Do you Know Your Banking Basics?

With all the banks and credit unions as well as a growing number of other banking options to choose from, how do you choose which is best for you?

Type of Bank

Benefits

Disadvantages

 Commercial Bank
  • Full range of services (including online)
  • Many branches with ATMs
  • High fees
  • Less personal service
 Credit Union
  • Low fees
  • You have a say in setting policy
  • Need to meet membership requirements
  • Limited access to ATMs
 Savings and Loan
  • Lower fees than commercial banks
  • Personal service
  • Some weekend hours
  • Fewer branches than commercial banks
  • Limited ATM access
 Virtual Bank
  • Higher interest on deposits
  • Banking at your own convenience
  • No personal contact
  • Mail non electronic deposits
  • Fees to use ATM
 Brokerage Firm, Mutual Fund, or Insurance Company
  • Low cost or free checking
  • May provide loans against investment balances
  • May require high minimum balances
  • High fees

Most of these institutions offer the same basic services; the key things to consider when you make your choice are the costs of banking, the hours and locations most convenient for you, and customer service.

Source: Morris, A Woman’s Guide to Personal Finance

Family saving money in a piggy bank

Have You Had the Money Talk With Your Kids?

Ask any child where money comes from, and the answer you’ll probably get is “From a machine!” Even though children don’t always understand where the money comes from, they understand at a young age that they can use money to purchase things they want. Start teaching your children how to handle it wisely as soon as they show interest in it. The lessons you teach your children about money will provide a solid premise for making their own financial decisions in the future.

There are four lessons that you can teach your children about money: learning to handle an allowance, opening a bank account, setting and saving for financial goals, and becoming a smart consumer.

Lesson 1: Handling an allowance

An allowance is usually a child’s first experience with financial independence. Your child can begin developing the skills to saving and budgeting for the things they want. It’s up to you to decide how much to give your child based on your values and family budget.

*A rule used by many parents is to give a child 50 cents or 1 dollar for every year of age.*

Here are some things to keep in mind when dealing with allowances:

  • Set some boundaries. Talk to your child about the types of purchases you expect, and how much of their money should go towards savings.
  • Stick to a consistent schedule. Your child’s allowance should be given on the same day each week with the same amount.
  • You may also consider giving an allowance “raise” to reward your child if they handle their allowance responsibly.

Lesson 2: Bank Accounts

Taking your child to open an account is an easy way to introduce the notion of saving money.
Many banks have programs that provide activities designed to help children learn financial basics. Here are some other ways you can help your child develop good savings habits:

  • Help your child understand how interest compounds by showing him or her how much “free money” has been earned on deposits.
  • Allow your child to take a few dollars out of the account occasionally.
    • Your child may lose interest in saving if they never see money coming out of their account.

Lesson 3: Financial Goals

Children don’t always see the value of putting money away for the future. How can you get your child excited about setting and saving for financial goals? Here are a few ideas:

  • Let your child set his or her own goals to give some incentive to save.
  • Write down each goal, and the amount that must be saved on a regular basis to reach that goal.
    • This will help your child learn the difference between short-term and long-term goals.
  • Put a picture of the item your child wants to an item that can represent their goals like a piggy bank.

Your child will learn to make the connection between setting a goal and saving for it.
Finally, don’t expect a young child to set long-term goals. Young children may lose interest in goals that take longer than one or two weeks reach. Over time, your child will learn to become more disciplined in their savings.

Lesson 4: Becoming a Smart Consumer

Children are constantly tempted to spend money, but not wisely. Your child needs guidance from you to make smart purchasing decisions.

  • Set aside one day every month to take your child shopping. This will encourage your child to save up for something he or she really wants rather than buying on impulse.
  • Just say no. Teach your child to thoroughly consider purchases by explaining that you will not buy them something every time you go shopping.
  • Show your child how to compare items based on price and quality. Take them grocery shopping and explain why you are purchasing a certain item over another.
  • Let your child make mistakes. Eventually, your child will learn to make good choices even when you’re not there to give advice.

