Archive for the ‘Financial Education’ Category

Expect the Unexpected: Get Your Emergency Fund In Place

May 24, 2011

Would you be able to cover a large unexpected expense like a new air conditioning unit for your home or an expensive car repair due to an accident? Turns out if you couldn’t, you’re not alone.

The Wall Street Journal posted an article this week about how almost half of Americans would be in dire straits if they had to come up with $2,000 within 30 days to cover an unexpected expense. I firmly believe that this is why credit card debt is so out of control.

It’s easy to blame our nation’s consumer debt on people who are irresponsible or uneducated about how to use credit cards, but the people I work with who are struggling with their debt got there in spite of being financially aware and responsible. They aren’t spendthrifts who can’t control themselves at the mall. They’re hard-working, disciplined people like you and me who needed to cover something quickly like a trip to visit an ailing relative or their child’s traveling soccer team expenses.

The thing is, even the tightest and most well-thought out budget is going to be tested by expenses that you simply can’t anticipate. For example, I recently had my cat at the vet for a cyst she grew on her toe. More than $750 later, she is on the mend. But you can bet your bottom dollar that I wasn’t planning on shelling out $750 to fix my cat’s toe!

In anticipation of her visit, I even set aside $500 thinking that would be MORE than enough to cover the surgery. And $500 did cover the surgery. But I didn’t factor in the cost of the initial visit, follow-up meds and unexpected additional visits due to her bad reaction to anesthesia. Luckily I have a cushion fund in place and was able to tap that instead of my high interest rate MasterCard.

So how do you avoid getting further into the hole of debt due to the unexpected? Don’t wait to start saving for a rainy day. Don’t wait until you’re out of credit card debt. Don’t wait until you receive your next bonus or tax refund. Start today. Keep paying as much as you can toward your debt, but also put a little bit away, even if it’s just $25 per paycheck.

You’ll be glad it’s there when you need it.

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Protecting Your Good Name: Preventing Identity Theft

April 7, 2011

Recently while giving a presentation to college students on making ends meet after graduation for Money Smart Week Chicago, I was surprised by the number of questions the students had about identity theft and how to prevent it.

While I recommend a few general things like shredding any document that has your name and address on it and choosing the ‘credit’ option when paying with your debit card, the Federal Trade Commission has an extensive page with many more specific things you can do to protect your identity. Here is a quick summary of things you should keep in mind.

1. Protect Your Information Physically: This includes things like putting away financial information if you’re having work done in your home, leaving your Social Security card at home in a lock box (I’m surprised how many people still carry it with them), and requesting to use less obvious security measures than your mother’s maiden name to protect your bank accounts and utilities. These days with everyone and their mother on Facebook, it’s pretty easy to figure out the answer to that question!

2. Treat Your Mail and Trash Carefully: Use post office collection boxes or a secure collection box at work to send outgoing mail and try to pick your mail up as soon as possible each day. And when you’re tossing anything with your information on it, including charge receipts, credit card offers and physicians statements, make sure you shred them before placing in your recycle bin or trash can. I’m often startled by the well-dressed man that regularly picks through the dumpster of my building and will confess that I go to a few extra pains to make my trash extra rank to discourage this practice. Gross!

3. Don’t Click That Link: An identity thief doesn’t even need to be in the same country as you to access your personal information if you keep any of it stored on your computer. All it takes is one click on the wrong link and a savvy hacker could have a field day with your info. I save my tax returns on my laptop to save trees, but I shudder to think that the wrong person might find that information, so I am very careful about links sent to me in emails or even on Twitter and Facebook. Likewise, if you ever list anything for sale on craigslist, you will almost always receive a scam email requesting that you “click here to give me some more information,” from a “very interested and motivated” buyer. Don’t click. Only enter your information into websites if you got there by typing the web address in yourself.

I hope that by utilizing these tips and others offered on the FTC site that you’ll never find yourself a victim of this frustrating and truly life-altering crime. If you do, the same site also offers a thorough process for you to follow to work to get your name back to good. And now, I have some shredding to do!

Kelley C. Long, CPA is a Chicago-based financial coach who believes you shouldn’t have to have a million bucks to receive personalized financial advice. Check her out at www.kelleyclong.com.

