Going Green and Saving Green

They were lined up on my counter top like a small cityscape. Drops of water ran down their sides as if the city had been hit by the largest rain ever. A friend, who had just popped over, saw them and exclaimed “is there some kind of shortage of freezer bags going on!”

Yes, we reuse our freezer bags. We may in fact be the only ones who do this. If you do this too, please leave a comment so I know we’re not alone. We recently visited two sets of friends, one in Utah and one in California. As I was helping with the dishes, I naturally washed the used freezer bags. My friends both questioned why I would do such a thing.

My husband and I have always reused our freezer bags. They are plastic, and therefore will live on nearly forever in our world’s ever growing heaps of trash. If we reuse ours, there will be fewer in the landfill.

As a side benefit we also save money. We use our freezer bags anywhere from three to ten times. So that is a third to a tenth of the money we would have spent and the same reduction of plastic in the landfill.

We also only use freezer bags for some things. We try our best to mostly use storage containers. Those can last a very long time. Longer than you might think if you use duct tape when the lids crack (just kidding). You only have to buy them once every few years.

Now, of course, lowering these small expenses will not lead to an early retirement. But it can be part of a habit that can lead to more savings, less debt and smaller landfills.

If what you put in the trash looked like money, you wouldn’t throw it away. I’ll wager, you’ve never thrown a dime in the trash. A freezer bag doesn’t look like a dime, but that is what it cost. And it can be reused, just like the dime. We’re far from perfect. We have our fair share of waste, and poor purchases. But avoiding waste is always at the back of my mind.

Try this experiment. For a day, before you throw something away, think of how much it cost. Some things have to be thrown out. There is no other use for them. But some things could have gone to a better use. Spoiled food could have been eaten before it turned, saving you money. Some things could be reused or donated rather than thrown away. If you think of your trash as money, is less of it trash?

In our consumer culture, we buy more than we need. The costs are hidden. We don’t take into account how a few dimes here and a few dollars there add up. It’s easy to throw something that didn’t cost much away. But everything you put in the trash started with money coming out of your pocket. Being more mindful of the ultimate demise of what you buy could help you save both your financial future and the planet.


Photo by Paweł Czerwiński on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

Doomsday Believers Still Need to Save

I recently spoke with a young woman who questioned whether saving for retirement was really a good use of your money. Her concern was that climate change would end life as we know it, and as a result, there was no point.

Impending doom has always been used as a reason to not save. The threats of nuclear war, a chemical weapons attack, or the spread of a mutant virus can make you wonder whether there actually will be a future. But climate change seems to me to be weak excuse.

With climate change, the demise of our planet is slow moving. Severe weather, new crop diseases, the loss of natural animal and plant life, and rising sea levels are all serious threats. But they won’t end the human race very quickly.

What they will do is make things much more expensive. Food will be more expensive to produce. We may face greater risks to our health and, therefore, higher medical bills. As we try to minimize the damage, taxes may increase. All this adds up to needing more money in savings when we can’t work for pay anymore. Not less.

Doomsday scenarios are not a good excuse to give up on saving money. Sure, something really bad could happen. There are no guarantees in life. But it’s far more likely that you will live to a ripe old age. The real disaster would be for you to spend those years in utter poverty because you didn’t have any savings.

The most recent life expectancy table from the Social Security Administration is revealing. The following table shows how much longer you are likely to live at different ages.

AgeRemaining Years
for Men
Age Remaining Years
for Women
Age
6517.9282.9220.4985.49
7014.4084.4016.5786.57
7511.1886.1812.9787.97
808.3488.349.7489.74

As you can see, there is a good chance you will live a long time beyond the normal retirement age. Some estimates put the number of people living to the age of 100 in the United States by 2050 at 1 million. To support yourself for such a long time, you will need to have saved $100,000 for every $333 you spend in a month.

