New Year’s Financial Resolutions

It is that time of the year again to make your New Year’s resolutions! Each year most people decide on a number of changes to make for the coming year. How about including your financial life in this year’s resolutions. Let’s take a look at some ideas.

Investigate 401k Employer Matching Contributions:  Most 401k plans provide for employer matching contributions. The match consists of the employer contributing a certain dollar amount to your 401k account based on the dollar amount you contribute. For example, your 401k plan has a dollar for dollar employer match up to $1500. For every dollar you contribute to your account, your employer will also contribute the same amount to your account. Once you have contributed $1500, your employer will stop contributing. Think about it – you put in $1500 and your employer puts in $1500, now your 401k account is worth $3000! That is called ‘free money’ from your employer. Each plan is different so you need to check with your Human Resource manager to determine about your employer’s matching contributions.

Start A Savings Account:  Are you always having problems saving? A good solution is to have a set dollar amount automatically taken from your paycheck and deposited into a separate account. This account can be a saving, money market or mutual fund account. Start off slow, $25, $50 or $100 each month. Come June, you should double the amount. If you deposited $25 a month and double to $50 in June, by this time next year you will have $475 extra. Your deposit amount is less than a dollar a day which is less than one McDonald’s coffee a day. Put away $50 a month, double to $100 in June, and you will have $950 at the end of the year. For those able to save $100 a month, then double to $200 in June, a total of $1900 will be your savings for the year.  

Track Your Expenses:  Not sure what you and your family are spending on all those expenses? Also, do you have trouble staying on those day-to-day budgets? Try this tip:

Day 1: Spending no more than 30 minutes, write down all your monthly fixed expenses (examples include: mortgage/rent, internet, and car payments) and what dollar amount you spent on each. Do this first step from your memory.

Day 2: Again no more than 30 minutes, look through your checkbook and see what monthly expenses you have forgotten and correct any amounts you misquoted on Day 1. Also, add in any monthly variable expenses (examples include: clothing, groceries, car maintenance and fuel, and home utilities such as electricity, gas/oil and water).  

Day 3: Still just 30 minutes, pull out those credit card bills and come to terms with what and how much you charge on your credit cards. Plus, be sure and note all finance charges and late fees.

Day 4: Pull all those expenses together and see if there are any revelations. At this point, you have some good information. Now, you have the choice to modify your spending habits.

These financial tips can begin with the New Year and last a life time!

Kimberly J. Howard, CFP®, CRPC®, ADPA® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, MA and Denver, CO (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com.

Holiday Spending and Staying Out Of Debt

Are you ready for the holiday rush and buying spree? Traditionally, the holidays bring us a time of sharing and giving. But the cost of giving has increased over the years and you need to be aware of the burden it could put on your financial situation. With the change in most individual’s financial situation over the past year, this is a good time to reevaluate your holiday gift giving.  

Most families spend around $500 on holiday gifts. If you put all those gifts on your credit card, the end result may surprise you. Do you have any idea how long you will be paying off those holiday gifts if you can only make the minimum payment each month?

Let’s do some math:

$500 of holiday gifts: Let’s say you charge $500 on your credit card and only make the minimum monthly payment of $20. Some credit cards now are around the 19.99% interest rate for long period payoffs, you will be paying on those holiday gifts for 3 years! And to top it off, you will be paying the credit card company an additional $153 in interest (see Federal Reserve website - www.federalreserve.gov/creditcardcalculator).  

What if your gifts top the $1000 mark: Now you have an after-the-holidays credit card bill starting at $1000, with the same $20 of minimum monthly payment and 19.99% interest rate. Are you sitting down? It will take you 9 years to pay off those gifts you purchased! The credit card company will be happy because you will pay them $1,167 in interest. Yes, that is correct you will be giving $1000 worth of holiday gifts to your friends and family, plus over time more than a $1000 gift to your credit card company.

Not to be a Scrooge, but there is a downside to credit card use if you can not pay it off in a month or two. Another option is the cash envelope and gift list method. Make a list of people you will be buying for, a dollar amount for each person and some great gift ideas you know they will love. Now hit the mall with list and cash envelope in hand. Your goal is not to purchase more than you have in your envelope.

