5 Money Lessons You Can Learn From Your Friends Who Are Broke
Sienna Beard
Having good friends is one of the best parts of life, especially if you have friends you can trust during the good and the hard times. It’s great to have people who share interests with you, who you can confide in, and who you can have fun with. Many of us struggle with having a natural competitive attitude when we are around our friends, and it is easy to fall into the pattern of wishing we had all that our friends do, whether that includes looks, money, or possessions.
However, sometimes part of being friends with someone is seeing the other person lose out or suffer. No one wants to see a true friend hurt, but in addition to comforting your friends when necessary, you can also learn from them. As tempting as it is to fall into the trap of wanting what your friends have, if you choose to, you can really learn from your friends’ mistakes — especially financial mistakes.
1. Don’t peer pressure spend
Yes, your friend’s new car is awesome, and it might look even better in your own driveway. However, if purchasing a new car would put you in serious debt, it just isn’t worth it. Most likely, you have seen firsthand what debt can do to someone. According to Debt.org, debt can have a huge emotional effect on a person. When we don’t have enough money, our choices are limited. Debt, of course, can also affect your ability to pay other bills, as well as your credit score. As tempting as it is to want to have what your friends have, remember to pay attention to those friends who have spent so much money that they are now truly suffering. Don’t take money from savings, make huge purchases, or use your credit card to play catch-up with your friends.
Source: Thinkstock
2. Start saving early
This is another lesson you can learn from your friends who are broke: start saving early. As fun as it is to spend recklessly and to believe you have years to start saving, this just isn’t true. The sooner you start saving, the better. You may already have friends who have maxed out their credit cards, or have purchased big houses and fancy cars and have no money left to put toward retirement or other types of savings. Or you may have older friends who warn you (either literally, or by the way they live) that failing to save enough can be detrimental to your future. While it’s important to set money aside for fun activities, it’s really essential to start saving money as early as you can.
Source: Thinkstock
3. Take your job seriously
With so many people looking for jobs, you probably have at least one friend who is living at home with his or her parents, or hasn’t had a job for months. Many people are out of work by no fault of their own (there just aren’t enough jobs in their field), but some people are out of work because they didn’t take their jobs seriously. You undoubtedly have a friend who partied too hard, came into work late too many times, or was just disrespectful or lazy too often. That friend is paying the price, and you don’t want to follow in their footsteps. Regardless of your age, or how far into your career you are, it’s important to take your job seriously. If you become too complacent, you could easily be broke in a few months.
4. Be wary of student debt
If you are considering a college education, be careful about which college you choose, because student debt is a huge problem for many Americans. According to USA Today, 71 percent of students took out loans in 2012, and the average student debt reached almost $30,000 in 2012. If you haven’t attended college yet, think carefully about what might happen if you amass a large amount of debt and then you can’t find a job to pay it off.
If you are years out of college, but you are considering graduate school, look around you. Graduate school might be the best bet, but there are many people who took on graduate school, or extra certificates, and are now drowning in debt and can’t pay those loans back. If you are considering paying for your kids’ college tuition, you also need to be think carefully about the amount of money you are willing to spend as well. As great as some expensive colleges are, sometimes at least starting at a more affordable school is a better idea.
5. Don’t rush to get married
In no way should you avoid getting married if you have met the right person and you are deeply in love and ready to make wise decisions together. However, don’t rush into marriage without thinking carefully about how you want the rest of your life to pan out. Take time to consider important financial decisions before you get married. Determine if you plan to have kids, think about your savings goals and your work goals, decide if you want to rent or buy over the next few years, and figure out who will manage the money, and if you will combine your assets. You can always mutually change your mind later, but since financial disagreements often lead to relationship problems, you will be giving your marriage a strong foundation if you handle these issues ahead of time. Divorce can be very expensive in addition to being heartbreaking.
It’s great to have friends, and hopefully you and your friends will mostly heed these five warnings. However, whether you have a friend who experienced a nasty and expensive divorce, or a friend who didn’t take their job or bills seriously, you can certainly learn from them and avoid the same mistakes.
7 ways you’re using your credit card wrong
By Mandi Woodruff
Credit cards are one of the most widely used — and abused — financial tools in the U.S. Among households with credit card debt, the average balance they’re carrying is more than $15,600, according to Nerdwallet, a figure that has barely budged since the recession.
The troubling part is that many Americans know very little about credit at all. A survey by the Consumer Federation of America found that 40% of Americans had no idea that their credit history played a role in determining whether they could qualify for new credit. And one in four consumers admitted they didn’t know how to effectively improve their credit scores. Millennials are so spooked by credit debt that a whopping 63% say they don’t carry a credit card at all, Bankrate found.
