Tag: debt

Your Emergency Fund, is that the right name for it you may ask?

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I was listening to a podcast this morning asking this very question. Well, I guess it really doesn’t matter what you call it. I think whatever “You” name it is what it is. The term “emergency funds” is not a comfortable term for you? That is fine, whatever works for you right? After all it’s called “personal” finance.

Building an emergency fund is crucial, no matter what you call it. It is the FIRST thing any financially savvy person would advise you to do. Most of us might get into credit card debt because we charge things on a card. This happens because we do not have the cash. I don’t mean just the small items we buy. Coffee here and there or lunch can certainly add up! The big stuff that is not part of your typical expenses. This is your deductible for a car repair or medical bill.

The refrigerator stops working. The faucet on the kitchen sink falls off in your hands. It happens at 9 PM on a Saturday night! Ya that happened! This is what an emergency fund or whatever you want to call it, is for! Life happens, and sometimes it’s very stressful! NOT having some extra cash to pay for these unexpected things makes it VERY stressful. In the long run, it becomes more expensive.

When I think of an emergency fund, I think of 3-6 months of expenses in accessible cash. This is what most of us consider necessary in case you lose your job. If your expenses are $3,000 a month then you have $9,000-$18,000 in savings. This is NO easy task to get to this point, and maybe you never get to a full 3 months. But it’s a good idea to try and worse case you have something to lean on.

This is not to say that you only spend this money IF you find yourself out of work! Your emergency fund, or whatever you name it, only has $200 in the account. I like to think of it as the de-stress fund.

But let’s say you get a flat tire and need to get it fixed so you can get to work. That $200 in the emergency fund can help you do that. This fund saves you from putting more on that credit card you are trying to pay down. How much you have in this fund is really a preference and what you need to be comfortable with. Remember this “fund” takes several months to build. It can take a year to reach your personal goal for the fund. Think of this “account” as a revolving door. Money will come out and the balance goes down. Next month, you cut out a few extras. You put that money into the emergency fund instead. The goal is to have money set aside for the “unexpected”.

And NO this is NOT what the “credit limit” or CASH advance on your credit card is for! It is NOT something you should use for your unexpected stuff! Assuming you can help it…That is NOT an emergency fund! IF this is what you use as the emergency fund, the odds are good this will spiral out of control. Everything we do related to personal finance takes time.  When you make minor changes along the way, they start to stack up. Now you have created a new positive habit. Whatever you call this special account really does not matter… Just work on creating one! Get through the first few months of building this account and trust me you will feel empowered.  It’s a new year, so get on it! Next year at this time, you will look back and see the progress you have made. The sense of calm this will bring you is undeniable.  Good luck, you got this! 😊

Your Net Worth…

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When you hear someone say, “what’s your net worth”?  Do you know what the definition of that question really is? AS to not assume, let us break it down to some basics… To calculate your net worth, add up all your “assets” first… If you own a house, what is the estimated current value, how much do you have in savings, as well as in retirement accounts, the value of your car… Let’s stick with the big-ticket items vs things like a diamond ring… Again, we are keeping it simple. The total dollar amount you get is what we call our “assets” for this conversation.

Now the fun part… You need to add up all your debts and subtract that from the asset total dollar amount you got.

 If you own a home and it’s valued at $500,000 BUT you still owe $200,000 on the mortgage… in the asset column under your home, the asset is valued at $300,000, because the bank “owns” $200,000 worth of that home.

If you have student loans, subtract that total amount, same with credit cards and any other debt/loans. If you paid $20,000 for your car and you still owe $10,00 just use the $10,000 vs the blue book value of the car, remember simple. Once you take your total assets subtract your total debt amount and this equals your “net worth.” Sometimes this number is a negative number… Don’t be scared… Its fixable.

 This article from Motley Fools gives a nice snapshot of the “average” Net Worth in the US by age, so you can see where you stand compared to others. Check out the whole article, it’s a good read!

Here’s the Average American’s Net Worth by Age in 2024 | The Motley Fool

For most things in life, average is OK, right? But there are some things in life where “average” is just that “average”. That does not mean it’s a good thing. Unfortunately, Americans do not seem to be good at saving, sad but true, just look at the numbers above. I would bet we used to be! Maybe we were not good at investing/saving because most people worked for companies with a pension.