Yes, the future is uncertain. The political tensions in the world and the growing consequences of climate change should have us all worried. But the answer does not lie in spending all your money now. The one thing that is completely within your control is how you prepare for a likely long life. No matter what happens, you will never regret saving money for your future.


Photo by Josep Castells on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

Saving for College: 529 vs IRA

Recently I saw a recommendation that you should put your college savings into a Roth IRA instead of a College 529 plan because the Roth savings would not be included in parental assets for assessing whether your child would be eligible for financial aid. This, however, is not as straight forward as it might seem. There are trade offs that mean the real answer is it depends, and in these cases, I like to do the math.

First the rules. With both a 529 plan and a Roth IRA, your investment earnings grow tax-free while in the account. With the 529 plan, withdrawals for qualified educational expenses are tax-free as well. With the Roth, you can withdraw contributions tax-free, but the earnings will be taxed at your regular income tax rate. Roth withdrawals for educational purposes do not incur the 10 percent penalty for early withdrawal.

The 529 plans in thirty seven states allow you to deduct your contributions from your state income taxes up to a limit. In Oregon, for example, you can deduct $2,435 if you are single and $4,865 if you are married. However, you are limited to the investment options available in your state’s plan. If you don’t like those, or your state does not offer a 529, you can save for college in any other state’s plan, but you won’t get the tax deduction. Earnings still grow tax-free and are not taxed on withdrawal for education.

The argument in favor of using a Roth IRA is that retirement savings are not counted in your assets on the Free Application for Federal Student Aid (FAFSA). Therefore, in theory, your child would be eligible for more financial aid if you saved in a Roth instead of a 529 plan. However, the earnings on your savings will be taxed and you won’t get the state tax deduction for your contributions (if it’s available to you), so you will have less total savings available for college given the same annual savings amount.

Now for the math. Given the tax implications of saving in a Roth, are you really better off than if you saved in a 529 plan? The answer depends on how much savings you have outside of retirement plans. Your expected family contribution (EFC) based on your savings alone (there is also an income test) will be 5.64% of your family assets per year. Your home, retirement savings and an allowance for emergency savings are excluded from the calculation. The allowance for emergency savings is based on the average cost of living for a family of your size. It usually ranges between $25,000 and $35,000.

The following table shows how the two options compare when your child is about to enter college, assuming you save $2,400 per year from the time your child is born until they are eighteen. It also assumes you have $100,000 in savings outside retirement plans at that time. I’ve assumed federal and state taxes combined are 30 percent, and that 529 contributions get a state tax deduction of 9 percent, based on Oregon’s tax rate. College savings also earn 4 percent per year in investment returns.

529 PlanRoth IRA
Taxable Savings100,000100,000
College Savings After Taxes$64,825$54,691
Family Exclusion$30,000$30,000
EFC per Year$7,604$3,948
Additional Potential Financial Aid$3,656
Additional College Savings$10,135

In this example, for the same annual savings rate, you would be better off saving for college in the 529 plan. Between the tax exempt withdrawal and the tax deduction for contributions, which I’ve added to college savings, you would have nearly $6,500 more available for college (the difference between the additional college savings and the additional financial aid) than if you saved in a Roth IRA. The 529 advantage declines with more in taxable savings. Given my assumptions, the break even level of taxable savings is $215,000.

There is one other reason you might consider using a Roth IRA as a college savings vehicle. If your child does not go to college, the Roth IRA can stay invested, and you can use it for your own retirement, with withdrawals being completely tax-free after age 59 1/2. With the 529 option, if the funds are not used for education purposes, the earnings will be taxed at your income tax rate plus a 10 percent penalty. However, you can transfer the savings to another child, or use them for your own continued education tax-free. A variety of vocational classes as well as college classes are eligible educational expenses.

If the funds are not used for education, you will have $2,200 more savings in your Roth IRA, than if you withdrew the 529 plan money and paid the taxes when your child is eighteen. The Roth would continue to grow tax-free until retirement. Alternatively, your 529 plan money could stay in taxable savings for retirement. In twenty years, the IRA option would have $6,500 more in it if your investments earned an average annual return of 7 percent and your tax rate remained at 30 percent.