THE RETIREMENT REALITY CHECK

Little things to keep in mind for life after work.

Decades ago, there was a popular book entitled What They Don’t Teach You at Harvard Business School. Perhaps someday, another book will appear to discuss certain aspects of the retirement experience that go unrecognized – the “fine print”, if you will. Here are some little things that can be frequently overlooked.

How will you save in retirement? More and more baby boomers are retiring with the hope that they can become centenarians. That may prove true thanks to healthcare advances and generally healthier lifestyles.

We all save for retirement; with our increasing longevity, we will also need to save in retirement for the (presumed) decades ahead. That means more than budgeting; it means investing with growth and tax efficiency in mind year after year.

Could your cash flow be more important than your savings? While the #1 retirement fear is someday running out of money, your income stream may actually prove more important than your retirement nest egg. How great will the income stream be from your accumulated wealth?

There’s a longstanding belief that retirees should withdraw about 4% of their savings annually. This “4% rule” became popular back in the 1990s, thanks to an influential article written by a financial advisor named Bill Bengen in the Journal of Financial Planning. While the “4% rule” has its followers, the respected economist William Sharpe (one of the minds behind Modern Portfolio Theory) dismissed it as simplistic and an open door to retirement income shortfalls in a widely cited 2009 essay in the Journal of Investment Management. 1

Volatility is pronounced in today’s financial markets, and the relative calm we knew prior to the last recession may take years to return. Because of this volatility, it is hard to imagine sticking to a hard-and- fast withdrawal rate in retirement – your annual withdrawal percentage may need to vary due to life and market factors.

What will you begin doing in retirement? In the classic retirement dream, every day feels like a Saturday. Your reward for decades of work is 24/7 freedom. But might all that freedom leave you bored?

Impossible, you say? It happens. Some people retire with only a vague idea of “what’s next”. After a few months or years, they find themselves in the doldrums. Shouldn’t they be doing something with all that time on their hands?

A goal-oriented retirement has its virtues. Purpose leads to objectives, objectives lead to plans, and plans can impart some structure and order to your days and weeks – and that can help cure retirement listlessness.

Will your spouse want to live the way that you live? Many couples retire with shared goals, but they find that their ambitions and day-to-day routines differ. Over time, this dissonance can be aggravating. A conversation or two may help you iron out potential conflicts. While your spouse’s “picture” of retirement will not simply be a mental photocopy of your own, the variance in retirement visions may surprise you.

When should you (and your spouse) claim Social Security benefits? “As soon as possible” may not be the wisest answer. An analysis is needed. Talk with the financial professional you trust and run the numbers. If you can wait and apply for Social Security strategically, you might realize as much as hundreds of thousands of dollars more in benefits over your lifetimes.

1 – http://www.forbes.com/forbes/2011/0523/investing-retirement-bill-bengen-savings-spending-solution.html

Getting Your Household Cash Flow Back Under Control

Developing a better budgeting process may be the biggest step toward that goal.

Where does your money go? If you find yourself asking that question from time to time, it may relate to cash flow within your household. Having a cash flow management system may be instrumental in restoring some financial control.

It is harder for a middle-class household to maintain financial control these days. If you find yourself too often living on margin (i.e., charging everything) and too infrequently with adequate cash in hand, you aren’t the only household feeling that way. Some major economic trends really have made it more challenging for households with mid-five-figure incomes. By many economic standards, today’s middle class has it harder than the middle class of generations past. Some telling statistics point to this…

*In 81% of U.S. counties, the median income is lower today than it was in 1999. Even though we are in a recovery, much of the job growth in the past few years has occurred within the service and retail sectors. (The average full-time U.S. retail worker earns less than $25,000 annually.)

*Between 1989 and 2014, the American economy grew by 83% (adjusting for inflation) with no real wage growth for middle-class households.