Tax Time = Tuneup Time

March 28, 2011

This recent article by NY Times writer Ron Lieber is a great reminder that tax time is a great time to check in with your complete financial picture and make some tweaks to keep you on track. It’s also a great time to organize your filing and get rid of financial clutter!

In short, the article suggests the following steps as long as you’re digging into your financial records. I’ve added my own tips to the steps as well as the author’s advice.

1. 401k checkup: First, rebalance your funds. As mutual fund values change, so does the allocation of your 401k account. It’s important to go in at LEAST annually (I recommend twice a year and help clients do the same) to reset to your target allocation.

While you’re in there, liquidate any company stock that you have accumulated. Many employers give their match in company stock, but it is risky to hang onto this. If things go south with your company, you could be out of a job AND see your 401k value go in the tanker. Diversify away from having all your eggs in that basket.

What about those old 401k accounts from former employers? If they’re still sitting in the company’s plan, this is a good time to consolidate those accounts into a rollover IRA, where your options will be greater and you’ll save on administrative fees. Not sure how to do this? Guess what else I help my clients do…

2. Saving for the Medium Term: We’ve all heard the rhetoric about saving for retirement and the benefit of saving early, and who hasn’t heard of the absolutely-necessary emergency fund? But what about the other things in the medium term, like vacations, large purchases, home maintenance or other big-money items that probably don’t fit into your day-to-day budget but that you’d like to eventually buy? Get started today by setting up a separate savings account for each goal, then make your savings automatic. Fifty bucks out of each paycheck probably won’t be missed, but it can add up quickly toward that week in Nantucket or new tires on your car. ING Direct lets you set up subaccounts and they offer great rates, compared to what you might get down the street at your bank branch.

3. Automatic Donations: If you’re charitably minded but often put off writing those checks till the end of the year, consider dividing your donation by 12 and setting up automatic monthly donations to ease the burden on your end-of-year budget. And no matter when you are giving money to charity, make sure you’re either writing a check or using a debit or credit card to provide an accurate record of the donation for your tax return. The IRS no longer allows the “I put ten bucks in the offering plate at church,” deduction. You gotta prove it.

If you’re an American Express cardholder, Lieber recommends their Members Give program, which lets you set up automatic donations or you can even use Member Rewards to make your gifts. I’m all about credit card rewards as long as they’re not incurred by debt you’re going to carry from month-to-month!

Taking these little steps should only take about an extra hour as long as you have all your financial information out, and it can make a tremendous difference in your financial health going forward, so just do it! You’ll be glad you did when you begin to reap the rewards of sound financial management.

Kelley C. Long, CPA is a Chicago-based financial coach who believes you shouldn’t have to have a million bucks to receive personalized financial advice. Check her out at www.kelleyclong.com.

The Innocent

February 21, 2011

If you’re not already subscribed to my monthly newsletter, you’re missing out on my monthly review of the eight financial archetypes presented in Brent Kessel’s book It’s Not About the Money. For the month of February, I profiled The Innocent, which struck a chord with a lot of my friends and contacts. Read on and see if you maybe see yourself or someone you know.

The Innocent

Innocents, whether they have money or not, have the common thread of being unable to master money. Either they weren’t taught the skills, are confused by money or their natural gifts are not economically valued in our society. Innocents aren’t necessarily against money like Idealists are, they just have a hard time hanging onto it and dealing with it.

Many of the other financial archetypes develop their relationship to money in response to fear, anxiety or frustration. Innocents don’t have a coping strategy, so the pain they feel about their financial situation is often deeper and more obvious for others to see. They might feel like they should have the ability to be better with money, but when it comes down to trying, the response has historically been to shrug and say, “I guess I’m just not good with money.”

Even if they earn a high income, Innocents don’t have the know-how to secure their financial futures, so at the end of the day they find themselves living paycheck to paycheck. Innocents are far more likely to be regular lottery players and fall prey to get-rich-quick schemes, looking for a quick fix. When these endeavors fail, it just adds to their lack of confidence and feelings of inadequacy when dealing with money.

Practical Ways to Manage Cash Flow and Budgeting

Innocents usually spend everything they have and sometimes more, without any idea where the money is going. They are often people with no earnings of their own and depend on a spouse, family members or the government for support, which further adds to their financial distress. The first step of getting their financial house in order is to look at the numbers.

