Where do I Start??!!

The New Year has lost it’s luster, many of us who started with the best of intentions and a resolution of “this year’s gonna be different” are finding ourselves back on the treadmill to nowhere, and may be getting very discouraged. Or maybe you aren’t a resolution person, but you do have something you want to change and aren’t sure where to begin. With so many possibilities how do you know which is right for you?!

I’m a financial planner, so my focus will be on money – but these ideas will apply equally well to most other goals. Specifically, my focus in this article is going to be getting out of debt – because it’s a scenario faced by so many people.

First, begin with the end in mind. Setting the only goal of being “debt free” in “x” years, while admirable and certainly achievable over the long term; may not be the best way to start – especially when you take into account the average household is over $130,000 in debt (NerdWallet). I say this because it’s easy to become discouraged and give up, or put off working towards the goal altogether. Instead, set a monthly goal which will make you uncomfortable; but will also give you a sense of accomplishment when you achieve it.

Let’s use $16,000 in credit card debt, with minimum payments of $250/mth and an 18% interest rate as a hypothetical situation. Paying just the minimum it will take over 19 years to pay this debt off. Horrifying, right? And if you have more than one credit card, your balance owed is higher, or both (or any other combinations of additional debt) it’s easy to understand why people feel stuck.

Adding just an additional $25/mth to your payments will decrease the amount of time to pay that card off from 19 years to 12 years – you drop 7 years of payments (and associated interest). Bumping it up to $50/mth decreases the time it takes to 9 years. My point is this – contrary to what it may feel like, you do NOT need to make a HUGE change to your payments, anything over and above the minimum will help you pay the debt off (as long as you stop adding to it).

If you want to see this for yourself, using real data, here’s how. Open an excel spreadsheet. Enter the following (use a separate cell for each): Interest rate (use percent sign), annual payment (=monthly payment *12, excel will do the math), current balance owed (using a negative sign). Then, click on the “fx” (function) button and look for NPER (number of periods). Select the cell matching what it’s asking for. Excel will then solve for how many years it will take you to pay the debt down.

Rate – interest rate

Pmt – annual payment

PV – current balance

FV – 0

Type – leave blank

Great, right? But what do you do if you have more than one credit card or source of debt? Personally, I’m a fan of attacking whatever has the highest interest rate; but alternatively you could select the one with the lowest balance. The advantage to selecting the lowest balance is it gives you a “win” sooner. After you’ve paid that debt off, take the payment you were making an roll it into the next debt you want gone.

Using my example above, if you are paying $250 on (3) different cards ($750/mth total), and you increase it to $775/mth by adding $25/mth to one of those cards; you would take the $275 and add it to the $250 your paying on the next card – so now you’re paying $525/mth (after the first card is paid off). The last card would have you paying the full $775 towards it, and voila – you’re not only debt free, you’re comfortable not having that $775/mth. So now you can put it to work for you – all from decreasing your monthly spending by $25/mth.

No, this is not going to change your circumstances overnight. I would prefer anybody who chooses to pay down their debt to pay more than an additional $25/mth, but I feel like everybody can find $25 in their budget. My intent is to offer hope, a ray of light to pierce the darkness and despair debt can cause. It doesn’t have to rule your life, but you have to take the first steps of (1) understanding your spending habits and (2) having a willingness to change.


Beware the “Deal”

Ever feel like the deck is just stacked against you when it comes to saving money? After all, no matter how hard you try, something always seems to come up – and usually just when you’re starting to get ahead. No doubt sometimes this is true, after all I think we’ve all had those “oh crap” moments and watched our emergency savings dwindle away to nothing. However, I think if we were an impartial viewer we may draw some different conclusions. Having an unforeseen crisis occur and wipe out the money you saved is not to be confused with not having an emergency fund established because of bad saving habits, compounded by life event which would not have been considered “traumatic” if you’d done a better job saving.