When used properly, credit can be a powerful tool to build up your finances. Here are a few ways you may be using plastic the wrong way:
1. You’re opening too many credit cards at once. While it’s true that high lines of available credit can help improve your credit score, opening too many credit cards at one time can negatively impact you as well. Every time you apply for a new credit card, a “hard inquiry” note goes on your credit report. Having too many cards can also make it more difficult to keep track of your balances, leading to overspending and forgotten payments. How many is too many? It depends. Having 25 credit cards won’t necessarily hurt your score all that much — what really matters is whether those 25 credit cards have revolving balances. If you can keep your credit balances low and pay off your cards each month, you should have no worries. But if you’re feeling overwhelmed by the number of billing statements you get, chances are you’re juggling too many.
2. You’re paying the minimum balance each month. Carrying a revolving balance on credit cards is a surefire way to hurt your credit score — credit balances make up 30% of your FICO score, the most widely used credit score in the U.S. Paying off your credit cards in full each month is the best way to improve your score because it lowers your credit utilization rate — the amount of debt you’re carrying compared to your total credit limits. For example, if you have a $600 balance on a credit card with a $10,000 limit, your utilization rate is 6%. Experts recommend keeping your utilization rate at 30% or less, but ideally it would be under 10% (or, even better, 0%). If you find yourself only able to afford minimum payments on your cards each month, it’s time to adjust your spending.
3. You’re paying off cards with low interest rates first. When paying off multiple credit cards, you can simplify your strategy by focusing on the cards with the highest interest rates first. They will cost you more in the long run, so the quicker you can pay them off, the more money you’ll save. If you want to calculate how long it will take you to pay off a credit card, use this calculator from Bankrate.
4. You’re using them for discounts. Retailers like Gap, Ann Taylor and Home Depot offer sweet one-time discounts to customers who open up a new line of credit at their store. Sure, that 10% or 15% off may sound like a good deal, but when you consider the fact that store cards tend to have interest rates exceeding 20%, you could end up negating those savings in the long run. If you want to responsibly use a store credit card, make sure to spend only what you can afford to pay off — in full — at the end of the billing cycle.
5. You’re ignoring your bills. Past due balances can destroy your credit score, making it harder for you to get access to new credit, and even potentially hurt your chances of getting a job. Payment history is the single largest factor credit reporting agencies use to calculate your credit score. If you can’t afford a bill payment, contact your lender to ask if they will offer you any kind of grace period. If you just ignore them, your card issuer will wind up reporting your missed payments to credit bureaus. Those red marks will remain on your credit report for up to seven years.
6. You aren’t monitoring your credit report. Identity theft is the fastest-growing reported crime in the U.S. To ensure your accounts haven’t been compromised — and no one has got their hands on your credit card number — keep an eye on any unusual activity by tracking them online. Sign up for sites like CreditKarma or Credit.com, which both offer free credit tracking. Then ask your bank or credit card company to alert you anytime you make a large purchase (you pick the amount). As always, check your credit reports for free once a year at annualcreditreport.com.
7. You’re closing old accounts. When you’re trying to build your credit history or improve your credit score, one of the worst things you can do is close old accounts. You may think you’re simplifying matters by getting rid of credit cards you never use, but that old credit history is actually good for your score. Length of credit history makes up 15% of your overall score, according to FICO. However, if you’re paying a high annual fee for a credit card you no longer use, it may be worth it to close that account.
7 Secrets Credit Card Companies Don’t Want You To Know
By Paul Sisolak
If you think about it, you’ve got a close, intimate relationship with your credit card. The both of you have been inseparable through each daily transaction. You treat it right by paying off your monthly balance on time. You know all your card’s important details, such as its credit limit and interest rate, right down to memorizing every reward and benefit. You might even know your card number by heart. Unfortunately, there’s some bad news that could be financially heartbreaking:
Your credit card company may be holding out on you.
The fact is, you’ve been kept in the dark about several secrets because your financial benefit comes at your card issuer’s financial loss. Read on to find out some of the things your carrier doesn’t want you to know.
1. Fixed rates aren’t really fixed. Issuers can raise your APR whenever they choose. This information isn’t necessarily a blatant secret, but it’ll be hidden so deeply in the fine print of your cardholder’s agreement that card companies are hoping you miss it. Commonly, we’re enticed to sign on with a fixed introductory interest rate that may change at the company’s will. You have the right to be notified 15 days before a potential rate increase, but to stay on top of them, check your mail; you’ll receive notifications in a thin, discreet white envelope.
