Have you considered the role your surroundings play in your everyday life? It turns out that one of the easiest ways to bring about change in our lives is actually to change our environments. What if the layout of your bedroom or the distance from your desk to the kitchen was impacting your productivity and decision making? There’s plenty of room for each of us to improve. Here’s how and why making some changes to your environment works.
Your brain is efficient
Making decisions is draining. (Heard of “decision fatigue”? It’s real!) We can only make so many choices per day before we start to run out of steam and need a rest. But we’re faced with countless choices every time we wake up! Should I go back to sleep? Should I shower or brush my teeth first? What will I wear to work? Should I try out that new shortcut to the office? It can become stressful for your brain to struggle with a choice every time one of these little prompts presents itself. That’s why we rely on decision shortcuts called habits.
A habit is just a routine that you regularly perform. Most of the time we don’t even notice that we’re engaging in a habit because it’s second nature to us. And there’s a reason for that. It’s your brain saving energy by going on autopilot to perform an action without having to make a decision. That way you can use the bulk of your mental power on unique and important problems that might pop up during the day, not on thinking about when you should brush your teeth!
Trick yourself into making wise decisions
What does your brain’s love of shortcuts have to do with your environment? Let’s look at an example.
Your alarm clock is right next to your bed. It goes off every morning at 7:30am. It doesn’t take you long to figure out that you can smack the snooze button and go straight back to sleep with hardly any effort. Before long you’re hitting the snooze button every time the alarm goes off without even thinking about it. You’ve trained yourself to sleep in later by making your alarm easier to turn off. But what if your alarm was on the other side of your room? What if to silence it you had to stand up, walk over, and hit a button? That simple change could give you the jolt that you need to wake up and get your day started on time!
Take a look at your surroundings and ask yourself what kind of behavior it encourages. Is it more convenient for you to grab a soda from the fridge or fill up your water bottle? When you work at home, are you in the middle of distractions like the kids playing or too close to the TV? At work, does your office layout lend itself to productivity or socializing with your co-workers?
It might take some legwork to get started, but try to arrange your life in a way that makes wise decisions easier. You might be surprised by the results!
Maybe your numbers never add up or too many expenses are coming “out of the blue”. You might also feel a sense of dread every time you make a purchase. No matter what you do, this whole budgeting thing doesn’t seem to be working.
Hang in there! Here are a few budgeting potholes that might be slowing down your financial goals and how to avoid them!
Budgets are supposed to help you use your money wisely. They should be a positive part of your life—they’re not supposed to make you feel like you’re constantly failing. But sometimes our passion to save money and get our financial house in order gets the better of us, and we set up budgets that are too restrictive. While coming from good intentions, an overly thrifty budget can actually make it harder to achieve your goals. An impossible to follow plan can make you feel discouraged and resentful. You might even decide that it’s not worth the hassle! Try starting with a more reasonable strategy and then build from there!
Sometimes our budgets are just too complicated to actually be useful. Not everyone loves working with numbers, and sometimes fiddling with spreadsheets can get so overwhelming that we just want to quit. Plus, there’s plenty of room for human error! A good option is to investigate free budgeting sites or apps. All you do is punch in the correct numbers and the magic of technology will do the rest!
One time budget
Life is constantly changing. Your simple, streamlined budget might be perfect for the life of a young single professional, but will it still hold up in five years? Where will the portion of your paycheck that works down your student loans go once you’re debt free? And when will you start saving for a house?
Take some time every few months to review your budget and see what’s changed. Evaluate what you’ve accomplished and areas that need improvement. Ask yourself what your next milestones should be and if those line up with your long-term goals!
Budgeting takes work. But it shouldn’t be a burden. Cut yourself some slack, prune your process, and stay consistent. You might be surprised by the difference filling in budgeting potholes can make in your financial life!
Most major banks have apps or websites that allow you to transfer funds and manage your account without ever going into a branch. But what about the new generation of online-only banks that seem to be popping up? Can you be a reliable bank without brick and mortar locations? Let’s explore the world of online banks and some pros and cons.
How do online banks work? Online banks and physical banks have a lot in common. They’re both places that store and protect your money. They both loan out your money for a profit. So what’s the big difference?
For one thing, banks with brick and mortar locations have high overhead. They may pay rent on properties, maintain buildings, hire managers to operate locations, and pay tellers to serve customers. Online banks typically have drastically lower upkeep costs. Sure, you need to pay developers to keep the system running smoothly and securely, but it’s generally much lower compared to the costs of maintaining physical locations.
Pros So what do those differences mean for you, the consumer? Banks with physical locations will pass on their location upkeep expenses to you, the customer. That means they’re more likely to charge you for opening an account, give you as little interest as possible, and crank up rates on loans for houses and cars.
Online banks aren’t weighed down by those physical locations. They have fewer expenses and don’t have to charge you as much to make ends meet (1). That means you might get significantly higher interest rates on your savings accounts. They also tend to lean less on fees than traditional banks (2).
Cons But there are some drawbacks to using an online bank. You might find withdrawing cash without paying ATM fees more difficult than before (3). Depositing cash might also take some more leg work and research (4). Customer service can’t be handled in person so problems must be solved via phone or online chat. Plus, safety deposit boxes are harder to come by with an online bank. In short, many of the old school conveniences just aren’t provided by the new generation of online banks.