Pensions are still out there, but they are always moving the needle. I know, because two family members have pensions. Still a great deal! But not like the old days… Maybe those number above scare me because I live in the northeast and its very pricey to live here. How do we encourage the younger generation that just saving a little extra in their retirement accounts in their 20’s makes a HUGE difference 30 years down the road, vs waiting till they are well into their 30’s. if you start in your 20’s the amount each month can be much lower than if you wait ten years.

They say the average car payment these days is over $700 per month for a new car and over $500 for a used car. The average credit card debt in the US is over $6500. Most people want a NEW house, or at least one that looks like the ones on HG TV! I do! Which is why I do not watch those shows… to depressing… ☹ We as Americans want instant gratification and want everyone to see how “successful” we are. Based on the numbers above I think it’s all a smoke and mirror show.

We all need to just squeeze a little more into the long-term investments so that we can take care of ourselves later in life. I am not saying we can’t have nice things but paying ourselves first with money into long term retirement accounts, and not OVER buying on the house and car will go a long way. Unless you plan on living in that nice new car in your older years??? 😊 Small changes make a big difference ten-twenty years down the road. Slow and steady and be aware of big purchases and make good decisions that are well thought out. We have all hade the car issues, the house issues…

What’s the goal here? Be above “average” on the Net Worth chart by just making small changes and nailing new good habits with automation and good decisions on the big stuff.

You got this! 😊

Financial Coaching. And the roll it can play…

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What IS financial coaching, you may ask? These days our lives are much more complicated than decades ago. In the “good old days” there was maybe a list of  6-10 ESSENCIAL monthly bills most people probably had.

Mortgage or rent, utility bill, homeowners’ insurance & car insurance. Maybe a car payment, property tax bill if it was not part of the mortgage payment.

Not much else, for EVERY Month bills. It seemed much easier to keep track of your monthly spending. Even credit cards were just used for “emergencies.”

These days, EVERYTHING is on “credit” or is a must Have! We borrow for college, we HAVE a cable bill, wi-fi bill, streaming services, cell phone bills to cover EVERYONE in the family. Maybe you have water delivered to the house vs drinking it from the tap. We eat more takeout food; we go out to eat more than years ago. We pay to have food delivered. We pay random people to pick us up and drive us places, we MUST have a credit card for MOST if not all of these things! Hey, I just switched my cell carrier, and to get the “deal”. Which did save me $100.00 a month, 😊You need to allow automatic payments on your credit card. They do not tell you that till the very end of the transaction, and it took 2 hours to get it set up! Long story, but at that point I was like, I just want out of here!

The point here is as a society we seem to “need” all this stuff.  Can you really survive without a cell phone? You need an App. for everything! I digress…

So, what does a Financial Coach have to do with all this? The world is busier, and we can easily go down a rabbit hole and overspend, which can lead to more debt than in the old days. A “Coach” is the person that helps you get your arms around your personal finance lifer. The “Coach” helps you face your fears, vs putting your head in the sand, thinking this will pass. It does not pass; it usually gets worse.  The “Coach” is that person that’s right by your side helping you make better decisions one step at as time. Money can be stressful when there is not enough, or when you are having a hard time changing your habits. People have life coaches, why not a  coach that helps people make changes in their financial life? People pay a coach to “force” them to work out or get on track with better eating habits. It makes sense, right?

It’s a thing! And I think it would be a cool gig to be part of! Talking to people about how to help them de-stress over money and help them create a feeling of being in control. I think I may do this!

What does it mean to be financially literate?

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We hear this term a lot these days. In general, most people are fairly “educated”. In the US a person can get a free education till the 12th grade, which in most states you have till your 21st birthday, to complete. Which is fair. Beyond that age… Well that’s a different topic all together.

MOST people are “literate” when they leave school, in general, or at least we hope so.

But school does not make us financially literate, not even a little. I thought school was supposed to prepare us for the real world. Yet it does not teach us ANYTHING about real adulting.

Did they teach you how to balance a checkbook in math class? NO! Yet they told us we needed algebra!  Understanding how a mortgage works or carrying a large balance on a credit card, or what compound interest is, would have been helpful back in those early days, instead of finding out the hard way. That’s how most of us start to figure things out. 