If you’re an Innocent and you don’t know how to look at the numbers, get help. Ask a financially savvy friend or hire a financial coach. Find out where your money is going, then start living within your means immediately. Find ways to simplify your lifestyle so that you can become self-sufficient. Prepare a debt pay-off plan and stick with it. It won’t be easy at first, but ignoring your financial situation won’t make it go away.

Many Innocents are women that are divorcing after many years of being financially dependent on their husbands. They know one thing: that they want out of their marriage. But they don’t know where to start when it comes to becoming financially independent. With a little bit of planning and professional guidance, I help these women save their energy for dealing with the emotional aspects of ending their marriage so that financial concerns don’t cloud their options as they move on.

Next month I’ll be covering the Caregiver archetype, someone who regularly subjugates her needs (both emotional AND financial) to those for whom she feels responsible, leading to resentment and poor financial health. Sign up for my newsletter so you don’t miss a single review!

Kelley C. Long, CPA is a Chicago-based financial coach who believes you shouldn’t have to have a million bucks to receive personalized financial advice. Check her out at www.kelleyclong.com.

Are You “Making It?”

January 31, 2011

I finally got a chance to watch the Oprah show last month that had Suze Orman putting the smack down on “Octomom” Nadya Suleman. And let me tell you, Suze let her have it. I’m usually not a fan of calling someone on the carpet and making her feel like crap about her financial situation, but in this case it was absolutely necessary.

Suze, Nadya, Oprah

I could go on and on about how the conversation played out (or you can read it yourself here), but what I found most compelling about Nadya’s little “come to Suze” was Suze’s answer to Nadya saying she was “making it” financially when she decided to have eight more babies (in addition to the six she already had).

When Suze asked Nadya what she was thinking when she decided to have more kids, Nadya commented that she was getting by day-to-day just fine. Suze asked if she was “making it,” and Nadya said that yes, she was making it but things were tough. And then came my favorite part:

Suze stopped Nadya mid-sentence to inform her that she was not “making it.” Making it is NOT getting up in the morning and making it through the day to try the next day. Making it is:

  • Having an eight-month emergency fund
  • Not having credit card debt
  • Not needing food stamps
  • Putting money in your retirement

This made me really think about how many of us spend money on things we can’t afford and don’t really need, thinking that just because we are still able to pay the bills and we have a job that we are making and will figure it out in the future. I did this when I first graduated from college – I spent a summer living on my credit card, figuring that when I started my new job in the fall, I would pay off the debt right away.

Little did I know that it would take me more than five years to finally see a $0 balance on that card. And that didn’t come easily either – I threw every little “windfall” that came my way into getting that debt paid. Tax rebate check? Straight to VISA. Work bonus? In the mail to VISA. Raffle winning at a fund-raiser? Hello, VISA. You get the point.

I sacrificed quite a few opportunities to enjoy exotic travel or indulgent spa treatments or even just an extra visit with family because I knew that until that debt was gone, I shouldn’t be spending a lot of money on non-essentials. I WASN’T making it, even if I had a great-paying job, was putting money in my 401k and was still in my 20’s.

I’m not professing that unless your financial picture is perfect, you shouldn’t take a vacation or buy that new couch you need. “Making it” is a goal to be worked toward for most of us and getting there doesn’t guarantee financial peace. Just don’t fool yourself when you’re whipping out that credit card next time you know you probably shouldn’t.

So, are you making it? Please share your story or opinion in the comments.

Kelley C. Long, CPA is a Chicago-based financial coach who believes you shouldn’t have to have a million bucks to receive personalized financial advice. Check her out at www.kelleyclong.com.

Kids & Money: It’s Never Too Early to Get Started

January 4, 2011

 

By the time many of us learn how to deal with money, we are into our thirties and facing a mountain of credit card debt. And while we can’t totally blame our parents for our own poor financial management, it wouldn’t hurt to stop and think what kind of message you might be sending your kids about money.

Do you cave easily when your babies want you to buy something while shopping at Target? Is receiving a special treat something that your child appreciates or expects? When your teenager runs out of money, do you replenish her supply without consequence? What do you think will happen when she “grows up” and is on her own?