It’s important to weigh the pros and cons before pulling the trigger and opening an account with an online bank. Trying to make more with your savings account? You may want to investigate banking online. But if you’re on a strict cash diet to avoid excessive spending, a traditional bank might have some classic services that will come in handy. Talk with a licensed financial professional before you make the decision.
Even though it’s not always obvious, we carry lots of assumptions and attitudes about money that might not be grounded in reality. How we perceive wealth and finances can impact how we make decisions, prioritize, and handle the money that we have. Here are a few common money mindsets that might be holding you back from reaching your full potential!
I need tons of money to start saving
It’s simple, right? The rich are swimming in cash, so they’re able to save. They get to build businesses and live out their dreams. The rest of us have to live paycheck to paycheck, shelling out our hard earned money on rent, groceries, and other essentials.
That couldn’t be further from the truth! Sure, you might not be able to save half your income. But you might be surprised by how much you can actually stash away if you put your mind to it. And however much you can save right now, little as it might be, is much better than putting away nothing at all!
I need to save every penny possible
On the other side of the coin (get it?) is the notion that you have to save every last penny and dime that comes your way. There are definitely people in difficult financial situations who go to incredible lengths to make ends meet. Just ask someone who survived the Great Depression! But most of us don’t need to haggle down the price of an apple or forage around for firewood. And sometimes, the corners we cut to save a buck can come back to bite us. Set spending rules and boundaries for yourself, but make sure you’re not just eating ramen noodles and ketchup soup!
I don’t need to budget
There are definitely times when you might not feel like you need to be proactive with your finances. You don’t feel like you’re spending too much, debt collectors aren’t pounding down your door, and everything seems comfortable. Budgeting is for folks with a spending problem, right?
The fact of the matter is that everyone should have a budget. It might not feel important now, but a budget is your most powerful tool for understanding where your money goes, areas where you can cut back, and how much you can put away for the future. It gives you the knowledge you need to take control of your finances!
Breaking mediocre money mindsets can be difficult. But it’s an important step on your journey towards financial independence. Once you understand money and how it works, you’re on the path to take control of your future and make your dreams a reality.
It’s a surprisingly difficult question to answer. Teaching your kids how to handle money is important. But how you go about giving them cash can set precedents that last a lifetime. Here are a few different takes on giving your kids money.
Not giving your kids money
There’s a lot to not love about this system at a glance, especially if you’re the kid. It seems like a way to simultaneously prevent your children from having fun and learn nothing about handling money. But it has some silver linings. Not paying your kids to do chores can be a way to teach them about the value of work without tying it to a monetary reward. That’s an important life lesson that can be applied to volunteer work and responsibilities with their future family. You also may be on a tight budget and handing out an allowance is just not part of your financial strategy right now.
Giving your kids an allowance (no work required)
This is a system where you give your kids a set amount of money each week or month. This is a straightforward way to get your kids some cash that they can spend, save, and use to learn about money.
But just giving your kids an allowance without requiring something in return, like doing chores, has some potential drawbacks. Most people will eventually have to get a job so they can earn money. Giving cash to your kids without tying it in some way to work may create a sense of entitlement that simply isn’t realistic.
Paying your kids commission
In this system, you pay your kids as they complete tasks. You would set up a job posting with different payments for different chores. Pay your kids when they’ve completed the work. If they get the job done quickly with a good attitude and some extra flourish? Give them a raise! It’s a great way of rewarding excellence and teaching children the monetary value of their time and hard work.
But this system also has flaws. Some of the most rewarding work we do can be for family or friends, or to serve our communities—with no reward other than appreciation and pride in a job well done. Giving the impression that one should only put in hard work or help out with the family for cash isn’t something every parent is comfortable with.
Fortunately, there are many ways to combine each of these systems. You could have non-paying chores that are duties simply because the kids are members of the family and then extra paid jobs. Or maybe offer a base allowance to teach your kids about saving, giving, and spending, and then paid chores added on. These systems can evolve over time as your kids grow. Let the needs of your family and what you want to instill in your children guide you.
Habits are behaviors that we do so frequently that they feel second nature. So your friend who’s woken up at 5:00 AM to work out for so long that it seems normal to him? He’s unlocked the power of habit to wake up, get out of bed, and make it happen.
Healthy money habits are the same way; they open up a whole new world of financial fitness! Here are a few great habits you can start today.
Begin with a Budget
Developing a budgeting habit is foundational. Consistently seeing where your money is going gives you the power to see what needs to change. Notice in your budget that fast food is hogging your paycheck? Budgeting allows you to see how it’s holding you back and figure out a solution to the problem. The knowledge a budget gives you is the key to help you make wise money decisions.
Pay Yourself First
Once you’re budgeting regularly, you can start seeing who ends up with your money at the end of the day. Is it you? Or someone else? One of the best habits you can establish is making sure you pay yourself by saving. Instead of spending first and setting aside what’s left over, put part of your money into a savings account as soon as you get your paycheck. It’s a simple shift in mindset that can make a big difference!
And what easier way to pay yourself first than by automatically depositing cash in your savings account? Making as much of your saving automatic helps make saving something that you don’t even think about. It can be much easier to have healthy financial habits if everything happens seamlessly and with as little effort as possible on your part.
