Author Archives: Common Cents

The Younger You Start Saving…..The Better

Start saving early…. every time you receive money.

  • Save a part of whatever money you receive, and whenever you receive it.
  • Deposit it into an interest bearing savings account.
  • Interest compounded daily is better than monthly or annually.
  • When there’s enough to open a CD (Certificate of Deposit), find the best rate for the length of time you choose.  CD rates are usually higher than regular savings, but come with rules.
  • At maturity of the CD, you can take it out, or roll it over adding money to it, or just rollover.  If you let the maturity pass by, it will be automatically rolled over as stated in your original agreement.
  • Add beneficiaries (one or more) to your account(s).  Should anything happen to you, the account will go directly to those of your choice. If not, the state handles it, and maybe those you wouldn’t choose yourself, will now own it.
  • As your account grows, separate it into three, liquid (immediate)  accounts — emergencies, a 6 months to 1 year ‘cushion’ account, and the third, a retirement account(s) which can be opened when you receive earned income.  Once opened, continue adding to each.
  • Over time, be more generous with your savings accounts than you are with your immediate gratification purchases. You will be more than happy when you retire and have enough saved in not only your retirement accounts but, if you didn’t need to use the ‘cushion’ account, or liquid emergency account, they’re still there as well …(along with interest).
  • These are all gifts to you from you!  The idea is to save.  Save every penny you possibly can.

 

Common Sense…..We All Have It

We all have it….but we don’t always use it

Common sense is the logical way of doing something to get the best results in the smartest, and usually easiest way possible.  We all possess it, in one way or another, and we all use it to one degree or another.

It is, in itself, an education. There are those who live on it.

Most, if not all, use it every day.  Common sense tells us if we step out into traffic, we could get hit by a car.  Or if we take a pan out of the oven without using potholders, we’ll burn our hands. These, and hundreds of other examples are ways of using common sense.  We even teach children, at a young age to use it…. put on your jacket so you won’t be cold,  tie you shoelaces so you won’t trip, if you save one hundred pennies, you will have a dollar and so on…and every penny counts…it’s all common sense. You get it.

The point is, if you live beyond you means, spending money that is not there….. that you do not have, knowing this yet still doing this, common sense will tell you that you will be, if you aren’t already, digging a financial hole for yourself….one that not only, depending on how much debt you’re in, can take years to get out of. And the stress it causes can take its’ toll on your health.  Hopefully, you like yourself enough not to do this to yourself.

Reading pages posted herein, will, using common sense, help keep you from getting into a financial hole, where you can choose the ideas that will work best for you and your budget as you move forward, while saving in a way that will bring you to having enough for retirement.

Or, if you already find yourself in a financial hole, again using common sense, choose ideas that will help get you out and with continued discipline on your part can put you on a path to freedom from debt. And then, moving forward, you too will be saving for your retirement. Each person has their reason(s) why and how it happened, but surely you didn’t have getting into debt as a goal.  With hard work on your part, and determination, you too can become debt free. You need to do the work. You need to be continually and consistently budget savvy. It takes discipline…….

It’s common sense.

 

 

Are You In a Serious Relationship — Time To Show And Tell

A Serious Relationship = Serious Talks About Money.

  • If you’re in a relationship and thinking about marriage,….. STOP.
  • Now is the time to have some very serious conversations about the elephant in the room………Money.
  • How the mindset about finances and how the lifestyle of each of you is impacted by it.
  • Are you on the same page about how money is spent and more importantly… saved?
  • The only way to know is to ask…Time for show and tell…beginning with how much debt your intended is in……credit card debt, college loan debt, car loan debt, monthly debt,..any debt.  Specifics……scrutinize statements.  You need to know all this before moving forward.
  • Know how much the other has saved…..specifically in any Retirement Accounts, Cash Reserve 6-12 month ‘Cushion” Account, Liquid Emergency Account, and regular checking and savings.
  • You should know and have the same thoughts about how money is spent, if you stay within a budget and if you save while your intended is a spendthrift, or wasteful in general,
  • Find out if each of you  have the same goals about how money is saved for now (emergency accounts)  and your future (retirement accounts)…. Discipline of doing this is imperative.
  • You should know how and if they save, can budget, pay bills in full and on time, avoid fees. Now is the time for a financial audit.  It’s necessary before you marry.  Show and tell. If not, you’re going in blind.  It will – most definitely – come up in the future.
  • Be very aware that any debt of the other person becomes yours as well….As soon as you say “I do”  The “I do” not only means marriage vows, it also means “I do know that I’m now paying off your debt”.   Any and all debt of theirs, is now yours too. You need to know all this….it’s imperative that you find out — before you say your vows!
  • Knowing there’s a problem now, sure beats finding out there’s a problem later. If you aren’t on the same page with money matters, postpone, or put off completely any plans unless and until their debts are paid.
  • Know also that once married, you will share their Credit Score — Their mess will become your mess…..Their debt will bring your score down.
  • It’s better to walk away now, rather than find in the not too distant future that no matter how disciplined you’ve been at handling your finances, you are now in a financial hole because you have married someone who doesn’t have the same financial mindset as you.