A last tip to remember: the holidays are not always about the purchased gifts. Think back on all the unwanted, unneeded or forgotten gifts you have received over the years. If you were able to have something different from the giver, what would it have been?  What were the best holiday gifts you have received? Was it the homemade cookies, the framed children’s art work or just being able to spend time with your family and friends? The holidays are truly about sharing and giving; think about using your heart and mind instead of your credit card. 

Have a Happy and Financially Safe holiday!

Kimberly J. Howard, CFP®, CRPC® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, MA and Denver, CO (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow us on Twitter @KimHowardCFP. 

Debt Relief for the Elderly

Too much debt still lingers from the mid-2000s. But if you are elderly or disabled, you have protections from rapacious debt collectors. Know your rights.

People who are employed have the flexibility to manage their financial situation. But senior citizens and the disabled are still struggling to come out from the dark pit of debt. This is because they are not in a position to generate income to pay off their obligations.

This vulnerable population sometimes gets harassed from debt collection agencies that resort to illegal tactics, such as threatening to imprison the borrower, repossess her home or other assets amd garnish her disability or Social Security income.

They often insist on harsh repayment plans and neglect to mention that the borrower might be eligible for relief. They sometimes even offer a huge write-down on already discharged debt. Don’t be fooled by these illegal tactics.

If debt collectors are harassing you and breaking the law, document what is going on and report the collector to the Consumer Financial Protection Bureau.

In many cases, debts can be resolved without bankruptcy or default. Rest assured that debtor’s prisons do not exist in this country. In some states, creditors can’t take your home to settle a debt. If Social Security, pension and disability benefits are the debtor’s only income, the creditors can’t take out money from these sources. This is the case even if creditors sue for the money.

Retirement accounts are exempt, as well. Though your creditors might ask you to withdraw money to pay off your debt, they can’t pull it from your 401(k). Those funds are protected, even in the case of bankruptcy. Individual retirement account assets are also exempt up to $1 million.

This doesn’t mean that debtors can forget about the money that they owe. Enrolling in a debt relief program can help the senior citizens and the disabled to settle their debt without losing too much of their monthly income – and sleep peacefully.

If you hire a debt relief company, professional arbitrators negotiate with the creditors on your behalf. They can lower the interest rate on the principal balance to make it affordable to pay off. Creditors often realize that they can’t demand retirees and handicapped folks to improve their earning power, and they often accept a more lenient settlement.

Senior citizens nearing the end of their life spans might balk at having to pay since they have the option of legal protection and don’t have much incentive to improve or preserve their credit ratings. But settling your account by enrolling in a debt relief program prevents blemishes on your credit report. Even if you don’t plan on taking out loans in the future, there is no telling when you might need good credit.

Kimberly J. Howard, CFP, CRPC, ADPA is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, Mass. (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow us on Twitter at @kimhowardcfp.

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When Credit is a Necessity

The fact that borrowing on credit can be costly is a fact that everyone needs to understand but especially young people who may be more impulsive in their spending. How monthly interest is calculated should be demonstrated using simple math equations and how interest compounds should be explained. The importance of having a lengthy credit history and a high credit score should be stressed.

Lesson #1: How you handle a credit card will affect your future in ways that may not be obvious now. Over time everyone establishes a credit history that reflects how well they handle money. This information is collected into credit reports that are used to calculate your credit scores.

Lesson #2: Handled with care a credit card can have a positive effect on your credit scores.
Lenders use your credit scores to decide whether to approve an application for a mortgage, automobile loans, personal or other types of loans. Mismanage a credit card by maxing out your credit limit and making late payments, and the often, repeated advice to young people to avoid using credit will prove true. If, however, you’re responsible and conscientious in paying the balance in full each month and on time, the benefits to your credit scores and the ability to get credit in the future will be vastly improved.