Healthy financial habits may not seem big. But sometimes those little victories can make a big difference over the span of several years. Why not try working a few of these habits into your routine and see if they make a difference?
It represents a transition from student to adult for millions of people. But leaving university and joining the workforce can be intimidating. Looking for a job, paying bills, commuting, and living independently are often uncharted territory for recent grads.
Here are a few tips for fresh graduates trying to get on their feet financially.
Figure out what you want
It’s one thing to leave college with an idea of what career you want to pursue. It’s something else entirely to ask yourself what kind of life you want. It’s one of those big issues that can be difficult even to wrap your head around!
However, it’s something that’s important to grapple with. It will help you answer questions like “What kind of lifestyle do I want to live” and “how much will it cost to do the things I want?” You might even find that you don’t really need some of the things that you thought were necessities, and that happiness comes from places you might not have expected.
Come up with a budget
Let’s say you’ve got a ballpark idea of your financial and lifestyle goals. It’s time to come up with a strategy. There are plenty of resources on starting a budget on this blog and the internet on the whole, but the barebones of budgeting are pretty simple. First, figure out how much you make, how much you have to spend, how much you actually spend, then subtract your total spending from how much you make. Get a positive number? Awesome! Use that leftover cash to start saving for retirement (it’s never too early!) or build up an emergency fund. Negative number? Look for places in your unnecessary spending to cut back and maybe consider a side hustle to make more money.
Looking at your spending habits can be difficult. But owning up to mistakes you might be making and coming up with a solid strategy can be far easier than the agony that spending blindly may bring. That’s why starting a budget is a post-graduation must!
Meet with a financial professional
Find a qualified and licensed financial professional and schedule an appointment. Don’t let the idea of meeting with a professional intimidate you. Afterall, you trust your health, car, and legal representation to properly trained experts. Why wouldn’t you do the same with your financial future?
Being scared of starting a new chapter of life is natural. There are a lot of new experiences and unknowns to deal with that come along with leaving the familiarity of college. But the best way to overcome fear is to face it head on. These tips are a great way to start taking control of your future!
It’s not just a budget. In fact, a solid financial strategy is not entirely based on numbers at all. Rather, it’s a roadmap for your family’s financial future. It’s a journey on which you’ll need to consider daily needs as well as big-picture items. Having a strategy makes it possible to set aside money now for future goals, and help ensure your family is both comfortable in the present and prepared in the future.
Financial Strategy, Big Picture
A good financial strategy covers pretty much everything related to your family’s finances. In addition to a snapshot of your current income, assets, and debt, a strategy should include your savings and goals, a time frame for paying down debt, retirement savings targets, ways to cover taxes and insurance, and in all likelihood some form of end-of-life preparations. How much of your strategy is devoted to each will depend on your age, marital or family status, whether you own your home, and other factors.
Financial Preparation, Financial Independence
How do these items factor into your daily budget? Well, having a financial strategy doesn’t necessarily mean sticking to an oppressive budget. In fact, it may actually provide you with more “freedom” to spend. If you’re allocating the right amount of money each month toward both regular and retirement savings, and staying aware of how much you have to spend in any given time frame, you may find you have less daily stress over your dollars and feel better about buying the things you need (and some of the things you want).
Remember Your Goals
It can also be helpful to keep the purpose of your hard-earned money in mind. For example, a basic financial strategy may include the amount of savings you need each month to retire at a certain age, but with your family’s lifestyle and circumstances in mind. It might be a little easier to skip dinner out and cook at home instead when you know the reward may eventually be a dinner out in Paris!
Always Meet with a Financial Professional
There are many schools of thought as to the best ways to save and invest. Some financial professionals may recommend paying off all debt (except your home mortgage) before saving anything. Others recommend that clients pay off debt while simultaneously saving for retirement, devoting a certain percentage of income to each until the debt is gone and retirement savings can be increased. If you’re just getting started, meet with a qualified and licensed financial professional who can help you figure out which option is for you.
Americans now owe a record $1.04 trillion in credit card debt.¹ If you’re not careful, credit card debt could hurt your credit score, wipe out your savings, and completely alter your personal financial landscape.
So: debt, debit, both, or neither? Before you apply for that next piece of plastic, here’s what you need to watch out for.
Low interest rates
Credit card companies spend a lot of money on marketing to try to get you hooked on an offer. Often you hear or read that a company will tout an offer with a low or zero percent APR (Annual Percentage Rate). This is called a “teaser rate.”
Sounds amazing, right? But here’s the problem: This is a feature that may only last for 6–12 months. Ask yourself if the real interest rate will be worth it. Credit card companies make a profit via credit card interest. If they were to offer zero percent interest indefinitely, then they wouldn’t make any money.
Make sure you read the fine print to determine whether the card’s interest rate will be affordable after the teaser rate period expires.
Fixed vs. variable interest rates
Credit cards will operate on either a fixed interest rate or a variable interest rate.² A fixed interest rate will generally stay the same from month to month. A variable interest rate, by contrast, is tied to an index (fancy word for interest rate) that moves with the economy. Normally the interest rate is set to be a few percentage points higher than the index.