Bank Accounts…… and Fees

Why are You Paying Fees?

You save up some money, open a bank account, and they hand you a pamphlet with a “Fee Schedule”.  It’s your money, they will ‘use’ it, and they’re charging you to do this?????

Look elsewhere.

There are still lots of ‘brick and mortar’ banks, although most individuals prefer the ‘online’ version.  Whichever you decide, check around – you want the most interest, and no fees.

Although with ATM’s there are sometimes fees, if you use one – for convenience – that belongs to a different bank, or if you use one too often within a statement period, you will incur charges.  If this is the only way you can do your banking, be vigilant on the rules and stay within the perimeter to avoid extra charges.

If you are allowed only a certain amount of transactions per statement period, find another bank.  Not everyone fits into their numbers.  If you need to deposit or withdraw from your account, you should be able to do so freely……. and Free.

If you don’t check around, you will notice that your account is taking a financial hit because of fees and charges you’ve incurred.  Money wasted…. which could be in your Retirement Account. And if you overuse the transactions, fees are taken out immediately, so unless you constantly check, you could be making a withdrawal without sufficient funds in the account.  Another fee…your overdrawn.  Be diligent.

A strong suggestion….. use a paper check register.  Be vigilant about entries into and out of your account.  If you do this, you’ll know exactly how much is in your account at any given time. Should you write out a check, you subtract the amount when you do.  The bank will subtract the amount when the check is cashed….which gives you a false amount in your account.  And thinking you have more than you do, you write another check, only to find you have overdrawn your account.  Fees, fees, fees.

Be account savvy….. it’s a benefit to you.

Retirement Accounts—– Decisions, Decisions

Diversification Is Key – So Is Due Diligence On Your Part

The majority of those with Retirement Accounts have IRA accounts of some description. Those IRA’s are ‘In the market’ …… as “In the Stock Market”.  And the stock market is not for everyone.  It can be extremely volatile, and if you’re going to stress out every day as the market has its’ upswings and downturns, maybe it isn’t for you.  That said, you can choose any 10 year period in the past and although the market has surges, both up and down, and you may lose part of your principal off and on throughout, it has gained the owner more than any other Retirement ‘vehicle’.  It’s not guaranteed, and when withdrawals begin, so do payments to Uncle Sam.

Annuities are issued by Insurance Companies.  They are a contract, and have a maturity date of from 10 years and up.  It’s best to leave the initial deposit there to grow to maturity, but you can usually withdraw up to 10% per year without penalty.  If you close it out before maturity, there is a substantial penalty called a surrender charge.  You can choose a fixed or variable interest rate, set by the company.  A fixed (guaranteed) rate, is usually low (below market value) but still may be a better choice over the variable.  With annuities, you don’t lose your principal, but there are large commissions to pay at time of purchase.  At the time of withdrawal, taxes are paid on the interest received.  Ask questions and understand fully before you sign on.

Traditional vs Roth IRA’s have advantages as well as income restrictions (each having their own).  There is a significant annual contribution advantage between the two. With Roth, both state and federal taxes are made at the time of contributions and grow on an after-tax basis, meaning it grows tax-free.  One can be passed on to beneficiaries and then put in their name can be carried on and added to as their own.  One is not an RMD account and the other is – meaning you are required to have withdrawals made beginning at age 72, or you will be steeply penalized.  They are definitely worth looking into, and learning about the advantages and restrictions of each.  Inquire – find which would work for you, or diversify, adding to both.

CD’s are another way of saving, and although the interest rates are on the low side, your money is insured by the FDIC up to $250,000.00, per account, so you wouldn’t lose any of it. You will pay taxes on any interest earned upon withdrawal. There are maturity dates and ‘interest lost’ penalties if withdrawn before it matures.  Ask and understand all the rules before you sign.