As you can see, it’s not a straight forward answer of one or the other. If your child does go to college, the 529 plan offers serious tax benefits, especially if you live in a state that offers a tax deduction for 529 contributions. But if you have substantial taxable savings, or you ultimately don’t have any educational expenses, the Roth IRA could be a better option.

You certainly cannot know what the future holds for your child, so there is no wrong answer here. The important piece of the equation is that you are saving for her education in the first place. Whether you save in a 529 plan or an IRA is a secondary consideration. So save away, and don’t worry too much about whether you have the right type of account.


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

If You Ignore Your Money, It Will Go Away

Your money is like anything else important in your life. It takes time and effort to make it do what you want. But our world makes it easy to ignore your money for a very long time until, finally, you simply can’t ignore it any longer.

Saturday, I spent a few hours with my book at a book fair showcasing local authors. It’s always interesting to talk about money with total strangers. I usually learn something about human nature and the financial predicament of too many Americans.

One woman stood out to me. She told me she really needed a book like mine, but she knew she would never read it if she took it home. She said she was 47, and only had $16,000 in retirement savings. She probably was right on both counts.

She is not unusual. Only a little more than a third of Americans have ever even attempted to figure out how much money they will need in retirement. Those who do are far more likely to build enough savings to at least be comfortable when they can no longer work for pay. Like any problem, if you understand it, you are much more likely to be able to solve it.

But money is easy to ignore. You can buy just about anything, anywhere without cash. Some stores don’t even want to take it anymore. You can travel the world on a credit card, send your children to school with student loans, and buy a house with no money down.

When you pay with a credit card, it doesn’t feel like you are spending money, and it’s harder to keep track of what you do spend. Before you even realize it you’ve spent your future income well before it arrives. Eventually, debt payments crowd out other things you can do with your money, and you have no other choice but to finally give your money the attention it deserves.

One friend said to me, “It’s like exercising. You don’t really want to, but you have to if you want to stay in shape.” If you want to stay in financial shape you have to pay attention to your money.

Start by planning how you will spend your money. Rather than waiting until the end of the month to see what you have left, start at the beginning of the month and plan what you will have left.

Create financial goals. Contrary to their name, they are not about money, but instead, what you will do with the money. What do you want to do with your money? Three financials goals everyone should have are:

  • Protect yourself from financial setbacks
  • Support yourself when you can no longer work for pay
  • Take care of your family if you die or cannot speak for yourself

These types of goals can inspire you, because you make them about things you care about. Once you have your goals in mind, you can introduce money as a way to measure whether you are meeting your goals. For example, you can protect yourself from a financial set-back if you have a few months worth of expenses saved in an emergency fund.

Start small. Anything and everything you do is worthwhile and will make a difference in the end. You can do more as you get the hang of paying attention to your money and your situation improves.

Don’t let a setback keep you from moving forward. Sometimes it’s two steps forward and one step back. If you have goals and a plan you are much farther ahead than if you only have a hope and a dream.

You have to pay attention to your money the way you pay attention to your career, your family and anything else you care about. Without care and feeding, your finances will whither and die like the houseplant you forgot to water. No one else will take care of it for you. You have to take care of it yourself.


Photo by Lauren Ferstl on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

It’s Never Too Late

The other day I was at Home Depot. The gentleman who checked out my purchases (I almost said checked me out), was in his late sixties at least. He might have been seventy or older. He asked if I needed help getting my potting soil into my car, and I declined. He said, “Are you sure? I couldn’t do it.”

This guy, who couldn’t lift a bag of potting soil, was on his feet all day on concrete. It seems a grueling way to spend your day. According to the Bureau of Labor Statistics, about 25 percent of men over the age of 64 are working, and about half of them are in physically demanding jobs. Now, I’m assuming he wasn’t doing it for fun, though it’s possible I’m wrong on that front.