Lesson #3: The financial success of life on your own lies in taking a genuine interest in the details. Whether you’re choosing a bank, investment firm, employer, credit card or anything other situation that deals with money, what are vital to understand are the details in the fine print. With credit cards, the terms and conditions of each agreement vary and can mean the difference between reasonable and outlandish charges incurred for the privilege of borrowing. Fees and rates can add up quickly.

Factors that should be examined to make a wise decision when choosing a credit card:

• Annual Percentage Rate (APR): Look for a low rate; a high one will cost more.
• Annual Fees: Rates range from $25 to $300. Look for a no or low fee card.
• Penalty Fees: Pay late and you’ll be charged a maximum $25 fee. Go over your credit limit and pay another fee. A penalty rate increase can be imposed for late payments of more than 60 days and remain in effect for six months. Make three late payments and you’re stuck with the penalty rate.

Lesson #4: Using a credit card responsibly takes discipline and commitment. Limit yourself to one card for purchases you can pay off when the bill comes due. Never use a credit card for an impulsive purchase; if you can’t afford to pay with cash, you simply can’t afford it. Frivolous spending will result in an out-of-control balance that may be hard to pay down. Carefully examine every billing statement for errors before making the each payment on time.

Good Luck and Start Your New Life Off On The Right Track!

Couples Merging Finances?

When a couple weds, they often feel pressured to marry their finances together, as well. That’s not always such a good idea.

Although some of us want to go into a marriage sharing everything, smart financial planning actually dictates that you don’t have to and in many cases shouldn’t put all of your money into a single account. You can have both cooperation and autonomy in your financial marriage.

Money is one of the biggest stressors in a relationship. A survey by the American Institute of Certified Public Accountants found that money is the biggest cause of arguments between men and women. Financial matters caused 27% of spats. Children only caused 16%. Some couples feel that a joint bank account signifies trust and discourages regretful impulse spending by either party.

Maintaining separate accounts isn’t a sign of distrust. In fact, the opposite is true. Allowing your partner to maintain financial independence says that you trust that person to not keep secrets about finances and to contribute responsibly to your financial life together. Autonomy also fosters self-confidence. That feeling of control over your own money is critical.

Many couples use what I call the “three pots” system, where each spouse contributes money to one account for household expenses, and has a separate account for individual expenses. Especially with the proliferation of Internet-based banking, it’s very easy to set up separate individual and joint accounts. Neither partner gives up independence or autonomy completely, but some finances mingle. Here is how you can make it work:

Keep a joint bank account for joint expenses. This can really simplify bookkeeping for the household budget. You don’t have to contribute equal amounts (and shouldn’t if one earns significantly more than the other), but the total each month should cover everything you agree to pay together, such as the mortgage, utilities, groceries and insurance premiums.

Create a detailed budget together. You need to know exactly where your money goes and how much you need each month to cover all of your expenses. Once you start spending someone else’s money, it’s important to account for it. The household budget must include only the things you both agree to pay for together. Forge this agreement before you actually wed.

Keep separate accounts for separate expenses. Costs related to one spouse’s hobby need to be in separate budgets. Maybe one enjoys concerts and the other collects books. Make these optional purchases with money each person sets aside in a personal account. If you have just one account, one partner’s spending might cause friction.

Use the same rules for credit cards. Consumer debt should not be shared. Consider opening a joint account for charging things such as family vacations that you plan to pay off together. Successfully managing credit cards in marriage requires total honesty. Don’t hide purchases, especially debt. Your separate credit card debt doesn’t affect your spouse’s credit score, but it does affect your ability to move forward as a team with large, important purchases like a home.

Save together and don’t keep secrets. This is the most important key to financial success as a couple. Part of your financial life together must be saving. Make a plan for building an emergency fund and retirement accounts for each spouse. If you have children, discuss whether and how you plan to help them pay for college.

One might be willing to borrow money later on while the other prefers to start saving early. Touch base about financial details at least several times each year. It helps if you both visit your financial advisor together so each partner is up-to-date on the family’s finances and participates equally. 

Kimberly J. Howard, CFP, CRPC, ADPA is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, Mass. (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow us on @KimHowardCFP

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