Your Net Worth – a positive approach

Believe it or not, doing a net worth statement each year is crucial for your financial health.  Many people get intimidated by the idea of determining their net worth because they don’t want to see negative results – that they may owe more than they own, or are not as far along financially as they hoped.  Well,  I don’t want to get on the scale either, but it does not change how much I weigh just because I choose not to look at it.  The same applies to money, you are where you are whether you write it down or not.  If you want to move ahead financially, a big step is to know where you are now and then use that information to create strategies to get to where you want to be.

Determining your net worth is as easy as writing down the value of everything you own and subtracting from that amount everything you owe (Assets – Debts = Net Worth).  You can find a free form for this at http://extension.missouri.edu/wfes

Net worth reviews are a great tool to help you compare how you are doing from year to year. By creating it at the same time each year, you can make sure you are headed in the right direction – that you own a little more and owe a little less than the year before.  If you find that your debt is growing and your savings is shrinking, it gives you a chance to stop in your tracks before you get too far down that road, and figure out how to turn it around – such as spending less and saving more.

So how can you get yourself to do it?  Make a date with yourself each year around the same time and put it on your calendar.  Whether it is the beginning of each year or tax time, etc., whatever makes sense for you.  As your reward, you will find yourself reaching, or moving closer to reaching your financial goals!

Posted in Debt, Expenses, Financial Decision Making, Financial Goals, Financial Plans, Financial Records, Uncategorized | Leave a comment

Grocery Store Coupon Adventure

Woman Clipping from MagazineI already do things regularly to save money or keep expenses down. However, this year, I am going to try new, or haven’t tried for a while, cost saving ideas and methods suggested by you, class participants, money websites, consumer reports, etc. I will report in this blog how they work out. Here goes the first.

I am pretty frugal by nature. Related to grocery shopping, this manifests itself by sticking to my list, buying items only when on sale, shopping around when it makes sense, and avoiding buying things we don’t need.

Truth be told, I have never been great with grocery coupons. I have good intentions: I make an effort to collect coupons along the way, but then I forget them, or, they expire before I am ready to purchase the item, or, I can’t find them…. My husband bought me a coupon organizer in hopes of helping me….nope. My mother cuts out coupons and mails them to me from afar. She then follows up and asks me if I used them…nope.

I always hear about how much money these “extreme couponers” save on groceries, so I thought I should revisit using coupons to see how much I could really save if I made a greater effort. I keep my grocery list on my phone, so, I knew what coupons I needed, and proceeded to look for coupons for things I needed now or in the near future. I visited a bunch of the coupon sites recommended by various publications (coupons.com; couponmom.com; smartsource.com; valpack.com and redplum (save.com), etc.).

During my initial visit to these coupon sites, one that even boasts over 700 coupons, I proceeded to find possibly 5 coupons that I might ever use, and none that applied to my current list of needs. So, I decided to take another approach. I got out my list of grocery items and decided to search for coupons by product.

Several hours of effort later, I had not found one usable, downloadable coupon for a product I use, or would consider using, that did not require me to register for various websites (giving personal information) or require me to “like” their Facebook page. I already have information overload from my real “Friends” on Facebook, but at least their information is often entertaining. I did find a promise of $17 in coupons if I registered on one website, only to find out after registration, I had to wait 4-6 weeks for delivery.

I ended up on this coupon hunt for weeks, returning to the coupon sites regularly, looking on paper, looking on manufacturer and store websites, and putting off purchases in hopes of finding that money saving ticket. After hours and hours of hunting over several weeks, my end result was this: I saved a total of $5.00 in grocery coupons for all of my effort. (Had I gotten to the store on a double or triple coupon day I would have done better). Looking at it another way – I spent hundreds of dollars of my time to save $5.00.

So, it turns out, grocery coupon savings is not going to be high on my list for reducing expenses. Don’t get me wrong, I do find and use great coupons for other purchases– sporting equipment, art supplies, electronics, clothing, and car repairs, etc. (and will share coupon phone apps in an upcoming entry). But, since I am not willing or able to make grocery couponing a full-time job, this method will have to be replaced by other ways to reduce expenses. As I tell my class participants – you have to use money saving methods that fit your lifestyle and money personality.