The thing is, it is never too early to start raising financially aware and responsible kids. And I don’t mean you need to teach them to be tight wads or that you shouldn’t indulge them – that’s part of the reason you work so hard. But do your whole family a favor and make sure they at least learn the basics of money in a practical way.

My heart warmed last week when I saw a young child helping his mom at the grocery ask, “Can we get this yogurt?” His mom asked how much it was, and when he answered, she offered him a choice, “Well, that’s a little more expensive than the yogurt we usually get. If you want to get that, then we can’t get the granola you want.”

Not only was mom teaching about trade-offs and budgeting, she was protecting her family’s financial position by not blowing the grocery bill to buy premium treats. Yay, mom!

So how can you save your kids from suffering financial duress in their later years while still feeling like you’re giving them the life you want to give them? First, if you are giving an allowance, tie it to some household responsibilities.

Depending on age, that can be as simple as helping put clean clothes away and light cleaning to mowing the lawn and taking the trash out. When I was young, my jobs included emptying the dryer and emptying the dishwasher. My brother was in charge of the garbage and the lawn. As we aged, so increased our responsibilities.

Beyond giving an allowance, help your kids with the management of their money. I once heard of a parent who kept track of his son’s allowance on a notecard, and each payment was divided into three categories: spending, saving and charity. When the son wanted to spend money, he asked dad what the number was, and if there wasn’t enough, he had to wait. Dad added interest to the savings category, helping show how savings can grow.

And when they came across a charitable opportunity like a Salvation Army bell-ringer or a nun collecting money for a school, the son learned how great it feels to give to a good cause.

The bottom line is, if your kids grow up without any exposure to what it is like to delay spending or consider a pricetag, you could be setting them up for a lot of financial pain down the road. Start today and give your kids the gift of financial peace and savvy.

Kelley C. Long is a Chicago-based financial coach who believes you shouldn’t have to have a million bucks to receive personalized financial advice. Check her out at www.kelleyclong.com.

Financial Goals for the Real World

October 26, 2010

 

It’s in all the advertisements for financial service providers: “Let us help you achieve your goals!” “Your life. Anything is possible.” “Take charge of your financial future.” “What’s your dream?” “Together we’ll go far.” And the commercials with attractive silver-haired Baby Boomers sailing the ocean blue or chuckling over the Wall Street Journal while sipping coffee… does anyone really aspire to that?

 

beach

But the point is, without a bit of a dream behind them, financial goals can be as wishy-washy as a weight loss goal without a fitness and nutrition plan. You need motivation and some guidelines to stick with it or like a diet, the first chocolate cake you encounter will have you off the wagon and giving up.

But what does it really mean to set financial goals? What are your goals? Wait, you haven’t really thought about it? Many people don’t because they don’t think they are in a place to do so. They say things like, “I don’t have time or money for any new goals in my life.” Or, “Just getting the kids to and from school and putting food on the table while growing my career is enough of a goal for me!” Sound familiar?

So let me re-frame the question: If money wasn’t an issue, what would you do differently? Move to a different neighborhood? Go back to school? Go on a safari? Pay off your credit cards? Or even just hire a housekeeper? These are financial goals.

So go ahead, list them out. Then try to put a price on each goal. For example, a move to a different neighborhood could be as simple as the cost of moving: $2,000 for movers, $1,500 for a security deposit, $500 for those miscellaneous things that you always seem to need when you move like new wastebaskets and perhaps a small furniture piece.

For others it might require accumulating a down payment and getting your current home ready for sale. That’s going to require a bigger budget.

Not sure how much your goal will cost? Start doing some research. Call your community college to inquire about the average cost of a Master’s degree. Google “house cleaning” to find out what cleaning services in your area charge. Just doing the research and finding out a bit more about your “someday” dream will make it a touch more real and set you up to being closer to making it “today.”

And just like that, you’ve set some financial goals! With that out of the way, it makes it much easier to figure out how to achieve them. And trust me, it’s really not that difficult. I’ll be covering those steps in a future post, so stay tuned!

Financial Advice for the Ages

October 12, 2010

There are some personal finance rules of thumb that are set in stone across the board, no matter who you are, how much money you have or what your financial goals are. For example, whether you make $1,000 per month or are worth $10 million, you should have an emergency fund that equals a minimum of three months expenses.

