4 Ways Giving Makes You Better With Money

It sounds counterintuitive, right? Manage your money better by giving it away! However, there are some vital reasons why consistently giving makes us better financial managers.

Before we get into those reasons, let’s clarify what we mean by giving. Giving does NOT include purchasing an item for someone on a credit card which you cannot pay off immediately. Borrowing money to purchase something is not a giving, it’s spending. Giving does not involve debt.

It might be easier to substitute the word “giving” for “donating.” You cannot donate something you don’t own. So for the purposes of this conversation, when we talk about giving, we’re referring to the idea of donating our time, talent, or resources that we own. We are not referring to spending.

Giving isn’t just for holidays or celebrations, it should be part of your monthly budget. I teach my clients a Spending Formula to Win with Money and base their budget off of it.

Giving doesn’t always need to be financial either. Sometimes, you may be living on just enough to get by and in those cases, you can still give, but it may just be more with your time or your talent.

Now that we’re clear on the definition of giving, let’s discuss four reasons giving makes us better with money.

1. Giving Fights Our Natural Selfish Impulses

Besides “Dada” one of the first words my son learned was “mine.” You don’t have to teach children the concept of ownership, we’re hardwired to be selfish. You do, however, have to teach children to share and to give. Giving is a perfect way to counteract our natural selfish impulses. By giving first, we’re fighting the impulse to spend (and overspend) on ourselves.

Have you ever had the experience of taking $100 out of an ATM and then two days later you only have $10 left and have no idea where the money went?

If you give $10 first, you’ll be much more diligent out how you spend the remaining $90.

2. Giving Makes Us Happier

Social science research has shown us that we actually derive more pleasure from giving than we do from spending on ourselves. Our brains are hardwired this way, the act of giving produces endorphins (hormone released in the brain responsible for feelings of euphoria).

When you give consistently in a way that is meaningful to you and you know has impact, it has a greater positive impact on you and your happiness than ‘retail therapy’ for example, which is often followed by feelings of guilt and often greater debt.

3. Hoarders Never Win Financially

My father taught me a lesson when I was around 10 years old that I will likely never forget:

He placed a $1 bill in my hand and told me to hold it as tightly as I could. With one end of the bill inside my clenched fist, he pulled the other end to make sure he could not pull it out of my hand. He said, “Hold it tightly and don’t let go! If you let it go, I’ll take it back!”

He then pulled a $20 bill out of his pocket and tried to place it in my hand. Unfortunately, because my fist was clenched so tightly, he could not put the $20 bill in my hand.

He said, “If you’re tight and stingy with your money, you’ll block the universe from blessing you with more. The only way I can give you this $20, is if you open your hand.” I went from a clenched fist and opened my hand flat as he put the $20 bill in my hand.

If you think to yourself about the people in your life that you would drop whatever you’re doing to go help, they are likely the most generous people you know.

4. What You Do With Little, You’ll Do With Much

Finally, there’s a common limiting belief that if I just made more money I would give more. Some people believe that wealthy people are inherently selfish. I can tell you from my own personal experience that money simply amplifies your existing values and beliefs. Money, much like alcohol, can be a ‘truth serum’ which removes your inhibitions. There are generous wealthy people and there are wealthy jerks. There are generous poor people and there are poor jerks. The truth is that if you’re a giver and you give of your time, talent and financial resources when you have little, you’ll do even more when you have more resources.

Giving consistently isn’t just a nice thing to do, it’s a principled approach to managing our finances that has benefits far beyond the dollars themselves.  

The Money Talk with Aging Parents Every Adult Should Have

Talking about money can be difficult. Even in the information age where we share nearly everything about ourselves, yet money still remains a sensitive topic. Talking about money with our parents may be even more daunting, but it’s critically important.
Sometimes, we make assumptions about other’s financial situations and it’s not until an emergency or critical event occurs we realize our assumptions were wrong. It seems like every month or so that we hear about a famous celebrity like Prince or Aretha Franklin, who had millions in assets, pass without a will. We cannot afford to make assumptions about our family’s finances. The burden and unexpected costs can negatively impact every member of the family.
We have created a Financial Checklist For Your Aging Parents to help you talk about money with your parents which include actions for both you and your parents.
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Here are 5 important tips for having the money conversation with aging parents that every adult should have:

1. Put Your Oxygen Mask On First

The most important step before talking to your parents about their money situation is to begin taking steps for your own financial wellbeing. Before takeoff on every flight, flight attendants will tell you, ‘Secure your own oxygen mask first before assisting anyone else.’ This is key because going through the process yourself will help if you need to assist your parents and it will make the conversation much easier if you’re speaking from experience rather than suggesting they do something you haven’t done for yourself.