2. One late payment … two penalties. In a perfect world, one late payment equals one penalty fee; on-time payments equal zero fees. In this imperfect world, you can be penalized with two surcharges on one delinquency, and you won’t know about them until you’ve been charged. These can come in the form of a late fee (up to $35), and a penalty rate — a permanent interest increase that can jack up your APR to as high as 29.99 percent! The 2009 CARD Act sought to place limits on these increases, though the details aren’t widely known by the average cardholder.
3. Twice the interest in one month. Another one-two financial punch comes in the form of a legal maneuver which allows your card company to impose two months’ interest for just one month of late balance payments. For example: You’re charged twice the interest for a partial balance payment in October even though you paid on time in September. Called double-cycle billing, the card issuer looks at your average daily balance over two consecutive months and charges you higher interest based on the month you carried a higher balance. It’s not even the interest that makes this a problem, but the principle of being punished for good financial behavior.
4. Disgraceful grace periods. How many of us who’ve made big-ticket purchases have been thankful for the grace period? Say you charge $1,000 to your card and pay $250 by the due date to hold over your creditors. Most cards carry grace periods up to about 25 days, allowing you to pay off the remainder, interest-free. But in the spirit of profiteering, many providers are reducing the grace period to just 20 days, while some are doing away with them altogether. That means you’ll get charged interest on every purchases, even with timely repayments. Avoid this fall from credit grace, and check how many grace period days your card company offers.
5. No card limits — just with limits. Many consumers in possession of a no-limit charge card discover they have a revolving spending cap — let’s use $5,000 — but only learn of it after racking up $7,000 in purchases, leaving them stuck with a remaining $2,000, plus interest, to pay off. Why is this so? Your card company advertised your plastic as no limits, but it’s really set at a no preset limit, based on your own month-to-month spending behavior and habits. Before snatching up a no-limit card, ask your provider if the limit is predetermined, and be careful not to spend beyond that amount.
6. Minimum payments to the maximum. It’s the nature of the credit beast: The longer you stay in debt, the more interest credit card companies can charge, and the more money they make. In the past, card holders had a 5 percent minimum monthly payment. This became problematic for creditors because people were motivated to pay off their balances more quickly. So they lowered the monthly minimum to 2 percent. But now, with smaller repayment requirements, we’re prone to spend more and accrue more debt each month. Experts maintain that this move by card companies adds thousands of dollars in interest, creating a repayment schedule that could last years, if not decades.
7. Late payments to any creditor can raise your APR. We hope that our creditors aren’t wishing us to slip up on our repayments, but if there’s one thing to take away from this article, it’s to be on time paying down your debt. One late or partial payment, be it your credit card, car or mortgage payment, can jack up your total APR across each line of credit in your name. Can you imagine your auto or home loan going from 3 percent to 29 percent? Just like we’ve got the CARD Act, creditors have something called the universal default clause, which insures them against people who pose a credit risk. (Not like they need it.)
Divorcing after 50: The financial hazards
By Jeanie Ahn
Breaking up is hard to do no matter when it happens. But getting divorced later in life can be especially traumatic, both emotionally and financially.
There are now more divorcées over the age of 50 than ever before. In 1990, just one in 10 people who got divorced was over 50; today, it’s one in four, according to “The Gray Divorce Revolution,” an analysis of federal statistics conducted by researchers at Bowling Green State University.
For this age group, some of the biggest challenges include divvying up accumulated assets and learning how to take control of their finances, often for the first time.
Lisa Baio, 53, was married for 27 years but knew she wanted to get divorced when her fourth child, Jade, now 19, was a toddler. Jade was born with a bone disease that requires special medical care, and Baio, who devotes much of her time to her daughter’s caretaking, felt she wouldn’t be able to support her children on her own. So she waited to divorce until her husband retired so she could collect part of his pension.
“The long wait to get divorced was difficult because I kept thinking, ‘When am I going to have a chance to do what I want to do?’ However, the responsibilities of having children don’t end just because you want something,” Baio told Yahoo Finance.
Despite mounting credit card debt and filing for bankruptcy in 2004, Baio did what she could to financially prepare for the eventual split. “Throughout the marriage I was trying to play catch-up and he was spending,” said Baio. Three years ago — at age 50 — she was finally ready to file for divorce.
Baio is one of an increasing number of baby boomers doing so. More than 600,000 Americans 50 and older got divorced in 2010, compared to about 200,000 in 1990.
Certified estate planner Jean Ann Dorrell says getting a divorce later in life requires dealing with situations that you don’t have to think about when you’re younger: Who gets the house? How will retirement plans get split? How will a divorce impact your future Social Security benefits?