The big difference here is that while a fixed rate may change, the credit card company is required to inform its customers when this happens. While a variable APR may start out with a lower interest rate, it’s not uncommon for these rates to fluctuate. What’s more, the credit card company isn’t required to tell you about a variable rate change at all!³
Low interest rates are usually reserved for individuals who have great credit with a long credit history. So, if you’ve never owned a credit card (or you are recovering from a negative credit history) this could be a red flag.
Of course, you could avoid these pitfalls altogether if you pay off your credit card balance before the statement date. Whatever the interest rate, be sure you’re applying for a credit card that’s affordable for you to pay off if you miss the payoff due date.
High credit limits
While large lines of credit are usually reserved for those with a good credit history, a new cardholder might still receive an offer for up to a $10,000 credit limit.
If this happens to you, beware. While it may seem like the offer conveys a great deal of trust in your ability to pay your bill, be honest with yourself. You may not be able to recover from the staggering size of your credit card debt if you can’t pay off your balance each month.
If you already have a card with a limit that feels too high, it may be in your interest to request that the company lower your card’s limit.
So you’re late paying your credit card bill. Late payments not only have the potential to hurt your credit score, but some credit cards may also assess a penalty APR if you haven’t paid your bill on time.
Penalty APRs are incredibly high, usually topping out at 29.99%.⁴ The solution here is simple: pay your bill on time or you might find self paying ridiculous interest rates!
Balance transfer fees
It’s not uncommon for a cardholder to transfer one card’s balance to another card, otherwise known as a balance transfer. This can be an effective way to pay off your debt while sidestepping interest, but only if you do so before the card’s effective rate kicks in. And, even if a card offers zero interest on balance transfers, you still may have to pay a fee for doing so.
Whatever type of credit card you choose, the only person responsible for its pros and cons is you. But if you’re thrifty and pay attention to the bottom line, you can help make that credit card work for your credit score and not against it.
¹ Samuel Stebbins “Where credit card debt is the worst in the US: States with the highest average balances,” USA Today (March 7 2019, updated April 26, 2019)
² Latoya Irby, “Credit Card Interest Rates: Fixed vs. Variable Rates,” The Balance (May 20, 2019)
³ Latoya Irby, “Credit Card Interest Rates: Fixed vs. Variable Rates,” The Balance (May 20, 2019)
⁴ Latoya Irby, “Credit Card Default And Penalty Rates Explained,” (August 12, 2019)
But that doesn’t stop “budget” from being an intimidating word to many people. Some folks may think it means scrimping on everything and never going out for a night on the town. It doesn’t! Budgeting simply means that you know where your money is going and you have a way to track it.
The aim with budgeting is to be aware of your spending, plan for your expenses1, and make sure you have enough saved to pursue your goals.
Without a budget, it can be easy for expenses to climb beyond your ability to pay for them. You break out the plastic and before you know it you’ve spent fifty bucks on drinks and appetizers with the gang after work. These habits might leave you with a lot of accumulated debt. Plus, without a budget, you may not be saving for a rainy day, vacation, or your retirement. A budget allows you to enact a strategy to help pursue your goals. But what if you’ve never had a budget? Where should you start? Here’s a quick step-by-step guide on how to get your budgeting habit off the ground!
Track your expenses every day
Start by tracking your expenses. Write down everything you buy, including memberships, online streaming services, and subscriptions. It’s not complicated to do with popular mobile and web applications. You can also buy a small notebook to keep track of each purchase. Even if it’s a small pack of gum from the gas station or a quick coffee at the corner shop, jot it down. Keep track of the big stuff too, like your rent and bill payments.
Add up expenses every week and develop categories
Once you’ve collected enough data, it’s time to figure out where exactly your paycheck is going. Start with adding up your expenses every week. How much are you spending? What are you spending money on? As you add your spending up, start developing categories. The goal is to organize all your expenses so you can see what you’re spending money on. For example, if you eat out a few times per week, group those expenses under a category called “Eating Out”. Get as general or as specific as you wish. Maybe throwing all your food purchases into one bucket is all you need, or you may want to break it down by location - grocery store, big box store, restaurants, etc.
Create a monthly list of expenses
Once you’ve recorded your expenses for a full month, it’s time to create a monthly list. Now you might also have more clarity on how you want to set up your categories. Next, total each category for the month.
Adjust your spending as necessary
Compare your total expenses with your income. There are two possible outcomes. You may be spending within your income or spending outside your income. If you’re spending within your income, create a category for savings if you don’t have one. It’s a good idea to create a separate savings category for large future purchases too, like a home or a vacation. If you find you’re spending too much, you may need to cut back spending in some categories. The beauty of a budget is that once you see how much you’re spending, and on what, you’ll be able to strategize where you need to cut back.
Once you develop the habit of budgeting, it should become part of your routine. You can look forward to working on your savings and developing a retirement strategy, but don’t forget to budget in a little fun too!
¹Jeremy Vohwinkle, “Make a Personal Budget in 6 Steps: A Step-by-Step Guide to Make a Budget,” The Balance (March 6, 2020).
Not a penny withheld. No taxes to file. No stress about saving a “million dollars” for retirement. As a kid, doing household chores or helping out your friends and neighbors for a little spending money was vastly different from your grown up reality – writing checks for all those bills, paying your taxes, and buying all the things that children seem to need these days, all while trying to save as much as you can for your retirement. When you were a kid, did those concepts feel so far away that they might as well have been camped out on Easter Island?