It boils down to choice and your ability to handle a volatile account as opposed to one that’s stable.  Do your own due diligence.  Speak to a few Financial Advisers to understand better all there is to learn about each.  Choose an Adviser who is a Fiduciary… he/she works in your favor. Be comfortable with your choices.  Diversification is key (don’t put all your eggs in one basket).

Stress Relief

Financial balancing relieves stress

Simplifying.  It is the springboard to clearing out, getting rid of clutter.  Think about it, when you clean a room, organize a closet, clear the kitchen counters, there’s a satisfaction to seeing it all done.  One of those…..”Ahhh, nice!” moments.

The same is true with your finances.  When you’re finances are cluttered in debt, not only the worry of how to pay the bills stacked up, but the worry is there too about the bills still coming in, those you know are on the way, along with added interest charges.  Once you get a handle on the fact you have a problem, that you’ve been ‘living beyond your means’, and how to organize your finances using clear cut ways to plan your strategy by making a spreadsheet or balance sheet, whichever works for you, creating a workable budget for yourself, and sticking to it, then, and only then will you find your path to financial balance.  In turn, you will relieve a huge amount of stress in your life.

First rule is ….. Other than living necessities, do not buy anything.

Sort the bills into piles….Essentials (rent/mortgage, heat/light, food, health), you get the picture. These are the ones you must stay on top of to sustain yourself, and keep a roof over your head.

Credit card bills in another pile.  They do have to be taken care of.  You purchased, and are now responsible for whatever is on them.  Call the Customer Service of each card, and explain that you aim to pay it off, and is there any way they can help.  Some say yes, some say no.

Remember, you made the purchases. Start with the highest interest rate, work on getting rid of that one first, but, do not neglect the others.  Continue to pay each, preferably more than the minimum amount due, and certainly before the due date.  Most companies receive two deliveries of mail each day.  Even if they receive your payment on the due date, if they post payments received after the first shipment of mail comes in, and your check is received on the due date, but not received until the second mail delivery, it will not be posted until the next day…… meaning you are a day late.  This, of course, will add a late fee on next months’ bill.  Avoid this by paying as soon as you receive notice of the bill, whether online or in the mail.

Paring down, budgeting, and paying off your bills, before they’re due, will get you on a cycle of discipline you will continue throughout your lifetime.  Sticking to your budget will bring you the ability to save, thus relieving you of the stress you thought you couldn’t get rid of.

You can do this!  It’s easier than you might think.  Really.

 

 

Buying vs Renting

Not Everyone Fits Into The Same Mold.

Most people will rent living space at least for a while.  Some will choose to always rent….for varied reasons.  After all, buying a home isn’t for everyone.  Figure which mold you fit in.  Whether you rent or purchase, homeowners/renters insurance, renewable annually, is a must.  It covers your possessions, in case of fire, theft, or other disaster.  You will receive a policy with proof of coverage and dates of same. Read it carefully,  There’s small print and many exclusions. if any questions, ask.  This is an important document.  Keep it in a safe place.

Sometimes the cost of rent is just that…the cost of the space.  Or it can include utilities, heat, hot water. Know which you’re paying for…although you shouldn’t be wasteful either way, if you’re paying utilities on your own, you’ll receive a monthly bill for each utility.  If so, these are things you can easily reduce, by turning down heat/AC when not at home, turning off lights when not in use, and not letting hot water run unnecessarily.  Common sense savings.

Although renting usually costs more monthly, it works best for some.  It means when something breaks, you call the landlord, there is no outside maintenance for you.  A plus for many. The downside, when you pay your rent, it’s gone, you don’t see any part of that money again.

Buying a home means you need a ‘down payment’…. usually 20% of the cost of the home.  It can be purchased with less of a down payment, but if so, mortgage insurance is required, and is paid each month until you have made mortgage payments which equal 20% of the cost of the home.  This can take years, and it adds to the monthly cost.  It is why, although it will take longer before you buy, saving up for the 20% down payment is a better idea. Adding to the 20% down payment, there will be legal costs at the closing.  Do your homework first so there won’t be any surprises at closing.

Although buying has the initial expense, the mortgage is usually cheaper than renting, and a portion of your mortgage payment…a small amount at first but it grows… will go into an equity account each month….for you.  If you own, you replace, repair, and maintain inside and outside the property. If you sell, any gain over the original cost as well as any equity accrued will go in your pocket.