Putting your oxygen mask first, in this case, means putting together your estate plan. You do NOT need to be a millionaire to have an estate plan, you do not need to be married or have children to have an estate plan. An estate plan is simply a set of legal documents that give instructions on how to handle your affairs, such as property and assets if you pass or are unable to handle them yourself.

Documents such as a will, living will and power of attorney may seem like complicated legalese, but the Financial Checklist for Your Aging Parents will explain what they are, why they are important and where to get them.

2. Approach These Topics With Sensitivity and Empathy

There is a lot of shame, blame and guilt cast when it comes to discussing money. In our society, we often conflate net worth with self-worth. In other words, one is more valuable if they have a lot of money and less valuable if they have less money. This isn’t a conversation to try to figure out how much money your parents have or what they can potentially pass down to you, This is a conversation about how the family can be prepared in advance both legally and financially.

Let go of judgment and your preconceived notions of what should be because it’s neither relevant nor helpful. It’s possible, for example, that your parents may not have much in retirement funds because they used it to pay for you and your siblings to go to college or to buy a house in the neighborhood you grew up in.

The conversation should be focused on your parents’ needs and goals. They have wishes and desires and it’s important to understand what they are and to respect them. It’s also important to have them on a legal written document so there is no confusion.

This conversation should NOT be an interrogation from an episode of Law & Order, but rather a more casual discussion more like, “I just recently signed up for life insurance and purchased a will, and I realized that we’ve never talked about this before. Have you thought about it?”

3. Speak with Siblings First

All families have different dynamics, but these are topics that can affect every member of the family. It may be more effective to come as a united front with your siblings to have a substantive conversation.

If you have siblings, you may be able to use them as practice conversations and help them get their estate plans in order. Do they have a will? Life insurance? Power of Attorney? Have you discussed guardianship if children are involved? There is strength in numbers. Imagine your family together during the holidays. All the siblings sitting together and one says, ‘We have been discussing over the last few months how to make sure we manage our assets and property and have adequate insurance wanted to make sure you guys were okay as well.’

4. Long Term Care Insurance

If your parents are in their 50s or 60s, they may want to seriously consider purchasing Long Term Care (LTC) insurance. The cost of healthcare is skyrocketing, and people are living longer. Long Term Care insurance pays for care that’s beyond traditional healthcare insurance policies (i.e. in-home care, nursing home, assisted living). Many older adults without LTC insurance are finding that their healthcare costs are wiping out their retirement accounts. Nursing homes can cost over $80K per year and in-home health aides can cost $50K per year on average. Guess who bears those financial costs when that money runs out? LTC insurance is cheaper to buy when your parents are younger and healthier.

5. The Document Vault

As you go through the process of getting on the same page with your parents’ financial situation, all adult family members should have both a physical and virtual vault to store important legal and financial documents. In times of crisis, it’s imperative to have a central location with all the important documents.

In our Financial Checklist for Your Aging Parents, we include a list of important documents and online credentials to keep organized and stored. Each adult in the family should have their own physical and digital vault, as well as knowledge of and access to their parent’s vault.

We focused this conversation on the estate plan because it’s extremely important and generally speaking, low hanging fruit. A basic estate plan can be completed online in a few hours for less than a few hundred dollars. These are products that every family member should have but most don’t. An estate plan has everything to do with making sure the family decides what happens with their affairs in advance. It can keep loved ones from having to fight with courts, insurance companies, banks, and hospitals while still grieving.
Discussions regarding retirement assets, social security, when should they retire and how long that money will last are equally as important, but should be discussed with a professional. Certified Financial Professionals are a great resource to have those conversations if your parents don’t already have a financial professional to help them with their retirement assets.
We have no control over the future and we cannot change the past. All we have is the current moment. Ask yourself if you and your family are fully protected legally and financially. If you’re reading this, then clearly you have a concern.
Download our Financial Checklist for Your Aging Parents. Then put your own oxygen mask on. Finally, get together with your parents and make sure you can all have peace of mind, which is priceless.
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5 Reasons Car Loans Are A Bad Deal

For most of the country outside of a few major metropolitan areas, cars are the primary mode of transportation. The car we choose and how we pay for it, however, can make a world of difference financially. According to the Federal Reserve Bank of New York, 107 million Americans had car loan debt in 2017. That’s about 43% of the US adult population. That’s complete insanity! While there are instances where taking out a car loan makes sense, it’s generally a bad deal.