What happened to the carefree attitude surrounding our finances? It’s simple: we got older. More opportunities. More responsibilities. More choices. As the years go by, finances get more complicated. So knowing where your money is going and whether or not it’s working for you when it gets there is something you need to determine sooner rather than later – even before your source of income switches from mowing lawns and babysitting to your first internship at that marketing firm downtown.
A great way to get a better idea of where your money is going and what it’s doing when it gets there? A financial plan.
A sound strategy for your money is essential, starting as soon as possible is better than waiting, and talking to a financial professional is a solid way to get going. No message in a bottle sent from a more-prepared version of your future self is going to drift your way from Easter Island. But sitting down with me is a great place to start. Contact me any time.
“Who thinks this jar is full?” she asked. Almost half of her students raised their hands. Next, she began to pour sand from the bucket into the jar full of large rocks emptying the entire bucket into the jar.
“Who thinks this jar is full now?” she asked again. Almost all of her students now had their hands up. To her student’s surprise, she emptied the glass of water into the seemingly full jar of rocks and sand.
“What do you think I’m trying to show you?” She inquired.
One eager student answered: “That things may appear full, but there is always room left to put more stuff in.”
The teacher smiled and shook her head.
“Good try, but the point of this illustration is that if I didn’t put in the large rocks first, I would not be able to fit them in afterwards.”
This concept can be applied to the idea of a constant struggle between priorities that are urgent versus those that are important. When you have limited resources, priorities must be in place since there isn’t enough to go around. Take your money, for example. Unless you have an unlimited amount of funds (we’re still trying to find that source), you can’t have an unlimited amount of important financial goals.
Back to the teacher’s illustration. Let’s say the big rocks are your important goals. Things like buying a home, helping your children pay for college, retirement at 60, etc. They’re all important –but not urgent. These things may happen 10, 20, or 30 years from now.
Urgent things are the sand and water. A monthly payment like your mortgage payment or your monthly utility and internet bills. The urgent things must be paid and paid on time. If you don’t pay your mortgage on time… Well, you might end up retiring homeless.
Even though these monthly obligations might be in mind more often than your retirement or your toddler’s freshman year in college, if all you focus on are urgent things, then the important goals fall by the wayside. And in some cases, they stay there long after they can realistically be rescued. Saving up for a down payment for a home, funding a college education, or having enough to retire on is nearly impossible to come up with overnight (still looking for that source of unlimited funds!). In most cases, it takes time and discipline to save up and plan well to achieve these important goals.
What are the big rocks in your life? If you’ve never considered them, spend some time thinking about it. When you have a few in mind, place them in the priority queue of your life. Otherwise, if those important goals are ignored for too long, they might become one of the urgent goals - and perhaps ultimately unrealized if they weren’t put in your plan early on.
The good news is, you don’t need a perfect relationship or perfect finances to have productive conversations with your partner about money, so here are some tips for handling those tricky conversations like a pro!
Respect should be the basis for any conversation with your significant other, but especially when dealing with potentially touchy issues like money. Be mindful to keep your tone neutral and try not to heap blame on your partner for any issues. Remember that you’re here to solve problems together.
It’s perfectly normal if one person in a couple handles the finances more than the other. Just be sure to take responsibility for the decisions that you make and remember that it affects both people. You might want to establish a monthly money meeting to make sure you’re both on the same page and in the loop. Hint: Make it fun! Maybe order in, or enjoy a steak dinner while you chat.
Take a team approach
Instead of saying to your partner, “you need to do this or that,” try to frame things in a way that lets your partner know you see yourself on the same team as they are. Saying “we need to take a look at our combined spending habits” will probably be better received than “you need to stop spending so much money.”
It can be tempting to feel defeated and hopeless that things will never get better if you’re trying to move a mountain. But this kind of thinking can be contagious and negativity may further poison your finances and your relationship. Try to focus on what you can both do to make things better and what small steps to take to get where you want to be, rather than focusing on past mistakes and problems.
Don’t ignore the negative
It’s important to stay positive, but it’s also important to face and conquer the specific problems. It gives you and your partner focused issues to work on and will help you make a game plan. Speaking of which…
Set common goals, and work toward them together
Whether it’s saving for a big vacation, your child’s college fund, getting out of debt, or making a big purchase like a car, money management and budgeting may be easier if you are both working toward a common purpose with a shared reward. Figure out your shared goals and then make a plan to accomplish them!
Accept that your partner may have a different background and approach to money
We all have our strengths, weaknesses, and different perspectives. Just because yours differs from your partner’s doesn’t mean either of you are wrong. Chances are you make allowances and balance each other out in other areas of your relationship, and you can do the same with money if you try to see things from your partner’s point of view.
Discussing and managing your finances together can be a great opportunity for growth in a relationship. Go into it with a positive attitude, respect for your partner, and a sense of your common values and priorities. Having an open, honest, and trust-based approach to money in a relationship may be challenging, but it is definitely worth it.