Here are her tips on how to handle the most challenging money issues in a later-in-life divorce:
1) Avoid tax penalties when splitting up assets
Longer-married couples have typically built up substantial savings in several retirement plans. And unless a careful analysis is done, important provisions and the value of various retirement plans may be overlooked.
To split up some assets, a divorcing couple will need a Qualified Domestic Relations Order (QDRO) issued by a judge, which changes or splits up the ownership of a retirement plan to give a divorced spouse his or her share of the asset. QDROs should protect both spouses from tax penalties when retirement funds are transferred from one to another.
2) Real estate: Who gets the house?
The house is often a source of emotional attachment — for both husband and wife — with neither wanting to give it up. But financial factors — like continuing to pay off the mortgage if there is one and upkeep — should be considered when it comes to this asset. It may make more sense to sell the house, pull out the equity and buy something smaller, Dorrell says. Or consider a reverse mortgage to make it financially possible to keep the house.
3) Be knowledgeable about debt
Full disclosure about all debts and assets is crucial. The best thing you can do is get a credit report on both of you. Credit reports are updated regularly, so it would be good to keep checking on it before the divorce is finalized. Your divorce attorney should be able to help give each spouse the other’s debt information and make a plan to get the debt taken care of, Dorrell says.
4) Plan for gaps in health insurance
If you are currently covered by your spouse’s health insurance through a family policy, you may face a gap in coverage until Medicare kicks in at age 65. One option is to purchase coverage through the health insurance marketplace; since the passage of the Affordable Care Act, insurers are not allowed to charge higher rates for people with pre-existing conditions, and subsidies can make insurance even more affordable. Another option is COBRA, a continuation of your employer’s group plan for up to 36 months; with COBRA you can receive the same coverage you had when you were married, but it is expensive. Perhaps a last-resort option, Dorrell says, is to consider legal separation instead of a divorce if neither of those alternatives are affordable.
5) Social Security benefits
It’s important for divorcing couples to remember that you can collect your ex-spouse’s Social Security benefits. If your marriage lasted 10 years or more and you’re 62 or older, you can collect retirement benefits on your former spouse’s Social Security record (if you’re unmarried), and it won’t impact your former spouse’s benefits, Dorrell says.
You may be eligible to draw benefits of up to 50% of your former spouse’s benefit. Check out the Social Security Administration’s website for more information about filing for benefits if you’re divorced.
7 Tips To Help Pay Off Debt More Quickly
By Tabitha Jean Naylor
The typical American has some unpaid credit cards, medical bills and other kinds of debt.
Even those who consider themselves relatively debt-free probably have mortgages, car loans or student loans outstanding. No surprise, then, that millions of Americans are constantly looking for new ways to get out of debt.
Here’s a look at seven tips you can implement to help you get out of debt more quickly.
Make The Commitment And Be Disciplined
Any resolution to become debt-free will only be effective if you first decide to get out of debt and commit to following a measured and disciplined approach. Without these two essential pillars your “get out of debt plan” will be dead in the water.
Make A Plan To Repay Highest Interest Rates First
Take a look at all of your debts, and organize them by yearly interest rate. When you begin to repay the debts, it is important that you pay the debts with the highest rates first, and then pay the debt with the next highest rate, and so on. This will help you to get the most bang for your buck.
Implement The “Snowball”
Snowballing, when it comes to repaying debts, refers to the act of using the payment amounts for paid off debts to make a bigger dent when paying subsequent debts. For example, say you have three debts with payments of $500 for 24 months at 11 percent, $300 for 18 months at 8 percent and $700 for 36 months at 5 percent
If you work hard to pay off the $500 per month debt in just 10 months, you would then use that “extra” $500 and apply it to the $300-per-month debt until it’s paid. Then you’d use the extra $800 to tackle the finale $700-per-month debt.
Ask For A Rate Reduction
Oftentimes credit card companies will be willing to give you a lower interest rate if you ask. Be warned: It is probably not a good idea to try to reason with them and tell them that you are having a hard time paying off the card, or that if they lower the rate then you can repay it faster.
Instead, tell them that you’d like to make their card your primary choice for making purchases, but they need to give you a more competitive rate first.
Settle Out Collections
By the time a debt reaches collections you have a good chance of repaying it for far less than the original amount, even including penalties. Call the collections company, and ask how much they are willing to knock off the balance. Having funds to pay the agreed upon amount immediately will usually get you a better deal than if you were to make a payment agreement.
Reduce Expenses
This is such a common sense suggestion that it almost seems like it should not be included here. It bears repeating. When looking to get out of debt you should reduce your expenses as much as possible, and use the savings to apply to repaying your debts faster.