Not to mention how much simpler life was before the internet and you could not see how “great” everyone else’s life “IS” or appears to be. Banks did not just say, hey you make $50,000 a year, you DESERVE this $500,000 house, and we are going to give you the money for it, even though you only have $15,000 (aka 3%) to put down.

What always drove me crazy about this “low down payment’ thing, is HOW will you afford the monthly payments, IF you could barely save the down payment? Then the banks started making people pay PMI. Which was such a joke, because they made YOU the buyer insure your own loan in case you defaulted. NO risk for the banks. People were getting mortgages that had NO idea what they were signing up for. The bank or mortgage company is NOT the one that should tell you how much you can afford for a house, this is something WE should know/decide, as it’s different for everyone. But most people just go with “the bank said we qualify for more than we asked for!” Let’s get the bigger house! After all the bank said we could! The bank is running a business, they don’t care about you. No, they don’t teach us this in school either.

Same deal with credit cards. You get close to your max on a credit card, and you make at least your min. payment, They UP your limit. They want you to carry a balance, it’s good for their business.

These basic things are not taught in school, they are not discussed in most homes, well unless you are wealthy. The wealthy people DO talk to their kids about money, so they grow up in most cases knowing more than the rest of us. And those are just the basic things, never mind that scary word… “investing”! Rich people stuff, right?

The average midclass person looks at investing like it’s a form of gambling. Again, not the wealthy people, that is how they got wealthy!

When it comes down to it most people ARE NOT financially literate, and we need to change that.

Check out these stats from Moneyzine in the attached article.

US Financial Literacy Statistics 2024: Key Demographics & Cost (moneyzine.com)

 Our kids deserve to be educated and make better decisions early on in life vs learning the hard way which ends up wasting so much money that they will work so hard for.  There are many ways to get a better understanding about how money works these days. We have the internet, books, podcast….

As adults we have the power to be more educated about money, so we can make it less tabu for our kids. If the kids are of high school age or older, hey you can do it together! Be honest and upfront and tell them, we are going to learn together! 😊 You got this! Dig in, one topic at a time that you want to know more about. You might find you dig the subject! 😊

Credit cards, the good, the bad, & the ugly…

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Credit cards are like potato chips… It is hard to stop using them. Its even worse now a days with so much online fraud. It’s hard to get money back, due to fraud when you use a debit card vs credit card.  Since Covid more places do not take cash, everything must be on a credit card. The credit card companies want to give you points and cash back and all these “magical” things to make us feel like they really care about us! Come on, they are just large banks taking advantage of us!

Credit cards feel like poison to me sometimes. Unless you are a high earner, most people have credit card debt. According to Credit Donkey they found a statistic stating the Federal Reserve reported only 42% of households can pay their credit card bills in full each month. 23 Sobering Credit Card Debt Statistics (creditdonkey.com) Of the remaining 58% with credit card balances, most are paying more than the minimum, but the other half is only paying the minimum. The percentage of people with $1,000 or less on credit cards is at 15%. According to an article by Forbes magazine, Transunion reported at the end of 2023 the average credit card debt per consumer is just over $6.000! Average Credit Card Debt Study 2023 – Forbes Advisor If that’s per consumer its not unrealistic to think the average household could have more. These are scary stats and most of us have been or are still part of these stats. Its crazy how these little plastic cards can rack up debt so fast!

So how do we change this? I think the only way we can is to really understand our own habits and behaviors. The points game, ya, I personally can’t get sucked in to this. I feel like if I am not putting $5,000+ a month on a card I am not really getting anything for points. I cannot sleep knowing I have $5,000 on a credit card! You know I am not taking $5,000 out of my saving in one swoop to pay that bill! That also feels scary, even if I had the coin to do it! NOPE, both actions give me anxiety. Much easier to only use the card for certain things and set a comfortable limit for myself each month and do everything in my power to stay at that number if not under it. It’s hard! I have to work on my mental toughness EVERY month! It does make me more “mindful” of my purchases. Do I really need this?