Why Car Loans Are A Bad Deal

1. Depreciation

Most people don’t understand how costly depreciation is. Depreciation just a fancy way of saying that something is losing value over time. Depreciation for cars is steep. For example, the average new car cost about $30K, but the second you drive it off the lot, when that odometer goes from 0 to 1, the car lost 10% of its value. Imagine taking $3,000 out of your bank account, cash, spreading 300 Benjamins on the floor, pouring gas on it and lighting it on fire.
[bctt tweet=”Some people love the new car smell, to me, it smells like burnt money.” username=”moneyspeakeasy”]
Now that was just the first minute. The average car loses about 25% of its value in its 1st year, and nearly 50% of its value in the first 3 years. So that $30K car is worth about $15K three years later. Now, different cars depreciate at different rates, but the point is borrowing money for a depreciating asset is almost always a bad deal.
Let’s say you went to the store and saw an item you wanted that was $100, but the box was damaged, and it was the last one. Even though the box was damaged, you thought it was still good and wanted to buy it. Typically, they would take 10% off because the box was damaged and offered it to you for $90. What if I told you instead of paying $90, you actually paid $110? That’s what borrowing for a depreciating asset looks like.
When you borrow money, there’s a cost (interest). So not only are you paying the retail cost of the car, but you’re also paying interest while the value is rapidly decreasing.

2. Lengthy Loans

Now that you understand depreciation, you can see why having a long loan term loan is a bad idea. The average car loan in the US is now over 69 months, that’s nearly 7 years. The longer the car loan, the more interest you pay and the more likely it is that you’ll be upside down on your loan, meaning that you owe more on the loan than the car is worth. Trust me, you do NOT want to be upside down on a car loan. That is truly the sunken place. I hate car loans in general, but if you can’t afford to pay it off in 3 years, you honestly can’t afford it.

3. Credit Risk

It’s also a credit risk to have car loans. Within a 5-year span, it’s very likely that you’re going to have at least one major financial emergency. It could be a job loss, a health emergency, home repairs, car repairs or even a combination. If you’ve ever been in that situation, where money is tight because of an emergency, the last thing you want is a bulky monthly car payment. It makes dealing with a financial emergency much more difficult. When you’re in a cash crunch during those times of emergency, it’s much more likely that you’ll damage your credit by missing or being late on payments. One missed or late payment can affect your credit for 7 years.

4. Killing Wealth

The truth is car loans are killing wealth. We have somehow normalized going from car loan to car loan. That’s a recipe for staying broke. The average car payment today is $523/month. Over 30 years, that’s $188,280 worth of car payments. Imagine if we invested it instead.
$523/mo. invested over 30 years is $611,624 with a 7% annual return.
So you can either give $188K away to banks and car companies or earn yourself $611K. You choose.

5. Borrowing Money To Get To Work?

For many people, the majority of their mileage and the primary reason for their car is transportation to and from work. Think about how insane it is to pay over $6000 a year just to get to work. On an average income of $50K, that’s 12-15% of your income before you even start working. That’s not even including gas or maintenance! If you want to really blow your mind, calculate the number of hours you would have to work to pay your car payment for the year.

What to Do instead

Chances are you likely already have a car. Personally, I drive my cars until the wheels fall off because I would rather invest my money than pay car companies.
[bctt tweet=”Most people want to impress others with their purchases. I would rather impress myself with my bank account.” username=”moneyspeakeasy”]
Let’s say you just finished paying off your car loan. Instead of rushing out to finance a new car with a 5+ year loan. Be your own bank and buy a used car cash. You’re probably saying to yourself, “I don’t think I can save up that much money.” Think again. Let’s use round numbers to make this simple. Let’s say you want to buy a car in 3 years, the average new car is about $30K.