*In the early 1960s, General Motors was America’s largest employer. Its average full-time worker at that time earned the (inflation-adjusted) equivalent of $50 an hour, plus benefits. Wal-Mart now has America’s largest workforce; it pays its average sales associate less than $10 per hour, sometimes without benefits. 1,2

Essentially, the middle class must manage to do more with less – less inflation-adjusted income, that is. The need for budgeting is as essential as ever.

Much has been written about the growing “wealth gap” in the U.S., and that gap is very real. Less covered, but just as real, is an Achilles-heel financial habit injuring middle-class stability: a growing reliance on expensive money. As Money-Zine.com noted not long ago, U.S. consumer debt amounted to 7.3% of average household income in 1980 but 13.4% of average household income in 2013. 3

So how can you make life more affordable? Budgeting is an important step. It promotes reliance on cash instead of plastic. It defines expenses, underlining where your money goes (and where it shouldn’t be going). It clears up what is hazy about your finances. It demonstrates that you can be in command of your money, rather than letting your money command you.

Budget for that vacation. Save up for it by spending much less on the “optionals”: coffee, cable, eating out, memberships, movies, outfits.

Buy the right kind of car & do your cash flow a favor. Many middle-class families yearn to buy a new car (a depreciating asset) or lease a new car (because they want to be seen driving a better car than they can actually afford). The better option is to buy a lightly used car and drive it for several years, maybe even a decade. Unglamorous? Maybe, but it should leave you less indebted. It may be a factor that can help you to…

Plan to set some cash aside for an emergency fund. According to a recent Bankrate survey, about a quarter of U.S. households lack one. Imagine how much better you would feel knowing you have the equivalent of a few months of salary in reserve in case of a crisis. Again, you can budget to build it – a little at a time, if necessary. The key is to recognize that a crisis will come someday; none of us are fully shielded from the whims of fate. 3

Don’t risk living without medical & dental coverage. You probably have both, but some middle-class households don’t. According to the Department of Health & Human Services, 108 million Americans lack dental insurance. Workers for even the largest firms may find premiums, out-of- pocket costs and coinsurance excessive. This isn’t something you can go without. If your employer gives you the option of buying your own insurance, it could be a cheaper solution. At any rate, some serious household financial changes may need to occur so that you are adequately insured. 3

Budgeting for the future is also important. A recent Gallup poll found that about 20% of Americans have no retirement savings. You have to wonder: how many of these people might have accumulated a nest egg over the years by steadily directing just $50 or $100 a month into a retirement plan? Budgeting just a little at a time toward that very important priority could promote profound growth of retirement savings thanks to investment yields and tax deferral. 3

Turning to the financial professional you know and trust for input may help you to develop a better budgeting process – and beyond the present, the saving and investing you do today and tomorrow may help you to one day become the (multi-)millionaire next door.

Citations.

1 – http://washingtonpost.com/sf/business/2014/12/12/why-americas-middle-class-is-lost

2 – http://tinyurl.com/knr3e78

3 – http://wallstcheatsheet.com/personal-finance/7-things-the-middle-class-cant-afford-anymore.html/?a=viewall

4 Money Blunders That Could Leave You Poorer

A “not-to- do” list for the new year & years to follow.

How are your money habits? Are you getting ahead financially, or does it feel like you are  running in place?

It may come down to behavior. Some financial behaviors promote wealth creation, while others lead to frustration. Certainly other factors come into play when determining a household’s financial situation, but behavior and attitudes toward money rank pretty high on the list.

How many households are focusing on the fundamentals? Late in 2014, the Denver-based National Endowment for Financial Education (NEFE) surveyed 2,000 adults from the 10 largest U.S. metro areas and found that 64% wanted to make at least one financial resolution for 2015.

The top three financial goals for the new year: building retirement savings, setting a budget, and creating a plan to pay off debt. 1

All well and good, but the respondents didn’t feel so good about their financial situations.