But then there are also rules and suggestions that change as you age and (hopefully) earn more money. Depending on your situation, here are a few age-based tips to maximize your financial well-being.

Mid-twenties
At this age you’re probably still single, no kids, making pretty decent money, traveling a bit, pretty career-focused and not thinking too much about retirement. What essential steps should you be taking?

  1. Get debt-free and stay that way. Pay off your credit cards, student loans and car loan to get your credit score in tip-top shape for when you will inevitably want to qualify for the best mortgage rates.
  2. Take advantage of your employer’s 401k benefit. If you’re offered a match, put at LEAST the amount in there to maximize the match. Aim to defer at least 6% of your salary, 10% if you can afford it.
  3. Get your emergency fund in place ASAP. Start with only $25 per paycheck if you have to, but make it automatic, and once the money is in there it stays. You’ll be glad you have it if you lose your job or have an accident.

Mid-thirties
If you’re a typical American, by this time you own a home, have 2.3 kids and are settled into a career that provides a solid income. You probably spend a lot of time at your kids’ events and have a couple of nice cars in the garage. Make sure you’re staying financial healthy by also doing the following:

  1. Keep socking that money into your 401k. Do NOT sacrifice retirement savings to pay for your kids’ education. They don’t give retirement scholarships or loans.
  2. But you should be saving for college if you can. Decide how much you do want to help (some people want their kids to pay for some to make sure they value the opportunity) then open a 529 account for each child with monthly automatic contributions. Also, make sure you’re matching any expensive extracurricular activity costs with college savings. If you can’t afford to save for college AND pay for select soccer or elite gymnastics, reconsider the high-end program. Chances are your child won’t be making a career out of it and while it might be a tough pill to swallow to drop down to a more affordable league, it will be a lesson in sacrifices and choices that won’t be forgotten.
  3. Make sure your emergency fund balance has been adjusted to cover increases in your expenses over time. Once you’ve reached the goal, keep up with the automatic monthly savings into a Roth IRA or money market savings account.

Mid-fifties
You survived toddlers and are now enjoying the final teen years with your kids, who are hopefully college-bound overachievers. You may be considering a second act career or wondering what the heck you’re going to do with your time once the last of your brood flies the nest. What else should you be thinking about?

  1. It’s probably time to really think about what retirement means to you, then putting that story into numbers. Most people these days aren’t really planning to live out their days on a golf course, but would like the flexibility to hit the links when they like while also staying engaged and active. Think about how the cost of your lifestyle will change and make sure you can weather that.
  2. Take a look at how your 401k (you’re still contributing, right?) is allocated. At this point you should only have about 50% of your funds in stocks, so make any updates to put the other 50% in solid bond funds or other fixed income instruments.
  3. Try to get your house paid off sooner rather than later. Your goal should be to retire completely debt-free.

As with all personal finance tips, these are simply general ideas based on what the “average” American deals with through life. Of course your situation is going to be different and you’ll make adjustments as needed according to what’s important to you. Above all, remember that the purpose of all of this is to simply allow you to enjoy life without having money as a barrier to pursuing your calling.

Estate Planning Really IS For Everyone

July 5, 2010

A couple high profile stories have been published recently regarding the disposition of multi-million dollar estates, demonstrating the dire importance of having an updated last will in place. Most notable was a case involving the dispute of Sammy Davis, Jr.’s widow’s estate, in which Mrs. Davis’s assets (including rights to Sammy’s artistic property), were in danger of passing into the wrong hands. Luckily the LA County court decided in favor of Manny Davis, the survivor of Sammy and Altovise Davis because there was sufficient evidence supporting her self-drafted will.

Sammy Davis, Jr.
The more interesting case involves the relatively unknown drama behind the estate of Stieg Larsson, author of the wildly popular Millennium trilogy that began with “The Girl With the Dragon Tattoo.” Larsson passed away unexpectedly in 2004 at age 50 without a will, leaving his long time live-in girlfriend, Eva Gabrielsson with nothing. He had written the trilogy as a means to provide retirement income to himself and Gabrielsson but died before the books became a sensation. Control of his literary legacy went to his estranged father and brother by Swedish law, who are reaping the benefits of the delayed success of the books.

