Money Management

Slow And Steady Wins Savings Race

October 2, 2017 By Twila Van Leer

When you’re working on a significant financial goal such as buying a house, saving for retirement or trying to get old student loans off your plate, the progress can be discouragingly slow.

Just don’t let it sidetrack you from the ultimate object. Researchers have discovered that the longer you pursue a goal, the farther away the end seems. It’s kind of like being on hold on the telephone. The longer you wait, the more certain you become that you’ll go on waiting forever. Under that scenario, it is easy to cave in and lose sight of the ultimate end toward which you are reaching.

Counterintuitive it may be, but studies show that it is true. And if your final target seems to be receding, you will be better able to talk yourself into taking the money you were going to save and splurge on the new boots that are beckoning.

How to ensure that your end goal stays steady? Set a specific time when it will be achieved, the experts say. Make it as concrete as possible. The more specific you are in your planning, the more likely you are to stick to the details. Work with a financial planner, if necessary, to set deadlines and arrive at the method you will use to achieve your objective.

Then divide the “big picture” into manageable smaller goals. Focus on the activity of saving itself, not on the future outcome. The objective, for instance, should be on setting aside $300 per month for retirement, not on the greater total that you have decided you need for a comfortable retirement.

A study published in Psychological Science concluded that people who break their savings plan down into particular time frames, such as weeks or months, save 78 percent more than those who are focused on some far-off, unforeseeable future goal.

Checking on your progress can help. Say at six-month intervals, compare what you have with what you had. It can be satisfying to see steady progress toward the ultimate goal. If you don’t feel satisfied with the results, make a course correction. Don’t let little hiccups have a greater impact than they should.

Don’t let retirement savings preclude an emergency fund. Having a six-month cushion in the event of an emergency has to take precedence over the future need. Maintain adequate health and disability insurance and make a concerted effort to reach zero credit card debt. Taking care of today makes it easier to ensure financial security in the future.

Saving Shouldn’t Be Hard

September 30, 2017 By Twila Van Leer

Too many Americans fail to save enough money to meet emergencies and prepare for retirement. But it isn’t a matter of math, according to personal finance author, radio personality and money guru Dave Ramsey. It’s a matter of priorities. People start saving when future needs become more important than current wants.

The problem is apparent. A Federal Reserve survey found that nearly half of Americans couldn’t cover a $400 emergency without borrowing or selling assets. Most Americans profess a desire to save, but it can’t compete with their immediate desire for a pizza, Ramsey says. Going into debt to fulfill those immediate desires is even worse than taking money that should go into savings to satisfy the craving.

The secret to saving is to make a zero-based budget before a new month begins and then stick with it. That is the best way to know how much you are currently spending and how you can fit savings into the plan. What’s a zero-based budget? It’s what you have when your income compared with your outgo equals zero. In other words, you are assigning every dollar you have to a category.

Start with the necessaries – housing, food, clothing, insurance and bills. Then fill in the rest of the budget, including saving, with the leftovers. Dave offers a budget app, EveryDollar, that will help. You can track transactions on the go, making budgeting easier.

Finding time to work with a budget is a challenge in our society, but a few minutes every month is worth the effort. The budget program saves time by replicating the previous month’s budget as a starting point. Then you just make adjustments for the current month.

Having a concrete copy of your money income and outgo helps you to make decisions. It doesn’t matter how much money you make. It makes a difference how you decided to divvy up what you have. Keep some goals in mind. College, a major purchase (home, car appliances, etc.), a vacation, whatever, all take money and you get that money by putting it aside. Some for emergencies, some for retirement, some for your future plans.

Starting with a zero-based budget, Ramsay says, makes a statement: “I choose to put my future needs before my current wants.” When to begin? Now.

Paying Off Debts Pays Off

September 28, 2017 By Twila Van Leer

Debt is the ultimate treadmill. Sometimes it seems no matter how hard you try, the load never gets lighter. Don’t despair. If you are serious about wanting to whack down some of that debt, it can be done. Just be prepared for the fact that it doesn’t happen fast.

There are several approaches to the issue. Let’s start with the “Snowball Method.” That means you start your attack on the accounts with the smallest balances. That might give you the greatest boost as you see the accounts disappear. But the “High Rate Method” has the most potential for actually saving money. That’s when you concentrate the accounts with the highest interest rates, chewing them down a little at a time and reducing the amount of interest you pay.

Before making a choice, make an assessment. List all of your debt balances from lowest to highest so you can actually see what might be the best plan of attack. When you pay your monthly bills, pay the minimum amount on each account.

Then, if you have chosen the “Snowball” approach, take any available cash you have and apply it to the account with the smallest balance. If two accounts are close, choose the one with the highest interest rate. Even a very small amount of extra payment adds up over time and it always reduces the amount of interest you will pay. When you get one of your smaller debts paid off, the trick is not to use it again until you have the total debt under control. If you have to hide your card from yourself, freeze it in a block of ice or simply close it, resist the urge to start the process over again.