About one-third of them said the quality of their financial life was “worse than they expected it to be.” In fact, 48% told NEFE they were living paycheck-to- paycheck and 63% reported facing a sudden and major expense last year. 1

Fate and lackluster wage growth aside, good money habits might help to reduce those percentages in 2015. There are certain habits that tend to improve household finances, and other habits that tend to harm them. As a cautionary note for 2016, here is a “not-to- do” list – a list of key money blunders that could make you much poorer if repeated over time.

Money Blunder #1: Spend every dollar that comes through your hands. Maybe we should ban the phrase “disposable income.” Too many households are disposing of money that they could save or invest. Or, they are spending money that they don’t actually have (through credit

You have to have creature comforts, and you can’t live on pocket change. Even so, you can vow to put aside a certain number of dollars per month to spend on something really important: YOU. That 24-hour sale where everything is 50% off? It probably isn’t a “once in a lifetime” event; for all you know, it may happen again next weekend. It is nothing special compared to your future.

Money Blunder #2: Pay others before you pay yourself. Our economy is consumer-driven and service-oriented. Every day brings us chances to take on additional consumer debt. That works against wealth. How many bills do you pay a month, and how much money is left when you are done? Less debt equals more money to pay yourself with – money that you can save or invest on behalf of your future and your dreams and priorities.

Money Blunder #3: Don’t save anything. Paying yourself first also means building an emergency fund and a strong cash position. With the middle class making very little economic progress in this generation (at least based on wages versus inflation), this may seem hard to accomplish. It may very well be, but it will be even harder to face an unexpected financial burden with minimal cash on hand.

The U.S. personal savings rate has averaged about 5% recently. Not great, but better than the low of 2.6% measured in 2007. Saving 5% of your disposable income may seem like a challenge, but the challenge is relative: the personal savings rate in China is 50%. 2

Money Blunder #4: Invest impulsively. Buying what’s hot, chasing the return, investing in what you don’t fully understand – these are all variations of the same bad habit, which is investing emotionally and trying to time the market. The impulse is to “make money,” with too little attention paid to diversification, risk tolerance and other critical factors along the way. Money may be made, but it may not be retained.

Make 2016 the year of good money habits. You may be doing all the right things right now and if so, you may be making financial strides. If you find yourself doing things that are halting your financial progress, remember the old saying: change is good. A change in financial behavior may be rewarding.

Citations.

1 – http://denverpost.com/smart/ci_27275294/financial-resolutions-2015-four-ways-help-yourself-keep

2 – http://tennessean.com/story/money/2014/12/31/tips-getting-financially-fit/21119049/

Family saving money in a piggy bank

Are your Kids Prone to Affluenza?

Children can become master manipulators finding ways to get you to pay for what they want. It starts as early kindergarten (sometimes sooner) barraging you for candy at the checkout counter (what mother hasn’t given in to that pressure), or perhaps it’s the latest and greatest toy (that typically keeps their interest for a week) or the latest fashion created by a rock star (that often has less material then most parents consider decent with 3x the price tag).
As a parent this constant pressure can become overwhelming creating a sort of entitlement syndrome or a state of affluenza in our children setting them up for financial failure. The key to helping kids learn how to manage their money effectively is helping them understand the difference between what they NEED and WANT and then managing their money accordingly. Here is a simple program that can simplify your life, reduce the constant pressure and teach your children a lifelong lesson:
Preventing Affluenza:

  1. Use school lunches as the basis to their monthly allowance, if it costs $4.00 a day for a hot lunch establish their monthly allowance at $80.00. $80.00 may seem like a lot but trust me we often spend more due to a lack of budget. They can choose to use this money on hot lunch, or bring a lunch and save the money for other things they WANT, like fun clothes, movies with friends, ice cream etc…. the choice is theirs.
  2. Open a checking account/savings account that gives them access to the ATM machine. Let them know that $40.00 will be deposited into the account on the 1st and 15th of each month and be consistent with the deposits if you want this to work.
  3. Clarify what is a NEED and what is a WANT. Food on the table, books and necessary school supplies, basic clothing are needs while designer clothing, a must have skate board or pizza parties is a WANT.
  4. Stay firm in your stance as to what they NEED and allow them to run out of money from time to time, even when it’s a special opportunity and they have no funds left you are NOT in the business of lending.