Now before you conclude this is yet another person telling you what you should/shouldn’t spend your money on – that is not my intent. I’ve lived what I’m writing, and I want to share one of the techniques I used to help myself out of the hole. Today the focus is on buying wholesale and/or discount items. I used to shop at BJ’s Wholesale Club, and I’m familiar with the idea of buying in bulk to save money. The same goes for using coupons and looking for items “on sale”. In some cases, this can make a LOT of sense, and it really does save you money. But it should not be taken as a “rule”; because it’s easy to let spending get out of control.

Let’s address buying in bulk first. I’m all for buying bulk quantities of consumables like toilet paper, paper towels, etc; especially if you have a large family. But temper this with reality – how much will you use in the span of a month? Why a month? Because I’ve found tracking spending for a month gives you a fairly accurate idea of where your money is going, and it’s not too difficult to prepare a spending plan for the entire year. When you consider buying food in bulk, make sure you’re going to eat it. Sounds like a no-brainer, right? But how many of us have thrown food out, unopened, because it passed it’s expiration date or spoiled?

Coupons, sales and discounts all have potential pitfalls as well. You’re not really saving any money when you buy something with a coupon, or that’s on sale, if you wouldn’t have bought it if you didn’t have the coupon or if it hadn’t been on sale. But if you are shopping for something, like a TV or a computer, waiting for it to go on sale becomes a winning strategy. The same is true when grocery shopping – coupons are great, if they’re for something you were already going to buy.

Lately it’s been online retailers who I’m concerned about – offering free or discounted shipping when a certain dollar value has been ordered. The shipping isn’t really free, you’ve just paid for it in additional merchandise.

These tips apply whether you’re in debt or not, why give anybody more of your hard-earned money than you have to. If you’re struggling to save, or wondering where to even begin, a review of what you spend your money on is a good start. Don’t change anything right away, take the time to look at where your money goes and understand your triggers. A few examples are “discontinued”, “two for the price of one”, spend “x” and get “y”. We’re at a disadvantage, those who sell products or services often have entire departments whose sole purpose is to get us, the consumer, to buy more. But if we shop smart, understanding what you intend to purchase before walking into the store or hopping onto the website, we can strengthen our purchasing power.

Look Before You Leap

How many of us have had something so enticing dangled in front of us we felt we just had to take advantage of it? Could have been a new car, a new home, new job – you get the idea. Frequently though, there are unintended consequences; that if we’d taken a little more time to step back and consider whatever it was unemotionally we may not have made the same decision. Or, if we had made the same decision, we would have been more prepared for what came next.

When making a major purchase don’t rely on what you can get a loan for. Lenders aren’t concerned about other financial responsibilities you may have. Before you start shopping make a list of what you need/want. The wants should be broken into negotiable and non-negotiable desires; in case you cannot afford  your dream. Knowing what you want before you start shopping will also help keep you focused when sales people start bringing up alternatives.

Another thing you should be considering are related expenses. If you’re buying a new car, what will this do to your insurance payments? Do you need to increase your budget for gas? Does it fit your need? For example, if you do a lot of work on your house and need a truck to carry stuff, make sure this is considered during the purchasing process.

When you’re buying a home, the age of the house is a consideration. When were the appliances, roof, furnace, etc. replaced? Do you plan on purchasing furniture – if so, how much will this cost? When putting a down payment on a house you’ll want to leave enough money aside to pay for any furniture and/or immediate improvements (like a fence for your dog) you want to make.

Lastly, moving to another state/country. Generally you’ll know what your income is, but that doesn’t mean it will go as far. Tools like CNN’s cost of living calculator can help you estimate the differences in costs between your old city and new one (doesn’t work for moving overseas). Think about medical and dental – you don’t want to try to find someone who takes your insurance for the first time when it’s an emergency. If you have specific medical needs, verify there are treatment options local to where you are relocating.

It’s easy to get caught up in the moment, be swept away by the euphoria of something new or the illusion of everything being better. The trick is recognizing these feelings for what they are, and analyzing the options unemotionally. I recommend talking with a trusted advisor – you’ll get feedback on the answers to your questions, and it can help identify when you’re being overly optimistic.