Posted in Expenses, Saving, Shopping, Spending, Uncategorized | Leave a comment

Getting on Track for Retirement: Six Things to Do Now

Concerned about whether you are on track for retirement?  Here are six things you can start doing now:

  1.  Start sooner rather than later. The sooner you start planning and evaluating if you are on track, the more options you give yourself to address shortfalls. The earlier you set money aside for retirement, the more time it has to grow and work for you. Don’t short-change your retirement by waiting until after you figure out how to pay for children’s college. Remember, there are no loans or scholarships for retirement.  Retirement savings should be the priority.
  2.  Calculate your expected expenses in retirement. Use current and projected expenses to estimate a yearly amount you will need in retirement.  There are online forms and calculators you can use that adjust expenses for inflation. Most people need 80% – 100% of peak income to live comfortably in retirement. Even though some expenses decrease in retirement, other expenses increase, like healthcare and leisure.
  3.  Set a written goal for retirement. Create a written plan including how much you will need in retirement based on today’s dollars. Check with your employer about what you can expect from any employer sponsored plans. Using online calculators, you can estimate the nest-egg you need to retire that will pay you the yearly income needed to meet your expenses. Then determine monthly savings needed to reach your goal.
  4. Participate fully in 401(k)s, 403(b)s, IRA’s. You don’t want to rely on Social Security, or employer sponsored pension plans, to be sufficient for a comfortable retirement. Use automatic payments or paycheck withdrawals to make saving easy.
  5. Find more money to save. Re-evaluate priorities and try to find a better balance between spending now and saving for later; reduce interest expenses and credit use; reduce spending on habits and hobbies; find extra income to direct to retirement savings.
  6. Track your progress. This can be done by using online financial calculators or working with a financial planning professional. Consider other options in addition to saving more; delaying retirement even by a few years can give you more time to save and reduce the amount of the retirement savings needed. Find calculators and forms at the MU Extension Women’s Financial Education Series.
Posted in Financial Decision Making, Financial Goals, Financial Plans, Investing, Retirement Planning, Saving | Leave a comment

A College Education Will Cost How Much???

Money Tree?With college costs continuing to climb, is it realistic to think parents can fund their children’s college and their own retirement?  The financial aid website (www.finaid.org) suggests using the 1/3 rule of thumb, meaning if you can afford it, you should expect to pay 1/3 of the cost of your child’s school expenses from savings, and the rest could come from current income, loans, grants, work-study, etc.

Let’s look at some numbers:  educational costs at the college level have been increasing by 7% or 8% a year.   Our sample child (SC) is currently 4 years old, and the current in-state tuition for the state university her parents want her to attend is $7000 per year.   In 14 years when SC is 18, four years of tuition at this university is expected to be $80,000.  The 1/3 rule says the parent(s) of SC should try to have $26,500 saved by the time SC enters college.

Here are some things you might consider when determining how much you can afford to save for/pay for your child’s college:

1. There are NO loans and scholarships for retirement.

2. Would your child prefer to repay loans from their college expenses…..OR would they prefer to help support you during your retirement because you sacrificed saving for retirement to pay for their college?  (One more thought on this one – will your child someday have a spouse/significant other that will have an opinion too?)

3. By getting a college degree, your child boosts their earning power by an average of $1.2 million over their working life.

4.  What contributions can your child make by working and saving their own money towards school, as well as working during college?  Will this “buy in” make them more invested in learning and doing well?  What, if any, portion of student loans do they need to take on?

5. Does choosing a more expensive school really pay off during and after college? If your child has to pay all or part of the cost, will they choose differently?  See the article at http://shine.yahoo.com/back-to-school/10-reasons-to-skip-the-expensive-colleges-2518407.html

Make sure everyone involved in the funding of college understands the opportunity costs involved.  This includes how much it will cost to pay back any loans, over the long-term, when determining how much it is worth to attend a particular school.  Look into 529 savings programs, prepaid tuition programs, grants, scholarships, work-study and community colleges, etc. to help keep up with expenses or tuition increases.  Community college can be a good option for the first two years, especially if your child wants to graduate from a high priced alma mater.

Here is an article that gives additional thought to the financials of paying for college:  http://www.forbes.com/sites/timmaurer/2012/05/31/the-non-conformists-4-step-education-savings-plan/

Posted in Debt, Expenses, Financial Decision Making, Retirement Planning, Saving for College | Leave a comment

Lending Money to Friends and Family – Just Say No!

  1. Don't lend if you love themDon’t do it! More often than not, lending money to a friend or family member results in a strained relationship or the end of a relationship.
  2. If you do decide to lend money to a friend or family member, lend only an amount you can live without and don’t expect it to be repaid.  In your own mind, consider it a gift and if they pay you back, great, if they don’t, it does not create a financial hardship for you.
  3. Don’t lend money to friends or family members!  It is difficult to keep asking them to repay you if they don’t meet their promised deadline, which is what happens most of the time.  Since you are a family member or friend, they may expect you to wait until they are ready to repay (if they ever do) – even if you now need the money.  Yes – I see it happen all the time!
  4. Ok, so what if you decide to ignore #1, #2 and #3?   If you decide to lend a larger amount than you can afford to lose or give as a gift, then protect yourself and make it a formal loan agreement.  Have a promissory note that includes the amount you are lending them, the dates and amounts of repayment, for example monthly installments and/or a final repayment date, interest, and penalties if they don’t pay on time.  Have it signed by them, dated and notarized so they see you mean business; you want to be repaid in full on a timely basis.  You are also encouraging responsibility on their end – which never hurts.
  5. Don’t lend money to friends or family members!
  6. Don’t co-sign for a friend or family member; it is similar to making a loan.  If they don’t pay their bills on time, it will be reported on your credit report.   If they don’t pay the bills at all or declare bankruptcy, you are on the hook to pay for any amounts still owed.
  7. Love your friends and family, but don’t lend them money or co-sign for them. 
Posted in Credit, Debt, Financial Decision Making | Leave a comment