Does your future hold a Home Depot job? For too many, the answer may be yes. The median net worth (half are below, and half are above) of those aged 65 to 74 is just $224,000, and that includes the equity in their homes. Net worth is the value of all your assets, including your home and retirement accounts, minus the value of all your debt, including your mortgage. That is not nearly enough to live on, especially if you are living in part of it.

And it isn’t just those with low incomes. I’ve recently spoken to a few couples in their mid-fifties with high paying professional careers, but a negative net worth, meaning they owe more than they own.

But you can do something about it. The younger you are, the less you will need to change, but you can find a solution. A friend of ours, Gene, made a course correction at the age of 61. He really wanted to retire. He was tired of his commute and the office politics. But he had little saved.

He took a good hard look at his expenses to understand what kind of income he and his wife, Roberta, needed to live comfortably. Then he found out what he could expect from Social Security at the various filing ages. With this information, he was able to make some decisions.

First, he needed to get rid of his mortgage payment. That wasn’t going to happen soon enough if he stayed in his San Francisco Bay Area home. Gene and Roberta agreed they would retire to a lower cost area. They would sell their current home and with the equity be able to buy another home for cash. They expected they would even be able to bank some of the profits from the sale, given California real estate prices.

He knew he had little choice but to wait until he was 70, when his Social Security benefit was at it’s highest to retire. In the mean time, he saved as much of his income as he could, about 40 percent. His budget was the minimum he and Roberta could get by on.

The investment and housing markets were kind to Gene and Roberta. It turns out they will be able to retire to another state at 67 instead of 70. Gene righted his ship just in time. Had his income been lower, he might not have been able to save so much, and his future would have been far less comfortable.

The key to Gene’s success was he faced his problem head on and looked for alternatives that he and Roberta could live with. Wherever you are today, I urge you to do the same. The sooner you do, the more options you will have. You don’t want working at Home Depot into your seventies to be the only one you have left.


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

How to Help Your Kids Understand Money

Recently I had an opportunity to speak with a class at Pacific University, in Forest Grove, Oregon. We covered a variety of personal finance topics. I’ve done this before, and I’m always struck by the fact that young people are largely unprepared to live in the world of personal finance.

There are many reasons for this. It’s not taught in schools. Often parents themselves don’t understand the concepts. When quizzed about basic financial literacy topics, most Americans only score about a C minus. But a big obstacle is interest.

When talking with kids, or anyone, about money, you have to meet them where they are. The topic has to match not only their skill, but their interest. As with most skills, if the topic is not currently relevant, it is too abstract. Here is what I’ve learned from the literature and my own experience:

Elementary School Kids

Once kids are in the third grade, they have enough math skills to do a bit of money management. Your kids should have some money available to manage on their own, whether it’s from doing chores or an allowance. Have them save up for the things they want that are not necessary to everyday life. Help them understand the process for saving. How much money will they put aside each week? What are they willing to do for the thing they want, such as extra chores or giving up other ways they spend their money?

It’s important that kids truly have a choice. This is one area where I routinely got it wrong with my own kid. I remember vividly the day she wanted to spend $5 for a pony ride. I lectured her about how many weeks of allowance it took her to save $5 (though she wasn’t saving for anything in particular) and how short the ride was going to be. I should have just let her get on the pony.

Older elementary school children have the ability to understand the concept of debt. While I don’t encourage taking on debt for things you can reasonably get by saving ahead, it’s not a bad idea to let your kids have the experience of owing you money.

If they have something large on their wish list, consider letting them borrow the money from you to be paid in installments over a time you choose. Make a contract with them that clearly states what they will pay each week and how long it will take to pay you back. Talk to them about how they will raise the money for the payments.

Middle School Kids

Middle school kids can start to learn more about creating a budget. You can give them control over some of their needs as well as their wants. Give them a reasonable budget for things like their school clothes and supplies, and let them make their own choices about how to use it. Show them alternates to their choices, but let them make their own and live with them.

