Back in the Saddle Again

It's that time of year again....New Year's Resolutions! I also just returned from a Kansas State University (where I'm now a Ph.D. student in Financial Therapy) teaching retreat, and we learned a plethora of intriguing ideas incorporating media into the classroom. It has re-inspired me to keep up the blog.

So the postings will continue, but will be more succinct and research-based. Of course, it's always around the topic of personal finance, so here's to keeping this New Year's resolution!

The Mississippi Agricultural and Forestry Experiment Station just completed a study looking at a student's personal finances. They found links between personal finance and relationships, living arrangements, and religious preferences. Interesting study! Take a look.....

Money Sense from the NYSE

Today, I was on a financial literacy webinar and learned about a great new resource. The New York Stock Exchange (NYSE) has recently released a financial literacy web-based tool to the general public. Find it at www.nysemoneysense.com/ There is a section for questions, great articles, ideas and tips about money, and a list of resources for even more information. Take a look....you might find the answer to your money question!

A New Game in Town: New Rules for the Credit Card Industry

Last week, a new law took effect that overhauled the credit card system. These new rules are to increase consumer protection for credit card holders. These rules ban several harmfulpractices and require greater transparency in the disclosure of credit card accounts. It's time for the credit card companies to step up to the plate and do what is right for the consumer!

To learn more, check out the Federal Reserve's new website at
http://www.federalreserve.gov/creditcard/

Know your rights as a credit card user!

New rules regarding Debit & ATM cards

The Federal Reserve will implement new rules giving debit and ATM card users additional options regarding overdrafts. Although the rules become effective on July 1, 2010, in the coming months, banks, credit unions, and other financial institutions must offer consumers the ability to make decisions about overdraft services for transactions made with their debit or ATM cards. The Federal Reserve’s online publication, "What You Need to Know: New Overdraft Rules for Debit and ATM Cards" provides an explanation of how the rules will affect existing and new account holders.

“If I Had Only Known”: Learning to Take Charge of Your Finances as a Single Adult

“If I had only known….” is a phrase that has been repeated multiple times in the recent months from Wall Street to main street America. The wide-spread credit and housing crises continue to unfold market fluctuations, housing downturns, and in some cases, bankruptcies and foreclosures impacting Americans and global economies. Many are disheartened with a feeling of fear that permeates the atmosphere. Greed has reared its ugly head, and now, we are facing a crisis that is epic in proportion. According to Alan Greenspan, the U.S. is suffering a "once-in-a century" type of financial crisis.

Now is the time to act. The last thing you want to think is “If I had only known…” after it’s too late. As a single adult, one of the benefits of learning now is to the same secret to successful saving and investing…START EARLY! Don’t wait until you’re married, have a job that pays more, or any other “significant start” in life to get your finances in order – the time to start is now, regardless of where you are on your life’s journey. The way we manage our financial household can even have a larger impact on the global economy.

The single years provide a unique time in life for further education and personal development. Personal finance should be a part of that foundation you are laying for your future and it will have lasting effects. The following are three basic financial principles to start working on today:

Be Debt Free

There are many benefits and freedoms we enjoy from being debt free. Many people don’t realize that your credit score can not only affect the ability to get loans and the interest rates you will pay, but it could also be the deciding factor for future employment. Many employers today pull credit reports during the hiring process because they see credit reports as an indicator of your integrity and trustworthiness. Keep in mind that some professions which require a security clearance require a good credit score. A poor credit history can put your future career in jeopardy.

Realize there are long-lasting consequences of poor credit. For example, bankruptcy stays on your credit report for the next 10 years. Even missing just one payment on a credit card will show on your credit report for years and will have a negative impact on your score. Also, when the time does come for marriage, be aware that you are not only taking your spouse’s name but also their credit history. Once joint accounts are opened and a joint credit history is established, your credit becomes one as well. Chose wisely!

Now is the time to take charge of your finances and become debt free regardless of your marital status. Make a list of all your debts; write down the balance owed and the interest rate, then decide which debt you will pay off first. You can either choose to pay the debt with the highest balance or the highest interest rate first. Either way, if you learn to pay more than the minimum monthly payment, you’ll be surprised how quickly you can reduce the debt. Know that regardless of your marital status, being debt free offers many freedoms and prevents many communication problems in future relationships. Start today!