  1. Set up a savings account for your car and rename it to the car you want.
  2. Continue to pay a monthly car payment to yourself (i.e. $500/mo.) in that savings account.
  3. Three years from now, buy the car that you wanted 3 years ago. Buy it used with < 50K miles, CASH ($500/mo. x 36 months = $18K + interest). Remember that 50% depreciation? That same car you wanted 3 years ago costs $15K now.
  4. Sell your old car, and put the proceeds in the savings account for maintenance, repairs and/or your next car.
  5. Continue paying yourself the payment, but now invest it (401k, IRA)
  6. Drive it car note free, maintain it well, and when you’re ready for a different car (hopefully not for a long time) rinse and repeat.

Most Americans (76%) are living paycheck to paycheck, and the vast majority of people that buy cars finance them. If you want to be different, you have to do different! Get Out! Car loans are generally a bad deal. Think of the irony of going broke just trying to get to work! Be your own bank, pay cash for used cars, maintain them well and keep building wealth for yourself and your family, not car companies.

5 Lessons About Money You Didn’t Learn in School

April is Financial Literacy Month and the purpose is to bring awareness to basic principles of personal finance. American children and adults routinely fail basic financial literacy questions and personal finance is not a part of the vast majority of schools’ curriculum.
This month, however, we encourage you to take a step back and consider on a high level why financial literacy matters more now than ever. If you can understand the big picture why you need to be diligent about your dollars, then getting into the weeds is not as daunting. Here are 5 lessons about money you didn’t learn in school.

1. Your finances impact nearly every aspect of your life

Money shouldn’t be worshipped, but rather respected. Respecting money means understanding how it works and how it impacts your life. Money is simply a resource and you must utilize that resource wisely. The decisions you make with your money directly impact your family, friends, your home, your health and your job.
Some of our most important decisions in life are made by age 35 (level of education, career, marriage, kids, first home purchase, investment decisions). If you make these decisions without fully understanding the financial implications, it can seriously impact your ability to build wealth.

2. The American Dream can easily turn into a debt nightmare

Many of us were sold a 20th century model of ‘making it’ in America. The formula included – get good grades, go to a great school, get a good job, buy a car, get married, buy a house, have kids. That advice worked well for previous generations, but let’s look at what that formula may cost you today.

  • Undergraduate College Degree (Tuition, Fees, Room & Board, and Books)
    • In-State Public college averages $25,290/year = $100K+ for 4 years
    • Private College average $50,900/year = $200K+ for 4 years
  • Average starting salary for college graduates – $50,359
  • Average cost of a new car: $33,560
  • Average cost of a wedding: $35,329
  • Median home cost: $199,200
  • Cost of raising a child (Birth to 17): $233,610 or about $14K/year

These numbers are not intended to scare you or to imply it’s impossible (although the fact these numbers represent averages is pretty scary). It is possible to do all of these things, however, if you don’t fully understand the financial implications of these decisions, your American dream can easily turn into a debt nightmare.

3. You’re on your own financially, no employer or government will save you

If you’re under the age of 50, you likely don’t have a pension and Social Security is not guaranteed. A pension is basically a financial arrangement with a company which would fund your retirement (as a percentage of salary) in exchange for a certain number of years of service. That’s where the “get a good job with benefits” advice came from. Except for a limited number of government jobs, pensions are practically extinct, so you are on your own for retirement. There is also no such thing as a secure or guaranteed job, so you need to prepare for that as well. You’re working for 40 years (ages 25-65) to fund not working for 30 years (ages 65-95). You need to find a way to save 30 years’ worth of income in 40 working years. Don’t wait until your 40’s to start thinking about retirement investing. Also, don’t assume you can work into your 70’s either, your health may not accommodate it.

4. Delayed gratification can change your financial future

Personal finance is much more about behavior and mindset than money and math. It takes self-awareness and discipline to walk into Target and only purchase the one item we went there for. We are not rational when it comes to money and we must understand ourselves well enough to counteract it. The principle of delayed gratification is very important to be savvy with money. We live in a fast transacting world where we can have nearly anything in 24 hours, but building real wealth is still a slow methodical process. Even though you may want something now and pull out the credit card, it’s almost always a better idea to wait and pay cash. People who build up their delayed gratification muscles and sacrifice immediate wants for the long-term benefit are the true winners when it comes to money.