They can also understand the cost of living. Consider having your kids participate in paying the bills with you and making some family decisions. For example they could help plan a vacation, making choices that fit in your budget. Or you can work together to save for something the whole family can enjoy, like a new television.

High School Kids

In high school, you can add in activities that involve more complex financial concepts, but you are losing their interest. From here on out, you need to focus on things in which they will have a personal stake. College is a good one. Most parents have not saved enough to cover the full cost of college. Kids need to understand where the money is going to come from.

Make your family situation clear to them, and explain how they can help themselves. Good grades and extra curricular activities can result in scholarship money. After school and summer jobs can help them pay for books and room and board. And most importantly, their choice of schools will have a huge impact on how much money your family has to come up with.

If debt is going to be part of the picture, estimate their monthly payments now. It will help them understand the impact of the choices they make. You can estimate payments for different loan amounts at StudentAid.gov, and you can find more resources to help your child understand their options at the same site on this page.

College Age

College students are living on their own to some degree, and it’s a great time for them to begin to understand how the world works. College students should begin to pay some of their own bills. Likely candidates are cell phone bills and car insurance. If they are not living in the dorms, have them manage rent and utility payments and groceries, even if you are providing the funding.

When your child starts looking for work, with or without college, help them understand company benefits. Even some internships offer health insurance and an opportunity to participate in retirement plans. Help them understand how these benefits work and why they should participate. It’s also important to talk to them about building an emergency fund. How much they need, how they will save it, and why it’s important should all be understood.

It’s hard to get young people to begin thinking about retirement, but if they start participating in their company retirement plan early, it will reduce the amount of money they need to save out of their paychecks for the rest of their lives. I’ve found illustrating how a company matching contribution works is miraculous in getting these newly minted workers to participate. Here is a simple example you can use:

  • Your young person contributes $100
  • Since the contribution is before tax, only $80 comes out of their pay
  • Their company matches their contribution with $100
  • They have saved $200, and only $80 has come out of their pay.

Talking to kids about money is hard. You want to protect them from the cold world realities as long as possible, and as a culture, we’re just not good at talking about money period. The hard part is even if you do everything right, which you won’t, sometimes they just don’t listen. I wrote about how my own efforts didn’t help my daughter avoid going into the financial ditch in this post. But keep in mind, every lesson you teach stays in their heads somewhere. They’ll remember when the time comes.


Photo by Sharon McCutcheon on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

Why Medicare For All Is Logically Affordable

With the 2020 presidential election campaign just getting off the ground, health care is shaping up to be a foundational issue, as it should be. Health care in the the United States is expensive and complex. Per person spending in the U.S. is higher than other similarly wealthy countries. It’s actually twice the average spending of Europe and Japan.

Democratic candidates are unanimous in their support for reform. Nine candidates have come out in favor of Medicare For All, an aspirational statement with multiple meanings, or some form of universal health care. Another three have come out in support of an expansion of Medicare or Medicaid.

Critics first reaction to the idea, even though a concrete plan has yet to be proposed, is that it is unaffordable. But there is no logic behind this conclusion.

According to the Centers for Medicare and Medicaid, health care spending was $10,739 per person in the U.S. in 2017. Some of this was paid by insurance companies through employer sponsored or individual health care plans, some was paid for by Medicare and Medicaid, some was paid out of pocket by the patients, and some was paid by health care providers when patients were unable to pay their bills.

While the cost of health care is projected to continue to rise, the fact of the matter is someone will pay it. Single payer solutions to paying for health care, which is what Medicare is, don’t, by themselves, change the cost of health care.

As a thought experiment assume every dime of health care spending were paid for by the government through an increase in corporate and individual taxes. You must then assume the other ways you pay for health care would go away and compensate for the higher taxes. The cost of health care will still average $10,739 per person.