Taking Your First Steps towards Financial Fitness

Wow – it’s already a week into 2017; and this year we’re really going to get our finances straight. It’s a common theme, yet something happens and more often than not nothing changes. It’s tough, overcoming what has become – whether you want to admit it or not – a habit. Much like quitting smoking or dieting, there are frequently reasons you can’t save “yet”. Welcome to life; where curve balls seem to be the order of the day – so what can we do?

First, as I’ve said in the past we need to be realistic about what we want to accomplish. If you’ve had difficulty saving large sums, be it for retirement or other goals; don’t try to play catch up. Start small – after all I haven’t seen any toddlers winning marathons or reciting the Gettysburg Address; the same is true for saving. In the beginning it’s more about changing behaviors than how much you can put aside.

Identify what you are doing, or not doing, that you don’t like. What don’t you like about it? Why don’t you like it? Is it something you WANT to change? Is it something you feel you have the power to change? For example, feeling your spouse or significant other spends too much money on their hobbies is not something you have total control over, and not where I would recommend starting. If instead your goals were to (1) lose a little weight and (2) save more money; I would have you look at what you do for your meals. This is a great opportunity to meet both goals using the same solution – making yourself lunch. You are in control of what you eat, and how much you are spending to make those meals.

But if you’ve been eating out every day of the week, stopping cold turkey may not be the most successful strategy. Instead, commit to bringing your own breakfast/lunch/dinner one day each week. It’s much easier to follow through creating more opportunities for success. In 4 months time add a second day, and so on until you’ve reached your desired end state. The trick is giving yourself enough time to make it a habit – indicated by you no longer thinking about it.

If you don’t know where to start – pay yourself for the chores you’re doing around the house. For example – you decide you’re going to pay yourself $20/hour (keeps the math simple). Doing the day’s dishes takes 15 minutes – so you’ve just earned $5. Laundry for the week takes 30 minutes (loading/unloading/folding & putting away clothes – don’t count the time the machines take unless you’re doing it by hand) – you’ve just made an additional $10. At the end of the week add it all up and pay yourself.

You don’t even need to have physical cash. Open a new savings account and at the end of the week tally up what you’ve done and transfer the money into this new account. Don’t get a debit card for the account, just leave it alone – at the end of the year take 25% of what you’ve saved and treat yourself to something. Heck – if you have a spouse or significant other team up, offer to pay each other. : )

In my opinion this rewards you for doing something you may not want to do and makes the activity of saving easier. Putting the money in a new account without ready access will help curb the desire to spend it. The important thing is consistency. Once you decide on what you’re going to do, you need to follow through; otherwise it will not become a habit.


New Year, New You?!

Welcome to 2017! How many of us have resolved this year will be different? Perhaps this is the year you get rid of those stubborn pounds and fit back into your high school/college jeans; or maybe you’re focus is on paying down debt and increasing your savings. Whatever the goal, what can you do to make it happen?

To start, ask yourself if you’re committed to it – or are you doing it for someone else? If you’re not committed you’re almost certainly doomed to fail. I feel like we (humans) are inherently selfish, and that’s okay – it’s kept us alive as a species this long, and look at how far we’ve come. The trick is to use this in our favor. If you want to lose weight or save money, then do so for you. For example, I want to move into an RV when my son finishes High School (seriously); but I need to start saving now because it’s not exactly something I can just go out and purchase. So I’m motivated to save more of my check each month, to give myself the freedom I’m looking for in a few years (he’s in a certificate program, so he’ll be in school until 21).

That’s one of my why’s, I have others and they are all equally about making me feel good. There is nothing wrong with giving yourself rewards, where people get into trouble is when they forget, or don’t want to do, the work necessary first. Unfortunately it’s unlikely any of us will have a magic pill to lose weight or win the lottery, but if we focus on our goal(s), breaking them into manageable chunks to be addressed weekly or monthly; then there is absolutely no reason 2017 cannot be the year you keep your resolution.

So don’t be afraid to be the best you! You CAN do it, if you WANT to do it. And be okay with not wanting to. Life is about choices, and being able to look in the mirror and being happy with yourself. I’m not proposing a life of hedonism, rather a balanced approach of enjoying what life has to offer while acknowledging, and preparing, for the opportunities yet to present themselves. Let’s make the most of 2017!