5. College education has not adapted to the 21st-century economy

The cost of college has risen over 200% in the past 30 years, however, the value of the education is not twice as valuable as it was in the 90’s. While the economy has changed dramatically in the past 30 years, college curriculums haven’t. This does NOT mean college education isn’t worthwhile, however, if you believe your college education is all you need to be prepared for a 21st-century economy, you may be sorely disappointed. Here are just a few vital 21st-century skills needed regardless of major.

  • Financial literacy – Budgeting, saving, credit, debt, investing
  • Entrepreneurship –Building formal structures and processes to create value for others
  • Communication – Public speaking, Writing, Storytelling

Your education shouldn’t end with a diploma. If you want to be successful in any area of life, you should be a continuous life-long learner. Understanding how money works and how to maximize your financial resources to live your life on your terms should be near the top of the learning list. Financial literacy is simply learning to be a good steward of your financial resources.

7 Ways to Maximize Your Income Tax Refund

You take a few hours one weekend between February and April to pop numbers into your online tax prep software or prepare documents for your accountant. You don’t know whether you’re going to owe more to the government or get money back in the form of a tax refund.  

Quick side note: Getting a large tax refund may sound like a huge win, it can often mean that you had too much taken out of your paycheck. In other words, you gave an interest-free loan to Uncle Sam. So while it may be tempting to cheer when you get a big refund check, you may want to take another look at your W-4 exemptions to make sure the right amount is taken from your paycheck. Imagine if you overpaid your rent monthly and received your surplus payments back in April of the following year. Not a cause for celebration, in fact, you might be upset and you would figure out what the correct amount was so you didn’t overpay.

So let’s say that you are “fortunate” enough to receive a large tax refund. The question is, what do you do with that money? Well here are seven ways to maximize your refund so you don’t regret a single dollar you spend.

1. Make a donation  

The size of the donation is not important, it’s the act of giving first that’s important and giving to something (or someone) that’s meaningful to you. Giving is one of the most important aspects of my Spending Formula to Win with Money. That spending formula applies to any money you receive, whether it’s a tax refund, paycheck, inheritance or a gift. Giving counterbalances our naturally selfish instincts to spend on ourselves first and also makes us happier.

2. Emergency Fund

An emergency fund, separate from your checking account (preferably at a different bank), is one of the most important financial decisions you’ll make. You should have a minimum $1000 cash in savings at all times. This is to help keep you out of credit card debt in case of emergencies. This is not an account that you’re looking to make a ton of interest on, it’s an account that you put money into and forget about until your car breaks down, you get a bill from an ER trip, or you have to travel unexpectedly for a funeral. Online savings accounts work perfectly for this.

3. Pay Down High-Interest Debt

If you have revolving credit card debt (you carry a balance from month-to-month), check out the annual interest rate on your card(s), It’s likely 15%+. Giving credit card companies and banks interest payments on items you’ve likely already consumed is like lighting money on fire. Credit card companies are NOT charities! Let’s not donate our hard earned money to them. You cannot find a bank that will pay you guaranteed 15%-25% annual interest, but VISA, AMEX, and Discover are making that off of you. Let’s not.

4. Resignation Fund (Emergency Fund with Flair)

If you have at least $1000 in your emergency fund and you have no credit card debt, consider increasing your Emergency fund to 3-6 months of essential expenses. That is different from 3-6 months of income. Essential expenses are your housing, food, healthcare and transportation costs. If you lost your job tomorrow, how much would you absolutely need monthly to get by without credit cards? (FYI – cable and  smartphones are not absolute needs) When you have a fully funded Resignation Fund, it changes the way you look at your job and how you value your time. Remember, 76% of Americans live paycheck-to-paycheck, meaning they don’t have enough cash savings to cover basic expenses if they missed 1 or 2 paychecks. They would have to borrow money. That’s living on the edge! Have you ever noticed wealthy people use different language when they quit? They resign. It’s a polite way to tell your employer, “I’m just not that into you anymore.” Don’t let your employer control your life! A Resignation Fund gives you the flexibility to walk away if you need to and the security to maintain your expenses if you are unexpectedly laid off.