Spend Wisely

We’ve all heard “spend less than you earn”, but we find that in today’s fast paced world where mixed messages and targeted marketing is the norm, it is hard to focus on the difference between our needs and desires. It often seems that everything becomes a need: the newest, the fastest, the best. In a time when credit is instant to obtain and where every shopping venue accepts plastic, we can purchase anything we want with the touch of a button and the swipe of a card. However, this doesn’t mean we can afford it.

Several years ago, I was teaching a financial counseling class where a handful of the students were from Spain. During a discussion about some required reading, one of the Spanish students raised her hand and said, “We cannot relate to your American spending habits. If we want something in our country, we save for it or go without”. I quickly realized we see the world through our own experience; it is important to realize that regardless of the marketing techniques or sales schemes, our spending habits are learned behaviors. Recognize the principle of sacrifice in your spending habits especially as a single adult. As an old country song states "We've been so busy keepin' up with the Joneses, four car garage and we're still building on, maybe it's time we got back to the basics of love"^[1]. If you want something, save for it.

First, make a list of your goals. Where do you want to be next year? In 5 years? In 10 years? In 20 years? Record your goals then recognize the financial obligations you will need in order to achieve them. Some will be short-term while others will take longer to obtain. When you have written down your goals, you will be better able to distinguish between your needs and your wants. This will help you stay motivated as you begin to make changes financially. You will also want to include a savings for unexpected and/or unplanned events. We know that regardless of our continual effort to plan the future, we can’t always anticipate what the future will hold and therefore, we need to save for the unexpected, both good and bad.

Next, there are three things to do to get a handle on your finances:

1. Record everything you spend for three months.
2. Look at the data you have gathered and decide where you can cut costs and save.
3. Create a spending plan and follow through to realign your spending habits to meet your goals.

Regardless of where you are in your education or professional pursuits, you can save and need to begin today. If you can learn to manage a $500 budget, you will be able to manage a $5 million budget.

Save for the Future

Saving today for something tomorrow might seem too far off and difficult, but the benefit is great. An advantage to youth is time. Money makes money; the principle of the time value of money rewards those who save now for the future. For example, if you were to start at the age of 25 saving $150/month invested at 8%, you would have over half a million dollars by the age of 65! If you decide to wait until 45 to start saving, assuming everything stays the same, you will only have $88,000 in the same account. The secret to saving and investing is to start young and save often!

To stay motivated and encourage saving, keep your list of goals where you can see them. These goals should be specific plans for saving, such as a car, down payment on a house, education, or a wedding. Categorize your goals according to the proper time horizon: short-term (1 to 2 years), mid-term (3 to 5 years), and long-term (more than 5 years). Each time category should be invested in the proper investment vehicle. Speak to a financial planner or a trusted and knowledgeable friend or family member about your appropriate investment mix. It is also wise to get two or three opinions to make sure you are comfortable with the investment mix and appropriate advice.

There are also specific saving vehicles to utilize during various stages of life. For example, a Roth IRA is a great tax saving vehicle for those who have a long-term time horizon and are currently in a low tax bracket. The money in a Roth IRA goes in after-tax and comes out with tax-free earnings. Another benefit is that you can use the principle at any time without incurring a penalty.

For shorter-term goals, separating money into various savings accounts helps you stay focused on the specific goal and encourages saving. Automatic monthly or bi-monthly deductions can be a fool proof way to help you remember to pay yourself first. No matter how you save or what vehicles you use to save – Do it!

Conclusion

The single years can provide a unique time to practice the principles of sound financial management. Remember the time to start is now and it’s never too early to start taking responsibility for your finances by getting out of debt, spending wisely, and saving for your future.

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[1] Country singer Waylon Jennings's 1977 song "Luckenbach, Texas (Back to the Basics of Love)"

Tips from the President's Council

So, I’ve been a slacker on adding new articles and after looking at my page counter, I’ve realized 2 things: 1)  You must add new things to keep up interest 2) Short and sweet is the best way to go! Therefore, I’ve decided to reconcile.  To fix #1, I’ll add a tool, idea, technique, etc. at least 3 times a week, and for #2……..it will be short and sweet! 

Since I work in the financial planning/education world everyday, I feel like I have to share the tidbits of information that I receive constantly.  So here it is….all yours and it’s free.  I hope that it helps and you pick up some nugget of information that might help you with your personal finances. 