How is this going to make me feel in a week, when I am facing this bill? I get we cannot just, NOT enjoy life and its little pleasures, but I do mentally weigh the reward of “the purchase”. I need things like gas in the car, and I usually need the credit card for that, but not for a coffee or lunch… I try to use more cash for those purchases. For some reason, mentally it’s harder to part with cash. Check out this article from Tally on the psychology of cash over credit. In some cases, people would spend 2-3 times the amount for the same product!   The Mindset of Using Cash vs. Credit — Tally (meettally.com) I know it’s very hard these days to NOT use a credit card, it’s like not having a smart phone. But maybe we need to look at our account balance every week or two to stay on top of the snowball effect. I also find sending extra cash say once a week, might not make the bill at the end of month so scary, so I don’t break out in a cold sweat paying the balance. Bottom line we all have to find ways to keep the balance in check. Maybe the first step if you cannot pay the balance in full each month is to be in that 15% of people with $1,000 or less? I would say that should be per household. That sounds more manageable to start, Agree? Then work from there. Don’t get lost in the points and the rewards and all that bull, if you are like most and carry a large balance. Remember the credit card companies are charging you on average 20%, they are not really giving you any deals here.  Getting in a good spot with credit card dept is VERY hard. Stick with it, dig in and face it. If you have more than one credit card, use the snowball effect method. Check out our FREE downloads on how this works. You are not alone; this is a major stressor for most of us. But you can do this! Stay focused and create new habits when it comes to credit cards! Talk to a friend about it, they may be in the same situation, and you can do this together! Nothing to be ashamed about, and it will be something to be proud of once on the other side! You/we got this!!!!

The price of college

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Paying for college….

If you’re like most of us parents, figuring out how you will pay for your kids to go to college is stressful! Back in the 80’s a full-time college student could work part-time during the school year and full time all summer, to pay for a year at a state college. If you lived on campus, maybe you had to work a little more or get some help from your parents, but most of us did not have huge loans hanging over us when we got out.

If you went to a private school, you probably had some loans, but unless it was something like medical school, your loans were “manageable”. I did not know anyone that had to take the full 10 years to pay for those loans, and the loans were at 8%.  The average student debt in 1983 was about $5,500. The average starting salary for a college graduate that same year was just under $18,000.  In 2023 the average federal student loan after graduation was over $37,000, according to the US Dept. of Education, in this article published by Best Colleges; Average Student Loan Debt: 2024 Statistics | BestColleges  Additionally private student loan debt was just shy of $55,000. The interest rates can be anywhere to 4%-15%, for a private loan with a low credit rating, but on average is at 5.8%. The statistics tell us on average it takes most people closer to 20 years to pay off their student loans, vs the ten years you are given to start. This tends to be due to things changing in your life, like the loss of a job, starting a family… The student loan “crisis” IS a crisis. BUT, does it have to be? Look we all want the best for our kids and for them to have all the things they want and more than we had, but come on, its four years of their life, that they might end up paying for 10-20 years! College is a BUSINESS! They do not care that you have debt when you leave, they want you to drink the cool aid! It’s not about “oh this school, just feels right”! This is where I belong. No 18-year-old knows where they belong… and as parents we need to make sure they understand the financial side as well. Some student loan debt is fine, but not double what your first-year salary out of school will be.  Money math must be discussed. There are on-line calculators to show them how interest works. You know like when you buy a house and say you borrow $100,000 from the bank with that 30-year mortgage and then at the end of 30 years, you say “thank you Mr. Banker, here is your $100,000 and another $200,000, for letting me borrow that $100,000! Ya, that’s how interest works! The on-line calculator will tell you exactly what your monthly payment will be and what your total bill will be if you take the full ten years. No excuses! NO forgiveness! SORRY.

The plan has to be in place before the first tuition payment. Get creative, be an RA as an upper classman, FREE housing at most schools, is how they pay you, START paying the loans WHILE you are a student, vs allowing interest to add up. Pick a state college, meaning the state YOU live in, not another state. When you get your first job, they will not pay you more than the other guy, because you have more debt. And parents, we CAN NOT use our retirement savings to pay for college. You cannot finance your retirement. College is an investment and, in most cases, very much worth it! But be smart about it. You’re paying for an education, don’t get lost in the amazing campus.  Schools are pricey now, because of the “facilities” not the education. Make smart choices, school was fun back in the day when we had no all-night dining halls and amazing gyms. We met lifelong friends, played sports, did everything else that college kids do, and got a great education that allowed most of us to move out of our parent’s house 6 months later. Preparing for college is a giant step into adulthood, managing money and understanding how it all works, is part that process.