otherwise, you are ignoring free money.  You should NEVER ignore free money!

If you don't work for an employer that offers a 401K, don't worry about it!  Here's what you should worry about:  replacing your income.  You need to invest your money in a way that will allow you to collect checks when you retire.  This is where you have decisions to make.  HOW are you going to put all of your dollars to work for you?  You can use an investment account, and contribute regularly to a 401K or IRA at regular intervals so that your money will grow enough to meet your needs in the future.  You can contribute to non-retirement investments (though you might lose certain tax advantages).  You can invest in rental properties.  You really have a lot of choices.  Don't misunderstand me.  I am NOT telling you to ignore a perfectly good 401K plan.  What I am suggesting, is that you consider the BIGGER picture when it comes to replacing your income.  Your retirement is about more than a 401K plan, and one size does not always fit all when it comes to your money.

Sunday, December 4, 2016

5 Gifts for Adults: Clutter-Free & Financially Responsible

As I grow older, I find myself cutting back the number of holiday gifts I give to others.  At this point, I've cut it back to half a dozen key people in my life.  While the load is manageable, there is one thing that I find tricky when it comes to adults on that list.


I'm serious!  This is difficult!  I keep thinking of what I don't want to receive myself.  I don't want any more clutter.  In fact, I could stand to get rid of some things.  I mean, when I picture my most serene, peaceful, ideal future, it doesn't usually contain very much "stuff."  Interestingly, the "stuff" I most struggle to get rid of was gifted to me by someone else.  For some reason that T-shirt that I now wear mostly as PJ's that I got for Christmas seven years ago is still around.  Why?  Because I have some over-inflated sense of duty when it comes to things other people got for me.  If people realized how guilty I feel about getting rid of a gift, they'd just save us both the headache, and not send me anything.  It seems strange doesn't it?  A gift-giver buys you something out of obligation that you feel the need to keep out of obligation (ironic isn't it?).  They spent their money, and you are spending your space on something that doesn't improve your life.  Now, if it brings the gift receiver pleasure, that's another thing, but what happens when the pleasure runs out?  Is it safe to get rid of the gift?  As a gift-giver, I don't want to promote needless clutter, nor do I want to promote the feeling of guilt when it comes to getting rid of something.  I want to promote healthy, financially responsible lives that are to be enjoyed.  I want any gift that I give to reflect that.  So, here is my list of gift ideas for adults:

  1. A Special Outing:  Nothing is more valuable than time.  My partner and I have birthdays fairly close together.  We opted to buy tickets to a play and dinner before it.  We made our choice of play based largely on sale price tickets (buying the week-of can result in discounts), and shared some appetizers for dinner.  The appetizer route and discount tickets kept the prices reduced, and there was NO CLUTTER to deal with later!
  2. Your Labor:  Now, you have to base this one on knowing your intended gift receiver, but I have to tell you, I have a very special friend in my life that would be more thrilled to have me come over and clean her gutters or do some yard work than to receive literally anything in the world from me.  All it will cost me is a few hours of my time.  She gets a chore done (without doing it herself), and I get some exercise.  That's a win all the way around.
  3. A Charitable Donation:  If there is a person in your life that has EVERYTHING, consider donating to a charity that will be meaningful to them.  Put the donation in their name, and they can benefit from the tax break.  This gift promotes financial AND social responsibility.  Another win-win.
  4. Magazine Subscription:  A couple of years ago, a family member did this for me.  I was thrilled!  Reading magazines is a guilty pleasure for me, especially when I travel.  I read them cover to cover, and when I am done I either recycle them, or place them on a "give one, take one" book/magazine shelf to be read by someone else (just  remove your address from the cover).  You can gear the choice of magazine toward financial responsibility in several ways.  Going with a finance magazine is an obvious choice, but there are some others that also promote a healthy financial life.  A friend of mine set a recent goal to take her lunch to work 4 out of 5 days a week.  Cooking on the weekends is a part of her goal.  There are plenty of cooking magazines that would keep her ideas fresh, and her food healthy.  While cooking at home costs more in groceries, it is likely to be healthier, and will cost less than eating out all of the time.  Additionally, any magazines geared toward health and fitness promotes financial well-being.  Remember, the cost of healthcare is huge, even with insurance.  The more we do to stay healthy, the less we spend responding to illnesses.  
  5. A Personal Finance Book:  If the adult is a reader, consider the direct approach at promoting financial responsible living.  Obviously, you have to know the person you are giving the gift to well enough to know that it would be read and well-received.  If you are fairly certain that both are true, think about an author that has inspired you, and ideally, choose something you have read.  Include a personal message about how the book has inspired you, and that you'd love to discuss parts of it along the way with them.  
These are the top five strategies that have worked for me in the past.  They eliminate clutter, and promote living healthily and happily while on the road to financial freedom.