The average annual premium for employer sponsored insurance for single coverage was $6,896, and it was $19,616 for family coverage according to the 2018 Kaiser Family Foundation Health Benefits Survey. Average premiums for plans under the Affordable Care Act in 2018 were $5,280 for single coverage and $14,016 for family coverage. These expenses would go away if the government paid for health care.

Out of pocket costs paid by patients continue to rise and provider networks are getting more and more narrow. This makes patients responsible for more of the cost of their health care and subject to financially devastating bills. If the government paid for all health care you must presume that your own costs will go away, offsetting the increase in your taxes. Other expenses, like those paid by insurance companies and those paid by health care providers would all go away.

A single payer system does not mean that the government will be in charge of your health care. They aren’t now with Medicare enrollees. Why would they be under Medicare For All? It also does not necessarily mean that all insurance companies will close. There are European countries that utilize insurance providers under a single payer system.

However, health care could benefit from some government regulation. Pricing is far from transparent, and even if it were, it’s not like you’re going to call around if your baby’s fever spikes to 104, or your husband is having a heart attack. And the cost of some life sustaining medications is becoming unaffordable even if you have insurance. It is the pricing side of the equation that makes health care so expensive. Not who pays for it.

Similar to health care, we depend on our electricity to work at an affordable price. Utility prices are regulated by municipal boards. It might be worthwhile to consider a similar arrangement for health care.

So no. Medicare For All is not unaffordable. We are already paying for healthcare in one way or another. In exchange for higher taxes, companies, health care providers and individuals would pay less for health care. The overall cost of health care won’t necessarily change with the implementation of a single payer system, though with some creative thought, we might be able to get that under control as well.


Photo by Tbel Abuseridze on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

Your Retirement Savings Account is Not an ATM

There it is. It’s just sitting there, and you need it. Why not take advantage of it. It’s your money after all. If you need money, and you have money in your retirement account, it can be very tempting to borrow from it.

Most retirement plans allow participants to borrow against their balances. About one in five 401(k) participants have an outstanding loan, and over a five-year period, almost 40 percent of participants borrow from their account at some point. Most loans are taken to pay off debt, usually of the credit card variety.

That can make some sense, since the loan rate on a 401(k) loan is lower than rates on credit cards. But there are other costs beyond the interest rate. While you are essentially borrowing from yourself, there are several consequences to taking the loan that make this a bad idea.

  1. While your loan is outstanding, your money is not invested in the market. You are earning the interest on the loan to yourself, but you are missing out on the greater growth you could get from stock market-oriented investments. The market rate of return is the true cost of your loan. Historically the stock market has returned on average 10 percent per year.
  2. Some employers don’t allow you to make contributions while you have a loan outstanding. If that is the case with your plan, you will miss out on the opportunity to grow your retirement account balance. If your employer matches contributions, you will also miss out on that.
  3. Your loan is repaid with after-tax dollars. When you retire, the money you repaid, like the rest of your balance, will be taxed when you take it out to meet your living expenses. So your loan will be taxed twice.
  4. If you leave or are let go from your job, you will only have sixty days to repay the loan or it will be considered a distribution. The distribution will be taxed as ordinary income in the year you take it, and you will pay an additional 10 percent penalty.

Instead of taking out a loan from your retirement account, consider what other options you have. If you are consolidating debt, have you considered taking advantage of a zero or low interest promotion on a credit card? Instead of adding to your debt, can you reduce your spending either by cutting discretionary expenses or by making bigger changes to lower the cost of where you live or how you get around?

To avoid using your 401(k) as an ATM, make sure you have an emergency fund. You should have at least three months of mandatory expenses saved in an easily accessible account, such as a bank savings account or a money market mutual fund. If you have a high deductible health care plan, work toward saving enough to cover at least the deductible. And make sure you are setting aside money for those big expenses, like home and auto repairs, that you know will come up, but you don’t know when.

