Three Ways To Stop Worrying About Money

Stop Worrying About Money

Worry about the markets seems to be a common stressor, regardless of the amount of the individual’s assets.

Things look pretty rosy on the American economic front, with slow but steady improvement in the measures experts use to gauge such things and a stock market that is definitely on the upswing. So how come about half of Americans, even those with six-digit incomes, still say they worry about their personal financial security? Money is, in fact, the number one source of arguments between partners.

What’s in the wallet is not the only measure of monetary comfort. And in today’s world, despite the positive signs, real incomes are not rising much, college costs are off the charts and retirement lasts longer on average. Those are all areas for concern, Marguerita Cheng, a financial planner in Rockville, Md., offers these three ways to keep money concerns reasonable:

Pay less attention to the markets. Worry about the markets seems to be a common stressor, regardless of the amount of the individual’s assets. If you believe more wealth would free you from that concern, forget it. A survey among people with $5 million to $25 million in assets showed they worried too. Psychologists call this “loss aversion.” People tend to fret more over a dip in the portfolio than they celebrate an uptick. A diversified strategy can help you to avoid these lopsided perceptions. Don’t dwell on the market. Do check your portfolio once a quarter. You can be assured that your asset/allocation balance is okay and hopefully fend off obsession with unimportant ups and downs.

Tell someone “Thank you.” People who develop an “attitude of gratitude” for the things they have report themselves to be happier. Try writing a note of appreciation to someone who has given your life a lift at some point. Make it beyond a simple “thank you” card. Be specific about the “gift” you received. People who study such matters report that those who take the time for such niceties are happier. Putting gratitude into writing makes it more real, they say, and takes the writer’s mind off what they do not have in favor of what they do have.

Spend socially. Psychologists report that few people ever arrive at a point that they have enough. And accumulating more and more doesn’t lead to happiness. Strong relationships are more important, whether it is with a spouse, family members, friends or a religious group. Direct some of your spending to others. Plan a family vacation, donate to a charity or simply buy a gift for a friend. In one study, participants were given a $10 Starbucks gift card with instructions to use it, give it to a friend to use or to take the friend to Starbucks and share the gift card. The final choice produced more happiness, the survey said. Giving is a way to boost a sense of well-being.

(These suggestions are adapted from “Never Worry About Money Again,” by Carla Fried, Ian Salisbury and Taylor Tepper. Their article appeared in the July 2015 issue of MONEY Magazine.)

The Holidays: Time To Overspend?

The Holidays

Impressing friends and family during the holiday season won’t take away the sting when the holidays are over and your finances are in shambles.

It happens every year. Despite good intentions, more than half of Americans admit they are planning to spend more during the holidays than they have on hand. Fifty-six percent fall into that category and 16 percent of them expect to spend at least six months paying off the overage.

The American Research Group predicts that the average person they surveyed will spend $929 on gifts this season. Among parents, the numbers can go higher. Newly released T. Rowe Price data indicate that on average, parents expect to pay some $422 per child. And 34 percent say they will spend $500 or more.

How do they manage the beyond-budget spending? About 25 percent take drastic measures, withdrawing money from 401(k)s or their emergency savings. Or they take out payday loans to finance their holiday spending. Even among families who start the year with good intentions, 58 percent fail to stick with the holiday budget they have set.

A large number will whip out the credit cards to finance gift-buying, with the inevitable result of laying on credit interest. For instance, using the $929 average figure as a base, if your credit card charges 18 percent interest, you’ll spend $1,022, and each month it takes you to pay off the total amount, the interest cost will rise. While cards are irresistible when you want to give gifts, they can be dangerous if you can’t resist temptation to keep buying until you are maxed out and are not prepared to pay them off right away.

Avoid dipping into the emergency fund. That money is there to take care of such things as car emergencies, leaky roofs and other bona fide emergencies. And the risk doesn’t decline simply because Santa Claus is coming to town.

Retirement savings also should be inviolate. Now matter how much your child or grandchild covets a very expensive toy for Christmas, it isn’t worth the 10 percent penalty you’ll pay, if you’re under 59.5 years old, for the early withdrawal. You’ll also lose the accrued interest on that money. If you are earning an average annual 7 percent return, that $900-plus withdrawal represents loss of about $9,600 by the time you’re 65. And there are all the Christmases to come, remember? If you use the same tactic to finance more Yuletide wishes in the years to come, the loss could be considerable.

That’s not to mention the taxes you’ll pay – about $225 on a $900 withdrawal.

It’s probably useless to advise better planning for this year, but for future reference: Set aside some cash each month in anticipation of the gift-giving season. Stick to your good intentions. Santa will thank you. When you shop, let a list be your guide and don’t get swept away in visions of your own largesse. Impressing friends and family during the holiday season won’t take away the sting when the holidays are over and your finances are in shambles. Don’t take more cash to the stores than you intend to spend.

Control Your Holiday Budget

Control Your Holiday Budget

If you can wake up on Jan. 1 free of worry and ready to begin a new year with a clean slate, you’ll be glad you took the trouble to make your holidays debt-free.

If you are prone to go all out for Christmas and end up facing a New Year saddled with left-over debt, begin now to stay in control of your holiday spending.

Start the annual binge with a realistic view of how much you have to spend. Review your income and set expenses. What’s left over is what you can spend. (This is the time of year when too many people remember that they vowed last year to start a savings account especially for the holidays. Too late now.)