In 2007, President Bush started “The President’s Advisory Council on Financial Literacy”.  This group is headed by Charles Schwab (yes, as in “Ask Chuck”….The Charles Schwab).  It runs across 2 administrations and unless renewed, expires this year.  They give some great advice.  Here’s just a few: 

 Tips to Managing Your Money in Challenging Times

1. Understand how your bank or credit union account is insured. The Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA) insures all deposits at insured banks and credit unions up to at least $250,000. To check whether your financial institution is insured visit go to FDIC or The National Credit Union Association.

2. Understand how your investments are protected. Brokerage firms are required to be members of the Securities Investor Protection Corporation (SIPC), which insures customer securities accounts up to $500,000, including $100,000 in cash claims, when a brokerage firm fails. To learn more about these protections, visit the Securities and Exchange Commission.

3. Always keep lines of communication open with your mortgage lender. As soon as you know you may have difficulty meeting your mortgage or home equity loan payments, contact a counselor to work out a payment plan at HOPE NOW or by calling 888-995-HOPE (4673).

4. Protect your credit score. Only put on your credit cards what you can afford to pay back. For other hints on improving your credit score, visit the Treasury's interactive website. Also, to protect against identity theft, get a free copy of your credit report at annualcreditreport.com.

5. Make sure you have a rainy day fund. Keep an emergency fund worth three to six months of your monthly expenses in an insured account. If you don’t have an emergency fund, try to start one. Visit the budget calculators on the Treasury's website.

6. Don’t try to cut costs by canceling your insurance. Keep up with your insurance payments, and you’ll keep in place your protection against medical costs or major loss of personal property, like your home or car. Learn more in the Life Events section on MyMoney.gov. 

7. If it sounds too good to be true, it probably is. Watch out for scams trying to take advantage of all of the recent changes in our nation’s financial markets. Educate yourself at FTC.gov.

To learn more about your money, visit MyMoney.gov. For more information on the President’s Advisory Council on Financial Literacy, visit the U.S. Treasury Department’s Office of Financial Education web site at Treas.gov/ofe. 

Your Financial Roadmap: Where Do I Begin?

Taking control of your money and financial future can be completely overwhelming. Some would rather clean the bathroom before looking at their finances.  But the important thing is to start somewhere! Take action – even if it’s just entering your information into financial software that does most of the hard “scrubbing” for you.

The key is to start small and start early. Smart financial planning, early on, yields huge dividends later. For example, if instead of buying the latest iPod this year, you invested the $250 into the stock market, with a rate of return of 8-percent, by the time you retire in 30 years, you could have over $370,000! Now, how important is that new yearly iPod to you?

Ok, so we know we have to take control. But where to start?

Well, what makes you happy?

What do you think is going to make you happy in five, ten, and twenty years? Money doesn’t buy happiness, but it is one of the factors that will help you get to where you want to be. When setting a financial plan, you need to figure out the basics – what you are saving for, and why.

To better identify your goals, break down where you envision yourself in the following categories:

• Physical –  Where do you want to be living? What are your physical fitness goals?  What are some luxuries or extra things that would have great meaning for you? 
• Emotional – What will your family life be like? What are your hobbies? What will your social life (friends) look like?
• Spiritual – How important of a role will your spiritual well-being play in your life?  What things have deep meaning for you in life? 
• Mind – What are your career goals?  What do you want to do during retirement?   Is life-long learning important to you? 

You need to know your goals and have them clearly defined in order to progress with your plans.  The more specific you are with your goals, the more you can break them into achievable mini-goals.

(Side Note:  I have always wondered why people set goals to become a millionaire by age X (insert an age).  If you haven’t identified why you are saving, or what makes you happy,  then this one goal is futile.  What is the purpose of becoming a millionaire by that age?  If you know it, then work like crazy for it.  But if you are simply working for the substance of money alone, I’d have to say that 1) it will be hard to stay motivated or 2) you’ll end up like Ebenezer Scrooge.)

I had an accounting professor who earned his millions by his mid-thirties, but after a few years of playing golf everyday, he was bored stiff.  He ended up going back to his alma matter to teach accounting classes and donated his check back to the university.  Point of the story:  Know what the bigger picture is and purpose behind the money..

Once you’ve identified your goals, it’s that much easier to identify what kind of financial decisions you need to make to get you there.

Ok. Now that we have a general idea of your future goals, we can use this as the outline for your financial plan. Don’t panic! Financial plans are not as scary as they sound. It can be as simple as “bring lunch to work to avoid paying takeout prices”. Your financial goals will obviously change as you move throughout your life, so while you should be specific, allow yourself plenty of room in your planning process for change and development.

So, now let’s make a financial plan.