Stop Labeling Yourself

In my profession a question I hear posed to prospects and clients very frequently is “are you a spender or a saver?” In fact, until recently I was guilty of doing this as well – unfortunately it’s not helpful. You may enjoy spending or saving, but it’s not “who” you are; any more than enjoying a good book makes you a “reader”. We (humans) are not one-dimensional creatures, yet we assign labels almost willy-nilly to help put those we interact with into a box.

My son was the catalyst for this blog. As many of you may know, he has Autism. He is not, however, Autistic. The difference is important, because having a disorder or disability is not the same as being defined by the characteristics that typically go along with that disorder or disability. Autism is a neurological disorder with a broad range of associated challenges, and families like mine can choose to accept the “reality” or find ways to compensate and work-around those challenges. My son and I have worked together in the years since my wife passed away and I’m proud to say now he has achieved significant levels of independence we never thought possible – in fact I distinctly remember being told not to be disappointed when he plateaus at an early age by an elementary school teacher he had.

What does this have to do with being a saver or spender? I feel identifying yourself as a saver or spender hinders your sense of control. After all, if this is who you are what possible chance is there to change? And it shouldn’t be taken at face value that one is bad (spender) and the other good (saver). If you’re preventing yourself from doing what you enjoy or hoarding your cash for fear of what may come, being a saver can be detrimental. And not all spending is bad – if you plan and budget for your spending then I say go for it.

The trick is building habits to support what you enjoy doing – either saving or spending. It’s also important to own your actions, don’t go on an Amazon spending spree after a bad break-up and qualify it by telling yourself “I can’t help it, I’m a spender”. Maybe you did it because the act of buying things makes you feel good, because it’s something you have control over. When my wife died, I was definitely guilty of retail therapy – there is something strangely liberating about the act of buying. This doesn’t make me a “spender”.

This was a long-winded way of saying I think we are all spenders and savers. Maybe you don’t enjoy saving, or you have a hard time qualifying why you should save for an uncertain future when you’re living today. Or maybe you’re petrified of what the future brings so are unwilling to take any risks today. There IS middle ground, we just need to find it. But you may not be able to find it on your own – an outside perspective could be just what the doctor ordered. Whatever you do, don’t get discouraged if there are false starts or hiccups in the process, I have found those things I most value didn’t come easily.

Don’t Buy into the Hype

If you’re watching the markets you’ll have seen them enter record territory, and people predicting all sorts of potential endings. At the end of the day it doesn’t matter what the market is going to do in the immediate future unless you plan on withdrawing from your accounts. And if you’re planning on withdrawals, my hope is you’ve already shifted to a more conservative stance.

Here’s my view – markets are going to go up, until at some point they correct themselves and drop. Over the long term the money invested is going to grow, barring any mistakes on the part of the investor(s) – for example trying to time the market and buying high/selling low. I have yet to see proof anyone can predict the next winner with regards to asset classes, and in my opinion the best thing you can do for yourself is diversify your portfolio – considering when you will need the money and how comfortable you are with your accounts going up/down.

As a further hedge for yourself, set aside (2) years of cash for retirement. This way if the market bottoms out the year you retire, in most cases you will not need to withdraw from your accounts; providing yourself an opportunity to potentially gain some of the losses before taking distributions. This could be limited by age, if you must take required minimum distributions; but it will still lessen the damage by reducing the amount withdrawn.

Most of us have, or know someone who has; made an emotional decision they regret. That’s exactly what is happening when you sell because of fear of what the market will do after the inauguration, or Brexit, or any other headline that is bound to pop up. It’s also what happens when we buy something because it’s done so well – for example all those who were buying gold not too long ago.

If it’s not part of your plan, or the only reason you’re doing it is because of how you’re feeling in a moment, then take a step back and reconsider. Get an impartial opinion, from someone who isn’t living in the moment you are; and stay open to what they say. Of course, if this was easy I’d have nothing to write about. The first thing you can do to help yourself is create a plan, because it’s what you will come back to whenever you are in doubt. If you’re not sure where to start, or in what order you should do things, find a professional you can trust and work with her/him.