Dragon Tattoo
As these cases demonstrate, the signing of a will can make all the difference in ensuring your wishes are carried out should you die unexpectedly. And while these stories involve extraordinary wealth and pop culture influence, they also demonstrate why it is necessary to take care of this important step in your family’s well being. Not having a will in place leaves control of the disposition of your assets and possibly your children to the state in which you reside. It also makes a sad and difficult time for your survivors even more painful, as your wishes may not be realized.

Most people put off drafting a will for a couple reasons. First, they think it is wildly expensive and time consuming, so they procrastinate in favor of when they have more time and money to deal with it. While the process can be lengthy depending on the complications of your situation (second marriage, step-kids or a small business to name a few), most estate planning attorneys these days offer a “package” price, where you know what it will cost before you get started.

If you still think that can be a drag, try Legal Zoom, which offers a fill-in-the-blanks will starting at just $69. As the Sammy Davis, Jr. case demonstrates, these wills contain the necessary legalese to stand in court. But again, if you have a more complicated estate I suggest engaging a qualified attorney who can help you address issues you may not be aware of.

The other reason I find people avoid the process is that they just don’t want to consider their own mortality. They figure they don’t really need a will until they start collecting Social Security. I get this. I cried while typing out my burial wishes to be included with my will. The last thing I want to contemplate is where I want my ashes spread. But someday it’s going to be done, and avoiding painful thoughts of what will most certainly be is not a valid excuse to leave your kids at risk of becoming wards of the state.

If you don’t have a will, do you know what would happen to your family if you were to die unexpectedly? Depending on the state you live in, your estate may not pass 100% to your surviving spouse (or your parents if you are single). And even if it did, dying “intestate,” which literally means “not making a will,” is a much more burdensome and expensive process than if you had a will stating your intentions. And if you’re not married but have kids or a significant other, the result can be even more devastating for your loved ones.

As Benjamin Franklin so famously said, “… in this world, nothing can be said to be certain, except death and taxes.”

Myth-busters: No such things as “healthy” debt

June 21, 2010

Clients often ask me to recommend a “healthy” credit card balance that they should carry in order to boost their credit score. Contrary to popular belief (a belief created out of confusion and no doubt encouraged by the credit card industry), the answer is $0. You do not need to carry a credit card balance in order to demonstrate good credit history.

That’s not to say that you shouldn’t have credit cards or that you shouldn’t use them. Having them and using them responsibly are what helps keep your credit score high, and while carrying a low balance doesn’t always hurt your score, it doesn’t help it either. In fact carrying a balance that is too close to your limit can hurt and with high interest rates and fees it is certainly not the best way to maintain financial health. Let me explain.

When a lender, like a mortgage company or auto finance department, looks at your credit report, they are looking for the likelihood that you will pay them back if they give you a loan. Other parties also use them to protect against making a bad deal, like landlords who use them to judge whether you will pay rent or cell phone companies that want to determine whether you will actually pay for the airtime you use.

Even employers will sometimes request your credit history for insight into whether you are a responsible person. For example, if you consistently pay your electric bill late or have a history of running over your credit limit, chances are you may also be chronically late for work or distracted by personal financial issues on the job.

The reason that it is important to have a couple credit cards (two cards issued by major financial institutions like VISA or American Express will suffice) and to use them occasionally is to demonstrate what credit examiners are seeking: that you can be trusted with credit and that you will pay it back on time. Just make sure you pay your balance off each month and you will enjoy life debt-free!

Another way to ensure that you maintain the best credit score possible is to review your credit report at least annually, which you can do for free. Go to www.annualcreditreport.com to print your credit report from all three credit-reporting agencies and review each agency’s report for accuracy. If you find any errors, take the proper steps to correct them. Each agency tells you how to do this on their respective websites.

Things that could bring your score down include credit card accounts that are at or near their credit limit, unpaid bills from your past or too many examinations into your history in the recent future. If you have these items on your report and they are legitimate, you should take action to fix them. Pay down the high-balance cards (and stop using them until they are paid off), pay off any overdue bills and stop applying for credit at every opportunity. It will take time (up to seven years for some items), but eventually your score will improve.