While you may hear a few complaints from time to time, like “John’s parent’s pay for everything!” Make sure to hold your ground, as your children will learn valuable management skills that will have a positive impact on the rest of their lives.

Happy senior couple making diner

Your Sex Might Cost You Money

There is no federal law banning discrimination based on sex, race, or gender on the cost of goods and services. Some states have adopted their own anti-discrimination laws, but many of these statutes are up for interpretation and don’t protect you. Here is what you need to know about how your sex might influence the prices you pay.
Women earn less and pay more:

Earnings: 81 cents for every man’s $1.00
Banking: 32% higher interest on subprime loans than men
● Cars: Offered list price $200 higher than men
● Deodorant: On average costs women 30 cents more than men
● Dry-cleaning: $6.50 per shirt; men pay $2.00 a shirt
Health Insurance: 45% more than men
Kingsbury, Buyer Beware

Debt and Your Financial Health

Boomer women glowing
Most people believe that any debt is detrimental to their financial health. However, some types of debt aren’t bad – a mortgage, college loans, or business loans. These types of loans appreciate in value in your future. Bad debt is money that you owe for things that you no longer benefit from; try to eliminate these debts.

There are ways to change your financial situation. Use a spending chart to record how you are using your money. Write down everything you spend and where your money goes to. To reduce debt, look at your nonessential expenses and decide which ones you can remove. Limiting the way you use your credit card can help with your spending.

You can avoid the legal consequences of bad debt by resolving your debt before it becomes overwhelming. Start planning now. Repaying the debts you have accrued will not happen overnight. However, if you control your spending and attain professional help, you will resolve your financial problems over time.

(Morris, A Woman’s Guide to Personal Finance)

Avoid Holiday Spending

Despite meticulous planning, the holidays are the time when most consumers do the most damage to their debt loads by buying presents for family and friends now and figuring out how to pay for them later.

Here are some tips to help you avoid overspending during the holiday season.

Get over the guilt

Are you buying that gift because you haven’t spent enough time with that recipient? Are you trying to make up for something you’re feeling bad about? It’s important to ask yourself if spending a surplus of money on a gift is really going to help you achieve the goal of gift-giving in the first place.

Set a budget, spend within it

It is crucial to establish a budget BEFORE you go shopping. Don’t spend more than you can pay back in one month. You’ll still have to pay your regular bills just like the other 11 months of the year plus all those added holiday expenses.

Always pay for purchases with a debit card

If you can’t pay with debit, you can’t afford it.

Don’t let a gift put a value on you

Consumers value themselves based on their spending choices. People become consumed in what they believe they’re expected to purchase. Think about what you can afford. What is the meaning and value behind your gift? The gift may not cost much, but may be worth more to the recipient than the price.

Put meaning into your gift

Donating to a charity of your choice in a loved one’s name is a fantastic way to show you care while staying within your budget. Research a charity or organization that holds special meaning to your recipient and honor them while helping somebody else in need.

Start the New Year right

Create a monthly expense budget and examine what you’re actually spending each month. Set your spending and saving goals early in the year.

Did you put these tools to use during your holiday shopping? Did you implement any other money saving tools? I’d love to hear back from you.
Source: Keltie, 5 Tips to Avoid Holiday Overspending

Many women feel they don’t know enough…

…to make smart financial decisions

They assume they must understand every aspect of their investments and financial plan in order to make a decision. Nothing could be further from the truth. We all delegate to professionals who have an expertise that we don’t have the time or the inclination to perfect, the same holds true with your financial life. While we do not suggest you simply “blindly” trust any professional you work with the reality is you do not have to know how to build the clock you just need to know how the clock works and can impact your life.