Seek Extra Income
Working a second job, working overtime and earning more commissions (for salespeople) have helped millions get out of debt over the years and could work for you, too. Also, consider selling valuables that you may not need.
What Kind Of Financial Plan Makes Sense For You?
By Mark P. Cussen, CFP®, CMFC, AFC
Consumers can now get financial plans from a multitude of sources, including banks, brokerage firms, insurance companies, accountants and CPAs, as well as individual financial planners and planning firms. Despite this, just 31% of financial decision makers had used a professional or sat down themselves to craft a comprehensive financial plan, according to a 2012 survey from the CFP (Certified Financial Planner) Board. If you do invest time and money in developing a plan, it needs to be one you can trust and really use. Financial plans can vary considerably – not just in cost, but in their complexity and detail level. Some provide considerably more information than you may want or need. Knowing what you require from a financial plan can help you choose a planner who can structure a plan that truly meets your needs.
What Should a Financial Plan Tell You?
Although there are no official rules outlining what must be included in a financial plan, most well-written plans contain at least the following components:
•A well-crafted set of financial goals and objectives based on your information, including finances, risk tolerance and time horizon;
•Future growth and projections based on realistic assumptions and/or historical projections or models;
•An executive summary with a brief, understandable synopsis of the plan; and
•A list of tasks and objectives to be accomplished (i.e. retirement-plan contributions/distributions, changes in asset allocation, etc.).
Many sophisticated plans include multiple hypothetical projections that illustrate what could happen in various possible scenarios, a mathematical analysis of the amount and types of risk exposure inherent in your investment portfolio, Monte Carlo simulations and much more. They also often contain a written guarantee that the plan contains unbiased information, and that the advisor has unconditionally put the client’s interests ahead of his/her own. To learn more about fiduciary standards for financial planners, see Choosing A Financial Advisor: Suitability Vs. Fiduciary Standards.
Comprehensive or Modular: How Complete Do You Need?
Paying $1,500 or more for a comprehensive plan that makes lifetime projections does not make sense for everyone. If you’re, say, a single college graduate who may change jobs, spouses or even careers once or twice in the next 10 years, a very basic plan that simply delineates fundamental goals – such as paying off student loans and having a certain amount saved by age 30 – would more than suffice unless you have special financial needs or circumstances.
If you only have questions – or need numbers run – for a certain segment of your finances, such as retirement or college planning, it pays to find a planner with a program that can generate a plan for only the modules that apply to your situation. This type of plan may cost less than a comprehensive plan, more like $500, as it requires less data entry and fewer computations. Some professional programs such as Moneytree™ do planning by module easily, while other commercial programs cannot be dissected in this fashion.
Reality and Readability
Needless to say, your financial plan’s value depends largely upon your ability to understand what it says. Even simple financial plans can be difficult to read and understand if they are poorly written and formatted. Many programs generate rows and columns of numbers that may be realistic and accurate. But if they just make your eyes glaze over when you look at them, instead of conveying what you need to know, the plan is a failure. Your planner should be able to show you what those numbers mean, but an effective financial plan should not require a translator to be understood. Before you settle on a planner, ask to see samples of plans he or she has made for other clients and make sure that the format meets your needs and your desired detail level.
Be sure to evaluate the underlying assumptions your financial advisor plans to use when constructing the plan to make sure they correspond to reality. Discuss them in advance and again when you get a draft of your plan. For example, if all the illustrations assume your assets will grow by 10-12% per year, every year, request some that show what will happen if the markets don’t meet this expectation.
Responding to Changed Circumstances
Unforeseen life changes can derail even the soundest financial plan. Although hypothetical scenarios can (and often do) incorporate potential catastrophes, such as premature death and/or disability, other events – divorce, job loss, lawsuits, an inheritance or the birth of a child with health issues – are often excluded. For example, being laid off from a high-paying job may leave you with a substantially reduced income and lifestyle for some period, put you in a lower tax bracket and reduce retirement-plan contributions and distributions, as well as other aspects of your current financial plan. On the other hand, selling your start-up to a big company or getting a huge promotion would push you in the other direction.
Many planners will gladly update certain segments of a financial plan at little to no charge (at least up to a point). Major changes could require creating a new plan based on completely new assumptions and circumstances. The more concise and detailed your plan is, the greater the chance that this could happen. If you want to forecast a very specific cash-flow scenario during retirement, for example, you may need to amend the plan several times to maintain a relevant projection of IRA and/or qualified plan distributions and living expenses.
The Bottom Line
Although there are certainly times when projecting a very specific scenario using very specific assumptions is warranted, paying for this level of detail can be overkill in many cases. If your life circumstances and finances are relatively straightforward, a simple plan that outlines a broadly defined strategy is probably sufficient. For more information on financial plans and how they can benefit you, consult your financial advisor.