Read on to take a peek into some factors that can determine the amount you’ll pay. An insurance company acts as source of money to pay benefactors in case an insurance contract is triggered. Insurance companies use statistics and probability projections to determine how much money someone should pay into the pool based on the probability that person will make an insurance claim. There are many factors that play into this premium amount, but typically those who are more likely to make a claim are required to pay more into the pool.
How insurance works
The concept itself is relatively simple: bad things happen sometimes and people want to avoid financial ruin that could arise from those bad things. To maintain peace of mind, or sometimes by law, people and/or companies will obtain insurance to reduce the risk of ruin. People also use insurance to “make themselves whole” again after financial issue, such as a car accident or the loss of income.
All those who want to obtain an insurance policy apply to be part of a pool. The insurance company then calculates how many people are in the pool, how much money they’ll probably need to pay insurance claims, then calculate each individual’s risk to the company.
For example, let’s take 500 people who want car insurance, and they drive similar cars in similar driving styles. Out of these 500 people, the company analyzes historical data from the pool and then anticipates that three people per month will make claims. Additionally, the company calculates the claim amounts based on past data and the characteristics of pool members, like driving style, location, and type of vehicle. Then the insurer adds up those claims, divides the amount by the number of members (500 here), and tells each member to pay 1/500th of the claim amount. The result is that no single person is devastated by a single catastrophic event, all 500 people have a way to cover themselves if that event happens to them, and each person only pays 1/500th of a claim each month.
Which factors affect premiums
Which factors affect premiums on an insurance policy vary widely across insurance types. Driving style and vehicle value are obvious determining factors in car insurance. But so are other factors you may not be able to change, like location: those who commute to work spend more time in their cars and thus increase the probability of having an accident, simply for being in the car longer.
Health and life insurance focus on healthy lifestyles. If you’re more likely to live longer and require less medical attention, the lower your premiums. Renters and homeowners insurance consider the value of the property and the contents therein. Insurance policies will also vary based on the amount of coverage they offer. If your fire insurance only covers $2,000 worth of possessions, all things being equal, you’re probably going to pay a lower premium than someone who wants $20,000 of coverage.
Reducing your premiums
To avoid frequently making lower-risk members pay for the claims of higher-risk members, not everyone is thrown together in the same pool. If you can adjust your personal factors so that you’re entered into a different pool, you might see substantial reductions in your insurance premium. Your insurance company or agent should be able to help you identify which factors you score high for in riskiness so you can try to reduce your costs.
For example, if you smoke, quitting may greatly reduce your premiums (although you may have a waiting period like 12 months after you quit in order to qualify as a non-smoker). If you have several speeding tickets, ask how much a driving school certificate might help reduce your premiums.
The takeaway here is that your riskiness is based on a quantification of factors and the probability that any one of those factors will trigger a claim. The expected cost of covering the claim is then multiplied by the probability the claim will occur. Similarly risky people will be grouped together, then asked to pay their portion into the pool of expected claim payouts. Changes you can make in your lifestyle may add up to significant savings with your premiums.
Now you can plan those vacations for just the two of you, delve into new hobbies you’ve always wanted to explore… and decide whether or not you should keep your life insurance as empty nesters.
The answer is YES!
Why? Even though you and your spouse are empty nesters now, life insurance still has real benefits for both of you. One of the biggest benefits is your life insurance policy’s death benefit. Should either you or your spouse pass away, the death benefit can pay for final expenses and replace the loss of income, both of which can keep you or your spouse on track for retirement in the case of an unexpected tragedy.
What’s another reason to keep your life insurance policy? The cash value of your policy. Now that the kids have moved out and are financially stable on their own, the cash value of your life insurance policy can be used for retirement or an emergency fund. If your retirement savings took a hit while you helped your children finance their college educations, your life insurance policy might have you covered.Utilizing the cash value has multiple factors you should be aware of before making any decision.*
Contact me today, and together we’ll check up on your policy to make sure you have coverage where you want it - and review all the benefits that you can use as empty nesters.
*Loans and withdrawals will reduce the policy value and death benefit dollar for dollar. Withdrawals are subject to partial surrender charges if they occur during a surrender charge period. Loans are made at interest. Loans may also result in the need to add additional premium into the policy to avoid a lapse of the policy. In the event that the policy lapses, all policy surrenders and loans are considered distributions and, to the extent that the distributions exceed the premiums paid (cost basis), they are subject to taxation as ordinary income. Lastly, all references to loans assume that the contract remains in force, qualifies as life insurance and is not a modified endowment contract (MEC). Loans from a MEC will generally be taxable and, if taken prior to age 59 1/2, may be subject to a 10% tax penalty.
But the cost of travel, food, and gifts can add up quickly, making it hard to focus on the things that matter most. Here are some tips to help protect your pocketbook this holiday season so you can focus on sharing old traditions and making new memories with friends and family.
Play secret Santa
Secret Santa is an easy way to divvy up gift buying duties, especially if you have a large family or friend group. Have everyone participating put their names in a hat. Everyone then draws a random name out of the hat and must buy a gift for the person they’ve selected. It’s a simple and fun way to limit how many people you need to buy gifts for and control how much you spend on presents. Optional Secret Santa: Only do the gift swap with the kids and skip the adults this year.