Divorce and Debt (Joint Liability)

A concern that has come up a lot lately is how unpaid debts are handled during and after divorce.  For example, let’s say a couple has several joint debts acquired

Liabilities

Weighed Down By Debt

during their marriage: typical debts might include credit card balances, a home loan, and some medical debt.   These debts can be paid off from cash available or assets sold during the divorce, or they can be assigned to one of the parties to the divorce.

During the divorce proceedings, the divorcing couple agrees how to pay off debt or assign particular debts and assets to each person, or if they can’t agree, a judge will make those decisions.  Once the divorce is final, according to the specifics in the divorce decree, each person is responsible to:  1. Pay off the debt assigned to them, 2. Continue to make the monthly payments, or 3. Refinance the debt out of joint names and into their own name.  There are times when only one spouse, who has more financial resources, is assigned all the debt, or a spouse may be assigned more property to offset their taking more debt.

Here are some important factors to be aware of around debt (joint financial obligations) that does not get paid off before the divorce is final:

  1.  The divorce decree DOES NOT override contract law. This means that since the creditors of you and your ex-spouse (ex) were not involved in the divorce proceedings, and have not agreed to release one of you from the debt, you are BOTH still on the hook for all the jointly owed debts.
  2. You remain legally responsible for the debt until your ex manages to get the debt transferred into their name alone or pays it off.  Until that time, if they make any late payments, those late payments will appear on your credit report.  If they stop paying or declare bankruptcy and the unpaid debt still has your name on it, the creditor can pursue you for payment of the entire balance owed.
  3. It is difficult to force an ex-spouse to pay the bills for joint debt once the divorce is final, regardless of what the divorce decree says about assigned debt.  If your ex does not pay the debts assigned to him/her, the creditor can take legal action to force payment, and if your name is still on the debt…. see #2.  To preserve your credit you have the option to pay the debt if your ex won’t, and you can pursue legal remedies against your ex, but it can be challenging.

So, make sure you talk to your lawyer about the alternatives to deal with the risk of debt not being paid or transferred following a divorce. Some options: use assets from the marriage to pay off the debt before the divorce is final, or require that joint debts are transferred, refinanced or sold before the divorce is finalized.  If there are not enough assets or resources to address debts, discuss additional options with an attorney(s).

Posted in Credit, Debt, Divorce | 1 Comment

Having Credit and Bank Accounts in Your Own Name

Most people, especially women, should consider having both a bank account and credit card in your own name – and only your name.  I don’t have a crystal ball nor do most people – so you don’t know what the future holds.  As a proactive measure then, it is wise to make sure you have financial resources – a bank account and a credit card, at your disposal should events in your life ever take an unexpected turn.  The hope, of course, is that nothing will ever happen, but just in case…..

Your bank account should have, at minimum, emergency money that is available to you alone. And you should have this account whether or not you have a job outside the home.   I can’t tell you how many stories I have heard of relationships gone wrong where a partner or spouse emptied joint accounts and cancelled joint credit cards, leaving someone without access to money to pay bills or hire an attorney, etc.   If the account is in only your name, no other individual can empty it without notice.

Your credit card should be a national card (not a store or gas card) that has no authorized users – so you have total control over its use.  If you use your credit card wisely, it can also help you build or maintain good credit.  A few cautions on credit cards:   make purchases at least a few times a year and pay them off as soon as you get the bill; and only make credit card purchases that you already have the money set aside to buy.  Credit cards are for convenience, not to extend your current income (paying interest means you have less income to use in the future).  When choosing a credit card – check into whether you have a local bank or credit union that offers a good option, or a secured credit card if you are building or rebuilding credit?  Websites you can use to compare or research credit cards include:  http://www.bankrate.comhttp://www.consumer-action.org/ and http://www.cardratings.com.

The purpose of these individual accounts is not to hide money or purchases from your spouse, but to be able to establish an emergency account in your own name and to establish credit in your own name with both under your complete control.   An added benefit of having an account in your own name is that it can reduce conflict over money –  if each spouse or partner has a certain amount of discretionary money at their own disposal that is not under scrutiny of the other – but that is the subject of another entry…

Posted in Banking, Credit, Emergency Fund, Saving | Leave a comment