How to Break 5 Bad Financial Habits
By Geoff Williams
If you want to make extra money, you might consider getting a second job or paring back your budget. Both are smart strategies, but first consider whether you have any bad money habits you need to curb. After all, if you’re always paying bills late and getting hammered with late fees, that may be what’s draining your bank account.
So if you’re the reason your money never seems to stick around, here are some strategies to help break five bad financial habits, culled from research and interviews with members of the National CPA Financial Literacy Commission.
Paying bills late. Late fees can be as much as 10 to 15 percent of your monthly bill. If you’re frequently late with most bills, you’re probably spending 10 percent more each year on bills than you should. And if you’re constantly late with some bills, like credit card payments, the credit bureaus are probably taking note and dinging your credit score.
How to break the habit. It sounds so easy: Pay on time. But it isn’t easy if you’re living paycheck to paycheck, and you never have enough money on hand.
If that’s the case, being more organized will help. Clare Levison, a certified public accountant in Blacksburg, Virginia, suggests setting up calendar reminders through your email or phone to alert you when bills are due. If you have ample money but are just forgetful, she says, “you might also consider setting up auto pay so the bills are paid automatically from your bank account each month.”
You could also do it the old-school way, says Armando Roman, a CPA in Phoenix. “A simple, old-fashioned way to budget is to put money into different envelopes for specific purposes,” he says. You put cash in the envelopes the moment you have it and “after each envelope is filled on each payday, the money left over is what the person can spend until the next payday.”
If it’s only one or two bills you’re paying late, contact the company and ask for a new monthly due date. It’s worth a shot.
Getting hit with bank fees. Every fee you pay your bank for having insufficient funds in your account is money you could have spent on yourself or your household. If you rack up three bank fees a month at $36 a pop, that’s $1,200 a year you could save by ending the overdraft fee madness.
How to break the habit. If you’re constantly collecting bank fees, it’s probably due to a lot of reasons, from not making enough money to overspending. If it’s a joint account, you may be communicating badly with your spouse about how the money should be managed.
Analyze everything you’re doing to pinpoint the culprit. And don’t be afraid to consult your bank manager, who might go easy on you and reverse some recent fees. The manager might also have some practical suggestions for curbing your fees, like opening a savings account so if your checking account goes into overdraft, money would be pulled out of savings.
There are often fees to that approach, too, but smaller fees — and there’s also the matter of funding the savings account.
Taking out a loan for everything. If you’re putting daily purchases on credit cards and not paying them off every month, or if you’re taking out payday loans or drawing on a home equity loan, you’re collecting more interest every month and digging a financial hole.
How to break the habit. Like collecting bank fees, you need to do a financial exam to see exactly where you’re going wrong. But you would help yourself a lot if “whenever you get paid, pay yourself first,” says Ernie Almonte, who owns an accounting and consulting firm in Providence, Rhode Island, and is the chairman of the National CPA Financial Literacy Commission. “Set aside an amount, automatically deducted from your pay, to set up an emergency fund. Start with a small amount and build from there.”
Almonte adds that if you could put away $10 a week, you’d have $520 by the end of the year for emergencies. Of course, the problem for a lot of people is that financial emergencies crop up every few months or so. Still, if you can create your own cash stash and borrow from that instead of borrowing from a lending company that will charge a high interest rate, you’ll be far better off.
Overspending. This leads to just about every financial problem and bad habit, from mounting debt to feeling like you need to take out a loan — to pay for the loans you already have.
How to break the habit. Your overspending problem may be due to a lack of clarity on how much money you have to spend. Almonte suggests keeping track of your expenses online or with an app on your phone.
Mint.com is one of the most well-known personal finance management tools, but there’s also LearnVest.com, Manilla.com, DailyCost.com, Toshl.com, LevelUp.com and Checkme.com (to name a few). Luckily for the financially beleaguered, many are free.
You could also try to delay your purchases. For instance, if you’re buying something online, Almonte suggests leaving the purchases in the shopping cart. “Wait a couple of days and ask yourself if you still need or want this item. I started doing this a long time ago and most times, I don’t make the purchase,” he says.
Spending money as soon as you get it. Spend your paycheck without thinking things through and putting savings aside, and you’ll never have money on hand when you need it.
How to break the habit. Break all of the other habits first. You’re probably spending money quickly because a bill is due, or overdue, and hanging onto it isn’t an option.