Buy gifts with cash when you can
Watch out for credit card debt this holiday season. Purchasing presents with credit can be tempting (especially during the Black Friday frenzy), but how much you’re going to owe can quickly add up. Set a budget for yourself and then take that much cash out of the bank. Once it dries up, stop buying gifts! Your future self will be glad come January when you don’t have a whopping credit card bill to pay off.
Take advantage of sales and coupons early
Start collecting wishlists a few months before the holidays begin. If Aunt Margaret mentions a new cookware set she has her eye on in August, take note! Shopping early is an easy way of increasing your chances of finding sales and deals before the hardcore holiday shopping ensues. For online shopping, investigate couponing apps and add-ons. They can automatically add discounts to purchases, potentially saving you big money over a few gifts!
The holidays are about remembering what really matters, not worrying about money. The goal of these tips isn’t just to save you some cash, but to help you celebrate the things and people you love, free of financial distractions. Happy Holidays!
By comparison, that amount might be enough for a down payment on a first home or for a well-equipped, late-model minivan to shuttle around your 1.6 to 2 kids – assuming your family has an average number of children as a result of your newly wedded bliss.²
Having cold feet about shelling out that much cash for one day’s festivities? Or even worse, going into debt to pay for it? Here are a few ideas on how you can make your wedding day a special day to remember while still saving some of that money for other things (like a minivan).
Invite Close Friends and Family
Many soon-to-be newlyweds dream of a massive wedding with hundreds of people in attendance to honor their big day. But at some point during any large wedding, the bride or the groom – or maybe both – look around the well-dressed guests and ask themselves, “Who are all of these people, anyway?”
You can cut the cost of your wedding dramatically by simply trimming the guest list to a more manageable size. Ask yourself, “Do I really need to invite that kid who used to live next door to our family when I was 6 years old?” Small weddings are a growing trend, with many couples choosing to limit the guest list to just close friends and immediate family. That doesn’t mean you have to have your wedding in the backyard while the neighbor’s dog barks during your vows – although you certainly can. It just means fewer people to provide refreshments for and perhaps a less palatial venue to rent.
Budget According to Priorities
Your wedding is special and you want everything to be perfect. You’ve dreamed of this day your entire life, right? However, by prioritizing your wish list, there’s a better chance to get exactly what you want for certain parts of your wedding, by choosing less expensive – but still acceptable – options for the things that may not matter to you so much. If it’s all about the reception party atmosphere for you, try putting more of your budget toward entertainment and decorations and less toward the food. Maybe you don’t really need a seven-course gourmet dinner with full service when a selection of simpler, buffet-style dishes provided by your favorite restaurant will do.
Incorporate More Wallet-Friendly Wedding Ideas
A combination of small changes in your plan can add up to big savings, allowing you to have a memorable wedding day and still have enough money left over to enjoy your newfound bliss.
There’s a happy medium between a royal wedding and drive-thru nuptials in Vegas. If you’re looking for a memorable day that won’t break the bank, try out some of the tips above to keep things classy, cool – and within your budget.
¹ Seaver, Maggie. “The National Average Cost of a Wedding Is $33,391.” the knot, 2018, https://bit.ly/2FycQmH.
² Russell, Andrew. “Here’s why Canadians are having fewer children.” Global News, 5.7.2017, https://bit.ly/2C1fPii.
³ Mackey, Jaimie. “What Are the Most Affordable Months to Book a Wedding Venue?.” Brides, 9.10.2017, https://bit.ly/2ry6wSt.
This is a holiday roll-call that’s instantly recognizable: the reindeer that pull Santa’s magical sleigh. But what if things got so hectic at the North Pole (not a stretch when you’re in charge of delivering presents to every child on Earth), that when it was time to hitch up the reindeer on Christmas Eve, they were all out of order?
Prancer. Cupid. Dasher. Comet. Dancer. Vixen. Blitzen. Donner.
Hmmm, someone’s missing…. what happened to Rudolph? (Looks like he got left behind at the North Pole. In all the hubbub one of Santa’s elves forgot to review the pre-flight checklist.)
Since so much can change during the year from one crazy “Happy Holidays!” to the next, your ducks – or reindeer, that is – may not even be in a row at this point. They could be frolicking unattended in a field somewhere! And who knows where your Rudolph even is.
We can help with that. An annual review of your financial strategy is key to keeping you on track for your unique goals. Lots of things can change over the course of a year, and your strategy could need some reorganizing. I mean, did you hear about everything that changed for Prancer? (What do you call a baby reindeer, anyway?)
Here are some important questions to consider at least once each year (or even more often):
1. Are you on track to meet your savings goals? A well-prepared retirement is a worthy goal. Let’s make sure nothing drove you too far off track this year, and if it did, let’s explore what can be done to get you back on the right path.
2. Do you have the potential for new savings? Did your health improve this year? Did that black mark on your driving record expire? Changes like these have the potential to positively impact your life insurance rate, but we’d need to dig in and find out what kinds of savings might be in store for you.
3. Have your coverage needs increased? Marriage, having a child, or buying a home are all instances in which your life insurance coverage probably should be increased. Have any of these occurred for you over the last year? Have you added the new family member as a beneficiary?
If you haven’t had a chance to review your strategy this year, we can fit one in before Santa shimmies down the chimney. Which of your reindeer do you need to wrangle back into the ranks before the New Year gets going?