In some cases, a loan on your retirement account may be the best of a few bad options, but that doesn’t make it a good one. There are costs that aren’t obvious, and they put you at risk of a big tax bill if you lose your job. Avoid having to make the choice by saving ahead for emergencies and other big expenses.


Photo by 🇨🇭 Claudio Schwarz | @purzlbaum on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

I Want it All

GrubHub has a new TV ad that features the song lyrics by Queen “I want it all and I want it now.” This ad seems to sum up our consumer culture and precisely why so many people with good incomes can’t seem to get a grip on their financial situations.

Americans of all income levels struggle with unexpected expenses and debt, and, as a result, find it difficult to even have financial goals, let alone achieve them. Just this week, it was reported that the famous lawyer, Michael Avanatti, is accused of embezzling nearly $2 million from a client’s settlement to pay for his “own expenses and debts.” How can a guy like that run out of money?

A 2015 study by the Center for Retirement Research found that of those in the top one-third by income, one in three reported having difficulty covering regular expenses. I’ve seen it myself. I recently spoke with a couple making $400,000 a year, but going further into credit card debt with each passing month.

This couple seemed confused. They made so much money but couldn’t understand why they weren’t getting ahead. Eating out twice a day, designer clothes, and weekend getaways had something to do with it, but they hadn’t tallied their expenses. They also weren’t paying their debt down, which caused them to wrack up extra interest charges, and their careless approach to paying their bills resulted in unnecessary late fees. They simply weren’t paying attention.

It could be that high income people like these simply believe they don’t have limits. They make enough money, they shouldn’t have to worry about how they spend it. They want it all and they want it now. But that mindset is a trap. It can keep you on a treadmill of always needing to make more money, or in the case of Avanatti, to steal it.

There is always a limit. No matter how much money you make, if you want financial security, you actually have to do something about it. You must always pay attention to how you spend your money, and save for your financial goals. And you don’t even need to make a lot of money to do it.

Alan Naiman, a Seattle social worker who died last year at the age of 63, managed to save enough to give a small fortune to charity when he passed. By living an extremely frugal life, he was able to save and invest enough to have several million dollars in his own estate, and to his own savings he added his parent’s estate. All tolled, he donated $11 million.

Of course, these stories are extremes. You are probably not spending your way to bankruptcy despite a top 1% income, nor are you willing to hold your shoes together with duct tape in order to reach your financial goals. But they do illustrate the possibilities and what is required. While it may be true that you can have anything you want, you can’t have everything you want. You will always have to make choices. Choose wisely.


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

Photo by freestocks.org on Unsplash

How to Go From Happy to Desperate in 6 Weeks or Less

Last week GoBankingRates published an article on how to get your grown kids out of the house. After seeing it, I thought I better come clean. Our daughter, Kaye, has been back living with us for about a year after being mostly on her own for about two. She’ll be moving out again sometime this summer in a much better position, but it took a catastrophic fall to get her to learn how to manage her money.

Kaye made a series of decisions that, had we not been able to help her out, would have led to her becoming homeless. It was a serious eye opener and highlighted how vulnerable you can become.

In March of last year, Kaye moved into an apartment with her girlfriend. Both were making minimum wage. Kaye was busing tables at a big chain restaurant, and her girlfriend was working two jobs part time. They didn’t make much, but between the two of them, if they were smart about their decisions, they would have been all right.

There are several apartment complexes near us that offered relatively cheap rent for the Portland Metro area. They’re close to public transportation, which was important since neither owned a car. If they had picked one of those, their rent would have been about $500 a piece. It would be tight, but with no other big bills, they could have swung it.

They didn’t do that. They rented a much more expensive place that wasn’t nearly as accessible by public transit. Kaye’s girlfriend bought a car. Not a cheap used car but a nearly new mid-sized sedan. The payments and insurance were $500 a month. Well, they might still have been able to swing it, if the two of them picked up extra shifts.