Or perhaps you’ve been going without something for so long that you’re grateful to have a little money in the bank, and you can’t help but spend it. But if that’s the case, it’s quite possibly because you’re paying bills late, collecting bank fees, taking out a loan for virtually everything and doing a lot of overspending. In other words, break your worst financial habits, and you’ll stop breaking the bank.
10 Things Everyone Should Know About Money
By Kimberly Palmer
Starting from scratch.
Americans tend to score poorly on financial literacy tests, but it’s not entirely their fault: School systems don’t generally require personal finance classes, and many parents feel ill-equipped to pass on big lessons about spending, saving and investing to their kids. Here are ten basic tenants you should know in order to navigate today’s financial world:
You have to earn more than you spend.
At the end of the day, you have to earn more than you’re spending in order to come out ahead. Sure, short-term loans and credit card debt can get you through a crunch period, but on average, you have to bring in more than you’re shelling out to stay solvent.
Saving early will help you save more.
You probably remember hearing about compound interest back in elementary school. The gist is that the earlier you start putting money away — for retirement, a house or just an emergency fund — then the more will accumulate, thanks to the growing powers of compound interest. Just make sure the money is in an interest-bearing account, or, if it’s in the stock market, that you can handle the inevitable ups and downs in the short term.
Higher rewards mean higher risk.
If you want to keep your short-term savings in a safe spot, like a bank account, then you’ll sacrifice higher returns in order to do so. If you’re willing to take on more risk in the stock market, you will probably earn more over the long term. That’s why bank accounts and more conservative investments are best for short-term savings, and riskier securities (via a diversified portfolio) are better for longer-term savings.
Diversification is your friend.
You’ve probably heard of the adage warning against putting all your eggs in one basket. Well, the same is true of investments. If you put your money in a single stock or even a single sector, you face a greater risk of losses if that sector faces hard times. That’s why financial experts recommend putting savings in diversified portfolios, like an index fund.
Protect yourself from scam artists.
Identity theft is a real problem in the financial services sector, and one of the best ways to reduce your risk of being a victim is by monitoring activity on your accounts. By reviewing your monthly account statements and checking for any charges you don’t recognize, you can quickly alert your bank if you see a problem. Then, the bank can replace your cards or account numbers if necessary.
Insure yourself against rainy days.
Americans tend to underinsure themselves, partly because we’re an optimistic bunch. Nobody likes to dwell on the worst-case scenario. But by taking out appropriate amounts of renters insurance, disability insurance, homeowners insurance, health insurance and life insurance, you can help yourself, and family members, survive tough times. In the meantime, you’ll enjoy the peace of mind knowing that you and your loved ones are protected.
Automate savings.
When savings are automatically subtracted from a paycheck or bank account and redirected into a retirement or savings account, it’s easier to build up significant savings over time because you don’t have to think about transferring the funds. You also avoid the risk of spending the money before you save it. Many employers and banks make this kind of automation easy.
Minimize your debt load.
Debt isn’t always a bad thing; it can enable people to go to college or buy a home that they otherwise couldn’t. But people get into trouble when they take on more debt than they can handle, or fail to make their monthly payments on time.
Track your credit score.
Credit scores are increasingly important in our lives, and they often determine the interest rate you can get on loans. That’s why it’s important to get your free annual credit report once a year at annualcreditreport.com. You can check for any errors and make necessary corrections.
You’re never done learning.
The financial services industry is constantly changing, with new products, new fees and new ways to save and spend money. To make sure you’re making the best decisions for your own finances, it’s a good idea to read up on any changes to your own account policies as well as stay abreast of changes in the law or industry that might impact you.
How much do you need to earn to be happy?
By Jeanne Sahadi
Most people know in their heart of hearts that making gobs of money can’t guarantee true happiness.
Then again, most would acknowledge that you need to have at least a minimum income for a shot at well-being – if only so you don’t have to scrounge for every meal.
In between gobs and a bare minimum, of course, is where most of us live.
And it turns out many Americans don’t think they need a CEO paycheck to be happy, or even six figures.
When asked how much would do the trick, just over half of people surveyed in CNNMoney’s American Dream poll said it would take less than $100,000.
Nearly a quarter of the people who took the poll, conducted by ORC International, said between $50,000 and $74,999 would work. That calls to mind the results of a Princeton study, which found that emotional well being rose with income, but not much beyond $75,000.
In other words, past a certain income level, your happiness comes from other factors.
Interestingly, some people really don’t care about money: 10% of those polled said somewhere north of a buck but south of $30,000 would be their minimum requirement.
And 6% said money can’t buy happiness, period.
On the high end of the scale, 23% said they’d need between between $100,000 and $199,999.
What about how much it takes to be “rich?” A six-figure paycheck was a more typical answer when the same adults were asked that question. But even here, their answers didn’t approach the stratosphere.