Get up a few minutes early to brew your own coffee, or sleep a little later and then whip through a drive-thru for your morning pick-me-up?
When that caffeine hits your bloodstream, how you got the coffee may not matter too much. But the next time you go through a drive thru for that cup o’ joe, picture your financial strategy shouting and waving its metaphorical arms to get your attention.
Why? Each and every time you indulge in a “luxury” that has a less expensive alternative, you’re potentially delaying your financial independence. Delay it too long and you might find yourself working when you should be enjoying a comfortable retirement. Sound dramatic? Alarmist? Apocalyptic? But that’s how it happens – one $5 peppermint mocha at a time. This isn’t to say that you can’t enjoy an indulgence every once in a while. You gotta “treat yourself” sometimes, right? Just be sure that you’re sticking with your overall, long-term strategy. Your future self will thank you!
Here are 3 ways to shift from indulgence to independence:
1. Make coffee at home. Reducing your expenses can start as simply as making your morning coffee at home. And you might not even have to get up earlier to do it. Why not invest in a coffee pot with a delay brewing function? It’ll start brewing at the time you preset, and what’s a better alarm clock than the scent of freshly-brewed coffee wafting from the kitchen? Or from your bedside table… (This is a judgment-free zone here – do what you need to do to get up on time in the morning.)
Get started: A quick Google search will yield numerous lists of copycat specialty drinks that you can make at home.
2. Workout at home. A couple of questions to ask yourself:
1) Will an expensive gym membership fit into your monthly budget? 2) How often have you gone to the gym in the last few months?
If your answers are somewhere between “No” and “I’d rather not say,” then maybe it’s time to ditch the membership in favor of working out at home. Or perhaps you’re a certified gym rat who faithfully wrings every dollar out of your gym membership each month. Then ask yourself if you really need all the bells and whistles that an expensive gym might offer. Elliptical, dumbbells, and machines with clearly printed how-tos? Yes, of course. But a hot tub, sauna, and an out-of-pocket juice bar? Maybe not. If you can get in a solid workout without a few of those pricey extras, your body and your wallet will thank you.
Get started: Instead of a using a treadmill inside the gym, take a walk or jog around your local park each day – it’s free! If you prefer to work out at a gym, look into month-to-month membership options instead of paying a hefty price for a year-long membership up front.
3. Ditch cable and use a video streaming service instead. Cable may give you access to more channels and more shows than ever before, but let’s be honest. Who has time to watch 80 hours of the greatest moments in sports every week? Asking yourself if you could cut the cable and wait a little longer for your favorite shows to become available on a streaming service might not be a bad idea. Plus, who doesn’t love using a 3-day weekend to binge-watch an entire series every now and then? There’s also the bonus of how easy it is to cancel/reactivate a streaming service. With cable, you may be locked into a multi-year contract, installation can be a hassle (and they may add an extra installation fee), and you can forget about knowing when the cable guy is actually going to show up.
Get started: Plenty of streaming services offer free trial periods. Go ahead and give them a try, but be careful: You may have to enter your credit card number to access the free trial. Don’t forget to cancel before your trial is over, or you will be charged.
Taking time to address the luxuries you can live without (or enjoy less often) has the potential to make a huge impact on your journey to financial independence. Cutting back here and investing in yourself there – it all adds up.
In what areas do you think you can start indulging less?
If you’ve just used up your emergency fund to cover your last catastrophe, then what if a new surprise arrives before you’ve replenished your savings?
Using a credit card can be an expensive option, so you might be leery of adding debt with a high interest rate. However, you can’t let the ship sink either. What can you do?
A personal loan is an alternative in a cash-crunch crisis, but you’ll need to know a bit about how it works before signing on the bottom line.
A personal loan is an unsecured loan. The loan rate and approval are based on your credit history and the amount borrowed. Much like a credit card account, you don’t have to put up a car or house as collateral on the loan. But one area where a personal loan differs from a credit card is that it’s not a revolving line of credit. Your loan is funded in a lump sum and once you pay down the balance you won’t be able to access more credit from that loan. Your loan will be closed once you’ve paid off the balance.
The payment terms for a personal loan can be a short duration. Typically, loan terms range between 2-7 years.[i] If the loan amount is relatively large, this can mean large payments as well, without the flexibility you have with a credit card in regard to choosing your monthly payment amount.
An advantage over using a personal loan instead of a credit card is that interest rates for personal loans can be lower than you might find with credit cards. But many personal loans are plagued by fees, which can range from application fees to closing fees. These can add a significant cost to the loan even if the interest rate looks attractive. It’s important to shop around to compare the full cost of the loan if you choose to use a personal loan to navigate a cash crunch. You also might find that some fees (but not all) can be negotiated. (Hint: This may be true with certain credit cards as well.)
Before you borrow, make sure you understand the interest rate for the loan. Personal loans can be fixed rate or the rate might be variable. In that case, low rates can turn into high rates if interest rates continue to rise.
It’s also important to know the difference between a personal loan and a payday loan. Consider yourself warned – payday loans are a different type of loan, and may be an extremely expensive way to borrow. The Federal Trade Commission recommends you explore alternatives.[ii]
So if you need a personal loan to cover an emergency, your bank or credit union might be a good place to start your search.