After you have paid off a debt, take the money you had spent on payments and use it to make additional payments on the next smallest account. Repeat this process and you’ll soon have a considerable amount of extra money to tackle the larger accounts. You’ll be surprised how fast that can happen. The “Snowball” effect really works.

If you have opted to start with the accounts with the highest interest, your first step is the same. List your debts, but according to the interest rate, from highest to lowest. Again, pay the monthly minimum and then use any extra cash you can muster to add to your payment on the one with the highest interest. That means that each month, you will pay interest on a smaller amount of principle.

Do the same thing with the account with the next highest interest payment. Over time – and it isn’t likely to be fast – you will find you have manageable debt. Unless, of course, you don’t resist the urge to fill up the cards again. Having them free and clear is a powerful incentive to start the process again, but resist. Make careful choices between what you really need and what you only want.

Which approach to debt reduction you choose is up to you and must fit your personal financial realities. But those who have take the steps to get control of debt will tell you that you just can’t put a price on the peace of mind that comes with freedom from debt. Get help from an accredited consumer credit counselor if necessary.

Make Financial Mistakes? Who Doesn’t?

September 24, 2017 By Twila Van Leer

Make Mistakes — Deal with issues as they arise

Financial mistakes are the norm. Even the most successful money-makers have a few on their records. It all adds to the anxiety, confusion and frustration that circulate around money.

Most people are doing better financially than they think they are, experts agree. Look at the bottom lines over time and see if there is a steady increase. That indicates you haven’t failed.

Money is not static. It is dynamic. So are the stock market and other investment options in which you may put your money. Plan for the future and don’t get too hung up on today, according to Lauren Lyons Cole, certified financial planner and editor of “Your Money at Business Insider.”

Individual bumps or dips in your net worth are not necessarily indicators of success or failure. One mistake doesn’t doom you to a lifetime of struggle any more than one lucky break assures that you’ll never have tough times. Enjoy the ups and don’t let the downs get you down.

Since money is dynamic, your financial goals also can fluctuate with circumstances. Long-term planning is essential, but not beyond adapting when necessary. Don’t underestimate your potential.

Deal with issues as they arise. If you lost your job, look for a new one. If you have too much debt, cut spending to the bone while you pay it down. If your progress toward the goals you have set seems too slow, don’t give up. Keep working toward them. If you can cross some off the list, set new ones. Keeping the target in view is the secret to making your personal goals come to fruition.

Have Student Loans Forgiven

September 16, 2017 By Twila Van Leer

Student Loan Forgiveness — Take care to remain cognizant of the eligibility rules if you want to stay in the running for loan forgiveness.

The U.S. government provides some opportunities for having student debt erased, but there are specific guidelines and some traps to avoid.

The Public Service Loan Forgiveness Program (PSLF) specifies that it is available only to those who have paid regularly for 10 years and who are working for a government agency or a nonprofit.

This fall marks the first time the program kicks in and there are only a few hundred used-to-be students who have signed up so far. Failure to understand the rules has led many graduates to make decisions that now make them ineligible.

Four of the most common mistakes include:

Having the wrong type of loans. The student must have borrowed from the federal Direct Loan Program to qualify. Some 19 million people – 44 percent of the borrowers got their loans in other federal programs, according to current Department of Education statistics. They can get around the provision by consolidating debt under the direct loan program. However, past payments won’t count toward PSLF until the consolidation takes place.

Misunderstanding of “qualifying payments.” Eligibility is based on making 120 payments. They must have begun after Oct. 1, 2007 through a qualifying repayment plan (generally an income-driven plan.) Payments must be in full and made within 15 days of the due date. The borrower must be a full-time employee of a qualifying federal employer. Making extra payments won’t help with eligibility as only one per payment period is eligible. At least some payments must have been made under an income-driven plan that caps payments at a certain percentage of income. Payments don’t count if the borrower was still in school, during a loan grace period or while the loan was in deferment or forbearance. (If a borrower has stayed with the standard 10-year plan, he or she will have paid off the loan before consideration of PSLF is considered.)

Working for the wrong employer. To avail oneself of PSLF, he or she must work for the government, a 501(c) (3) nonprofit or an organization providing a qualifying public service. A full-time public school janitor could qualify. Before accepting a job, an individual hoping to take advantage of PSLF should see that the prospective employer qualifies.

Falling for fraudulent promises of forgiveness. A NerdWallet investigation showed that many companies use false claims and promises to reduce or eliminate loans and they charge high fees to enroll people in the free federal program. An Obama “free loan forgiveness” program, for instance, is one such scam. The term receives more than 18,000 online searches per month, even though no such program exists. Be wary of companies that charge a high up-front fee or add monthly amounts. What they are offering is likely to be too good to be true.

The PSLF program is not set in concrete yet. The Department of Education is considering cutting funding, arguing that it is too expensive and that it tends to benefit graduate and professional school students, many of whom acquire debt in six figures before they are ready for careers. Keep posted for changes, but take care to remain cognizant of the eligibility rules if you want to stay in the running for loan forgiveness.