The most typical answers fell between $100,000 and $199,999. In fact, a full 60% thought incomes below $250,000 would be enough. And only 11% said they’d need to make $1 million or more to consider themselves rich.
The answers given tended to be higher from those who currently make more than $50,000 today.
Of course, making a high (or higher) income doesn’t guarantee you’ll be rich. It all depends on what you do with your paychecks.
If you’re interested in amassing wealth, and wondering when you’ll be a millionaire or whether you can retire early, saving and investing a large chunk of your income will certainly help.
Certified financial planner Mari Adam of Boca Raton, Fla., works with a couple – a welder and a nurse – whose joint income is less than $75,000. But, Adam said, “they’re very happy with what they have. And the irony is they have more saved than some people who make two or three times more than they do.”
Where you live will also play a role in your ability to make the most of what you earn, since cost of living and taxes can vary greatly. That’s why a $100,000 paycheck in New York City won’t go nearly as far as the same salary in Austin, Texas.
CNNMoney’s American Dream Poll comes from telephone interviews with 1,003 adult Americans, conducted by ORC International from May 29 to June 1, 2014. Both landlines and cell phones were included in the sample
7 Things Rich People Believe
I am not sure how true some of these points are but I am interested in hearing your thoughts. Please read the following article:
By Tom Sightings
Most of us spend a good portion of our lives working for a paycheck. Yet we have conflicting emotions about money and wealth. We envy the rich and famous. At the same time we berate the so-called 1 percent for being greedy and selfish. We play the lottery in search of a sudden windfall. Yet many of us still believe that money is the root of all evil, and that it’s easier for a camel to fit through the eye of a needle than it is for a rich person to enter heaven.
Money, not sex, is the last taboo. But if you want to make a successful life for yourself and build up resources for a comfortable retirement, you need to get beyond your mixed feelings about money and start thinking like a rich person. Here’s what rich people believe:
1. Money is not evil — it is the fuel that produces good things in life. Greed may not be good, but money brings health and happiness and a comfortable lifestyle for you and your loved ones. The wealthy are not inherently dishonest; they do not feel ashamed of their first-class lifestyle or their bulging portfolios. In fact, most rich people take pride in their accomplishments and enjoy the fruits of their labors.
2. There’s nothing wrong with wanting more money. Many people find it more difficult to talk about money than they do about sex. But there’s nothing shameful or dirty about money. And while there are always people trying to keep you down — who say you’re too big for your britches, or too full of yourself — the real road to riches is paved with rising ambitions, a focus on the future and your willingness to bet on yourself.
3. The way to achieve real wealth is to earn more, not save more. Sure, you can squeeze out a few extra dollars from your monthly budget to deposit into your retirement account if you clip coupons and shop at the outlet mall. But the way to get rich is to play offense, not defense. You need to earn a bigger paycheck, not pinch pennies. Your time is better spent cultivating your career and developing new opportunities. The key is not to view your job as drudgery, but to enjoy what you do, expand your skills and look for new opportunities. Don’t be afraid to take a few risks, learn from your mistakes and let failure roll off your back.
4. Rich people tend to live below their means, not above. Too many middle class Americans run a budget deficit every month and struggle to pay the interest and penalties on their credit card bills. Rich people pay themselves first. They spend less than they earn and use extra funds to invest in the future. They may take on debt to start a business, pay for training or buy a house, but not to purchase the latest consumer item. They get on a virtuous cycle: the more you invest, the more you earn and the easier it is to live below your means.
5. Rely on brain work, not a lucky guess. Millions of people play the lottery, but only a handful win the jackpot. Millions of investors trade stocks, but the people who get rich are not the day traders but the Warren Buffetts of the world — the ones who do their homework, invest for the long term and end up retiring rich. It’s no different with your career. Yes, a few lucky people are discovered in Hollywood or make a hit record. But most people who get rich do it by working hard, solving problems and planning for the future.
6. Spend more on education and less on entertainment. Nobody ever struck it rich reading the tabloids, watching television or playing video games. Successful people spend their time improving their skills, researching opportunities and figuring out ways to solve problems. Yet these people typically do not put a lot of faith in formal education or fancy degrees. They focus on useful, practical skills that are relevant to their career.
7. You think you deserve it. Magazines and newspapers are filled with articles about successful people in all walks of life, from business to education to government. There’s no reason why you can’t be one of them. But you have to believe in yourself, develop your skills and trust your judgment. You need to look after yourself, and not defer to other people. And realize that you cannot give what you don’t have. You’re never in a position to help anyone else unless you’re in a strong position yourself.
One Man's Opinion 