5. Roth IRA

If you have a fully funded Emergency/Resignation fund and no credit card debt, you should consider long-term investing. We discussed before What a Roth IRA Is and Why You Should Care, but it’s a great option for investing outside of your 401k/403b if you have one. There is an annual contribution limit of $5500, and you have until tax day the following year to contribute, so at the time of this writing, you can still contribute for the 2017 tax year until tax day 2018.

6. Personal Saving and Debt Payoff Goals

Now that we’ve got your emergency and retirement savings out of the way, you can stash funds for a vacation, a home, a car, wedding, kids college fund, etc. You can also put extra money down to pay off debts like student loans or auto loans.

7. Splurge

Often with money, particularly when we receive a lump sum, we spend first and if there’s any left over, we may save and donate. This is a broke mindset and broke behavior! Remember 76% of Americans are living paycheck-to-paycheck, so if you want to be different you have to do different! I want you to do the exact opposite. Give first, save second and spend third. Once you’ve taken care of your important giving and saving priorities, you can spend guilt free!

Have More Finance Dates With Your Partner

As a couple, it can be difficult to get on the same page financially and agree upon sensitive financial topics. We may have different backgrounds, experiences, personalities, and preferences when it comes to money. Fortunately, there are ways to stay on track, keep focused and have fun. My wife and I have monthly check-ins we call Finance Dates. We’ll describe what they are and why they’re important.

What Is a Finance Date?

My wife and I have a monthly Finance Date on the calendar to check in on our financial progress from the previous month, assess our current status, and review our progress toward our annual goals. There’s an element of the past (what we did last month), the present (where are we now) and future (where are we trying to go). This keeps us laser-focused on our financial goals so that we can make adjustments along the way, as opposed to setting the same goals and resolutions year after year.
One of the advantages of being in a relationship is having a built-in accountability partner. It is an opportunity to leverage each other’s strengths to keep making progress. For example, for Finance Dates, if one partner is more of a planner and detail-oriented, they could take the lead in organizing the finances. I’m a personal finance nerd, so reviewing our spending, updating our budget, tracking our net worth and forecasting ahead is actually fun for me. If the other partner is more free-spirited and spontaneous, they can take the lead in organizing the date. Whatever your strengths are, BOTH partners need to be involved in understanding and agreeing upon your financial goals. It is essential that each person understands all the financial accounts, where they are, how to access them and their purpose. Just because one partner takes the lead in organizing doesn’t absolve the other partner of their responsibilities. Talking about money doesn’t have to be stressful, judgmental and depressing. It can actually be fun!

How Do You Make Finance Dates Fun?

Use your Finance Dates as an opportunity to celebrate! Any time you set long-term goals, it’s really important to celebrate the small wins. The small wins are what keep you motivated along the path to achieving the big goals! Paid off a credit card? Celebrate! Saved $200 by making breakfast and bringing lunch to work? Celebrate! Paid off a student loan? Celebrate! Increased your credit score? Celebrate! As the liquor commercials say, Please Celebrate Responsibly! This is where the strengths of the more spontaneous, free-spirited partner can come in! Ice cream and a mid-afternoon dance party at home? Yes, please! Your favorite evening go-to romantic activity? Oh yeah! Be creative and find ways to enjoy the process of moving toward your goals. Even if there isn’t all that much to celebrate on paper, the very fact that you two are coming together to review your finances and discuss how to improve is, in fact, a WIN!! Consider all the couples that are not doing it!
We know that finances are one of the top reasons for divorce and the biggest source of stress for most individuals and couples. We created a Finance Date checklist to help you in these discussions and recommend a monthly cadence to both improve the relationship and make progress on your financial goals. Use your advantages as a couple to turn that potential source of stress into an opportunity to get closer and celebrate each other!