Work from a list, Write down every person to whom you want to give a Christmas remembrance. Even co-workers, the teachers and the neighbors. Remember to expect the extra expenses in foods, decorations and charitable donations you give at this time of year. If there are parties and special events that might dip into your budget, add them. If your plans include travel, that’s a big one. Start with that and build around it.

Go through the list and realistically determine how much you can spend for everyone on it. Homemade is good. Simple is easy. Trying to impress the recipient usually gets you into trouble budget-wise. This is a time when the old saying that “It’s the thought that counts” becomes operational.

Stick to the plan. It doesn’t take much of a hard left turn to put you off-track. Calendar your shopping, trying to categorize into foods and gifts. Don’t try to cram too much into a single shopping trip. When you get tired, you’ll be tempted to “buy anything” just to get the task behind you. Don’t weaken.

Keep track as you go through the process. Make adjustments if necessary, with your eye on the bottom line at all times. Keep your list up-to-date, crossing off the items as you purchase them. Once you have crossed them off, forget them. Second thoughts can be costly.

If you can wake up on Jan. 1 free of worry and ready to begin a new year with a clean slate, you’ll be glad you took the trouble to make your holidays debt-free.

Ready for Retirement?

Ready for Retirement

Not many Americans are accumulating the amount of money the experts say they will need to tide them over the remainder of their lives

Saving for retirement is getting harder. Not many Americans are accumulating the amount of money the experts say they will need to tide them over the remainder of their lives, and the U.S. Congress is taking steps that complicate the process further.

The idea is circulating in D.C. that the tax breaks associated with 401(k) savings should be curtailed. As our representatives look for ways to adjust taxes, that idea is still on the table.

Most Americans facing retirement become painfully aware that they will need a substantial amount of savings as well as Social Security payments to get by. The cost of health care is a bug-a-boo for too many as they age and general inflation takes a swath out anything that is set aside for the future. Here are some things to consider:

About half of Americans have a retirement account such as a 401(k) provided by an employer or and Individual Retirement Account (IRA), according to the Federal Reserve.

Not all jobs offer the 402(k) option. Only 35 percent of low-income working households have the job savings plan or anything similar that automatically sets money aside for retirement. For high-income households, the figure is about 80 percent, according to a study by the U.S. Government Accountability Office.

The average savings of most households that have a savings account is $60,000, but there is a wide range on both sides of the average. The typical household headed by someone under 35 had savings of only $12,300 last year, if they had savings at all. The savings cushion ranges from $403,000 at the top to a median of $25,000.

Millennials have more tucked away than their parents did at the same age, Compared with 1989, when a family headed by someone under 35 had just $7,500, today’s family in the same age group has $12,300, after accounting for inflation.

The age at which individuals can qualify for Social Security is rising. Sixty-six is now the threshold for receiving full retirement benefits. The figure is slated to go up slowly until it hits age 67 for those born in 1955.

The average life span is increasing. A woman at 65 can expect, on average, to live another 20.6 years. For men, the figure is 18 years. Retirement income has to last longer for most Americans.

Projections for health care costs are scary. A 65-year-old couple will need some $275,000 to cover medical needs through retirement, according to Fidelity. That doesn’t take into account nursing home or long-term care if necessary.

Fewer companies are offering formal retirement plans for employees. Only 13 percent of private-sector workers were enrolled in such a plan in 2014, says the Employee Benefit Research Institute. In 1979, the figure was about triple that number at 38 percent.

All of these factors suggest a more careful analysis of your prospective retirement income, with adjustments if necessary.

Pay Off Student Loans Faster

Student Loans

“Review recent reporting on student loans, and chances are that stories of eight million people in default and retirees paying off loans with Social Security will come up.” Forbes Magazine

One of the main reasons Millennials don’t invest more money toward retirement is that they are saddled with education debt. The average amount of student loans in 2016 was a record $37,172. That’s a 6.05 increase over the previous year, according to Cappex.com, a college scholarship website.

Bankrate.com studied the issue and came up with these suggestions to help those with student debt to get out from under the load faster:

Treat the loan as you would a mortgage, making larger payments to reduce the principal faster. A student loan of $25,000 with 6.8 percent interest and a 10-year payback period would cost $288 a month. Upping the payment to $700 per month would clear off the debt in three years.

Make payments twice a month instead of monthly. That would help even out an increased payment. After the initial push to get the loan paid, the money that had been absorbed in student debt then becomes available for other things, including a mortgage and savings toward retirement. Or it could be used to help a child through college, saving him or her the same burden of student debt.

Many experts advise those with student loans to create a plan for paying off in three to five years. Seeing the plan in black and white gives a better sense that this is something that can end. It becomes the basis for a goal that the individual can commit to.

The example is a couple who have $50,000 in combined student debt. They earned about $100,000 a year jointly. They established a budget and cut back on spending. They had bonuses from their jobs that they dedicated to the drive to become debt-free and they put $800 per month into the loan payment. They had paid off the loans in two years where it would have taken eight years if they had made only minimum payments.

Having money put into savings automatically bysteps the temptation to spend everything you earn. Don’t use checking and/or savings accounts you already have. Keep a separate account for the purpose of student debt reduction.

Minimizing the amount of loan assistance you need to complete college by working part-time is a counter step to be considered at the outset. Planning ahead, being willing to sacrifice to keep loans at the lowest possible figure and keeping focused on long-range personal finances will help. Falling off the budgetary wagon when personal wants and desires get first attention will lead to future problems.

The very best advice: live within your means and be conscientious about saving.