They didn’t do that. Kaye’s girlfriend had a dispute with one of her bosses and quit. And then didn’t do much to get another job. Meanwhile, Kaye wasn’t getting enough shifts to even work 40 hours a week. The restaurant was sending her home when business was slow. She couldn’t get a second job, because she was scheduled 40 hours, but she wasn’t actually working them.

Through the month of March, we heard about spending that was extravagant, even for people who had money. They had a spa day together, and Kaye’s girlfriend had her hair done in dread locks to the tune of $300. They went out to nice dinners. I had no idea where the money was coming from.

And I’m just watching, knowing my daughter is going down in flames. She wouldn’t listen to me when I tried to show her how to make ends meet. She would barely sit still as I explained what she could really afford. She thought because she had made it on her own for a bit, she knew better. It was clear she was not going to take any of my advice.

It was tearing me up. After all, I wrote a book about this stuff. How had I screwed up with her to the point that she wouldn’t listen to me on the one thing I’m really good at? Nothing I said was getting through.

So, I shut up. My husband and I could only stand by and hope they figured it out.

Then Kaye got good news. She was offered a new job, with higher pay, benefits, and paid leave. We were all thrilled. She was to start on April 15th. She gave notice at the restaurant. I cautioned her to make sure she worked until she started the new job. She was going to need the money.

She didn’t do that. She left her restaurant job as soon as she could at the end of March. It left two weeks before she started her new job, and it would be another three weeks before she would be paid again. Five weeks total without a paycheck. Her girlfriend working 20 hours a week at minimum wage. Things were getting very dark.

Meanwhile her relationship with her girlfriend was deteriorating quickly. By the end of April, they were breaking up. They had no money. Kaye had sold a few pieces of jewelry to scrape together money for food. There was no way they were going to be able to pay rent in May. She finally came to us for help. All told, it took only about six weeks for them to crash and burn.

With the caveat that Kaye would pay us back, we covered the May rent, giving Kaye’s girlfriend the time to find another place to live. She ultimately went back home to her own parents. We also covered the fee to break the lease, so neither would have a hit to their credit. All in we paid over $3,000.

Kaye moved back in with us with the understanding that while she lived with us, she had to attend the Mom school of basic money management. The first thing she and I did was create a budget. We researched what she’d pay for rent and utilities in a roommate situation by searching Craigslist roommate wanted ads. We estimated the cost for food, laundry and toiletries. Since she needed a car for work, we agreed to sell her one of ours over time. So, car insurance was added to the list of mandatory expenses.

Each month Kaye gave us the money to cover these expenses, and we put it in a money market account for her. These were bills she would have to pay if she lived on her own. In addition, Kaye covered other costs out of her remaining money. Things like gas for the car, haircuts, her phone and any other spending came out of what was left after she paid these mandatory expenses.

To make sure she didn’t overspend, I asked Kaye to sit down and write out how she would spend every dollar of her paycheck before she spent any money. She simply wrote it in a ledger. She itemized the expenses and planned out how she would spend her remaining money. To help break her impulsive spending habits, she left her money and debit card at home, unless she had a planned expense to pay.

One year later, Kaye routinely plans how she’ll spend her money. By making the payments to us, she has saved enough money to cover three months of living expenses and more than enough to cover move in costs when she is ready to move out. In just a few months, she will have paid enough to buy the car from us. Of course, she couldn’t have made so much progress so quickly if she didn’t live at home. But it’s still a big accomplishment.

On her own, she’s also saving money to maintain her car, and cover her healthcare plan deductible and some potential out of pocket healthcare expenses. She saved enough money to have a short vacation in January and is saving for another trip in October. When she does move out, I believe she will have the skills she needs to stay afloat. She gave me permission to write this story about her experience, in case it would help someone else.

It didn’t take long for Kaye to appreciate her planning routine. She feels in control of her money and now uses it to do what she wants within what her income will support.


SaveYourself-front-cover-thumbnail-1
For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

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