This 20% is what holds many back from purchasing even if it’s something they’d like to do.  It is why budgeting and saving is so important, adding yet another specific savings account to add to your budget.

Whichever you decide, for whatever reasons you do, your rent or mortgage should not be more than 1/3 of your monthly income….because you don’t want to become ‘House Poor’.

 

Understand What’s Going On In Your Own Household

Set the financial table right away…..

Whether you’re married, or living with a roommate(s), you are giving in some way to the sharing of running the household. The knowledge of where the money is coming from, how much, and where it’s going,, should be known to each.  Put it all on the table.  Discuss it. Agree to it.  Then, each week readdress it.  Make sure it’s working in all ways.  If not, fix it.  Now.

Married with children?  Either both parents work or one is the stay at home parent and may (or may not) work from home.  If the stay at home parent doesn’t bring home a paycheck, he/she is contributing by saving the couple money by not having to hire a nanny, which is a huge expense taken off the table.

The married couple, with children or not, will have other finances…..retirement and savings accounts, insurances, etc. which are shared, and need to be handled together.

If living with roommate(s), as each begins the venture of sharing a home together, the subject of cost of doing so needs to be addressed immediately.  Before the lease is signed or the moving truck arrives, have everything in writing….how much each is giving to rent, utilities, food etc…. anything that will be shared.  This is imperative and should be a separate account  from your own personal account, with each person knowing where the household account information is kept, and when and how every penny was spent.  Do not think that because the other person is a good friend and would never not pay their share…..it, sadly, does happen.

Each adult individual, married or not, living together and sharing expenses should have complete access to any and all financial information relating to the cost of the household.

Money can change a relationship, and often does. It can end a relationship, and often does.

Be open and above board with money in these situations.  Lay it all on the table in the beginning.

Asked to Cosign a Loan? ….. Do Not Do It

Never.  Never.  Never.  Never do it.

Never do it!……….

For anyone…… no matter who……and don’t fall for any sob stories or guilt trips they’ll hand you.

If someone is taking out a loan, it means they don’t have the money to pay, in full, for what they plan on buying.  Of course most people do take a loan out here and there throughout their lifetime.  College, car, and of course a mortgage.  A down payment is made, and the balance of the item, plus interest for use of the money, is then divided equally for how many months… or years until the loan is paid in full.

But…..if a person is taking out a loan for something, and needs someone to cosign… run!!

Run the other way!  It is a red flag that the person taking out the loan does not have the income to support the loan payments, and in order to secure the loan, they need the signature of someone who will take over the payments for them when they can’t…or choose not to… pay the loan themselves.  Do not let that someone be you.  Never, never, never ever cosign.    …..Never.

Too often what happens is they default on the loan.  They may make the payments for a few months, and then stop…. and you will have to pay it off….whatever the balance is … you have to continue the payments until it’s paid in full.   You signed on the dotted line – taking on the responsibility of payments if the loan is in default…..and their loan is tied to your Credit Score.

A example of what could happen:  Your very best, oldest and dearest friend or relative asks you to cosign for a car.  You hate to say no, so you cosign.  They begin to make payments for a few months….then there is an accident and the car is totaled.  Your friend or relative stops making the payments, but all the payments that remain (car totaled or not) are now yours to pay…. because you cosigned the loan. The loan company comes after you because you are legally responsible. You then have to continue making the agreed upon payments until the loan is completely paid….could be 59 out of 60 payments….and….you have no car…it was totaled.  And remember, all this is on…….. your……Credit Score.

So…..Never….Cosign.

Start Early

Start Early…… the earlier the better.

  1. Get children involved in saving a portion of their allowance.
  2. Save something from every paycheck….every single one.
  3. Pay yourself first….always. Put it immediately into your savings account.
  4. Don’t spend what you don’t have….live within your paycheck.
  5. If you can’t pay your credit card bill in full when due….stop using it.
  6. Pay off your outstanding debt (credit cards, college loans)…. asap.
  7. Make a list of all your expenses….add in everything, including savings. Add up all your expenses…..now, do they fit into your take home pay?
  8. If not, back off on incidentals, eating out, gift giving, shopping sprees, etc.
  9. Your rent/mortgage should not be more than 1/3 of your income.
  10. Make a workable budget and stick to it…. from now on.