5 Topics All Couples Should Agree On Financially

Let’s be honest, money is emotional and complex! It impacts nearly every aspect of our lives and most certainly impacts our relationships with our significant other. Since money is still such a taboo topic in our culture, miscommunications can create small cracks in the bonds of our relationships. Like a small crack in a windshield, it can expand over time and damage the entire windshield. However, it’s also true that small cracks can be repaired simply if they are identified and corrected early.
When thinking about finances as a couple, we must understand that we’re partnering two people with different backgrounds, experiences, goals, and values when it comes to money. A couple partnering their finances is essentially entering into a business partnership, with the exception that businesses typically have a formal written contract which stipulates the rules each partner must abide by, most couples don’t have a written contract. In absence of a written contract, we need to come together to have a common understanding of some fundamental questions.
Before we get into those fundamental questions, let’s be cautious about how we set up these conversations. Personal finance is just that, personal. When we’re having conversations about money, they can be extremely intimate and bring up emotions of shame, defensiveness, guilt, and even anger. Do NOT corner your partner in an interrogation room Law & Order-style with a bright light asking intimate financial questions. You want to create an environment that is safe, positive, private, honest, and free of judgment. This is also not just one conversation but should be several and ongoing. Make it a finance date! We’ve created a checklist of items to discuss to make sure you can cover all your bases.
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So let’s get to the questions! The following are 5 topics couples should agree upon financially.

1. What are our financial values and priorities when it comes to money?

As we mentioned before, we have different priorities and values when it comes to money. One partner may view money through the lens of power and control. For example, they may be a meticulous planner and want to maximize every penny. The other partner may believe money enhances their experiences and relationships. They may see money as a means to see more and do more. In this situation, one partner views their partner’s financial behavior as controlling/limiting and the other partner views their behavior as undisciplined and wasteful. If we only view our partner’s behaviors through our own frame, it can create a purely biased and unbalanced view that can create many small cracks in the bond. It’s important to discuss these views openly and come to terms with what your joint values and priorities are.

2. What are our individual and joint financial goals?

After discussing your values and priorities, then you can discuss financial goals. Goal setting is important individually, but it’s even more important as a team to ensure you’re both rowing in the same direction. Your goals have to be specific, written and shared.  An unwritten goal is called a wish. Can you think of any successful teams, businesses or organizations that don’t have specific written goals? Come up with your financial goals individually and then bring them together to set joint financial short, medium and long-term goals.

3. What is our plan for managing debt?

Misuse of credit is one of the largest contributors preventing people from building wealth. Debt is essentially present borrowing against future income. Unfortunately, too often people find themselves in a situation where their future catches up with them, and their new present is unbearable. Living paycheck to paycheck can create ever-present stress because financially they are just treading above water, knowing that one uncontrollable change could cause them to start drowning. Working hard just to pay off debt from the past and not being able to take advantage of opportunities in the present or save for the future can put a serious strain on both the individual and the relationship. Discussing current debts, and being on the same page in terms debt that you may incur in the future (mortgage, business loan, student loan) is vital.

4. What is our plan for handling emergencies/loss?

You know the saying, $%*? happens! The question is not whether it will happen, but rather are you prepared for it when it does. Having an emergency fund is vital for anyone to have, but that’s just a first step. Once you’re in a committed relationship and are partnering your finances, you need to discuss how to handle a situation in which one or both of you are disabled or passed on. If you think those are difficult conversations now, think about how much more difficult it would be in the absence of these conversations afterward. Don’t add financial stress to grief.
Life insuranceDisability Insurance, Living Will, Healthcare Power of Attorney, and organizing confidential paperwork and passwords. These are examples of items you can take care of relatively inexpensively which go to piece of mind.

5. What is our plan to build wealth?

So you’ve sorted your values, set goals, managed debt and planned for contingencies, now let’s talk about wealth building. Most people who work simply exchange their time and skills for money. At some point, they may no longer want to continue that exchange. Some people call it retirement or financial independence, the goal for most people is to amass enough financial resources to have independent control over the use their time and talent. The best way to do that effectively is to plan, save and invest as early as possible. There are a zillion routes to get there; combinations of employment, entrepreneurship, equity investing, real estate investing, inheritance just to name a few, but you and your partner want to be on the same page in terms of what is the end game, how much do we need, and approximately how long will it take?
We created a checklist of items for your finance date and we are also developing an online course with live coaching to help couples dig deeper into some of these topics to get on the same page financially.
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Discussing finances as a couple can be a very tough road to travel. There can be potholes, detours, roadblocks, speed bumps, accidents, and traffic. However, if you and your partner can agree upon where you’re going, how to manage challenges and which routes to take, it’s much more likely that both you will get there, together.

5 Steps to Financially Prepare to Be Laid Off

It’s very possible, and some would argue very likely, that you could experience being laid off from your job at least once in your career. There really is no such thing as job security these days. Experiencing a layoff unexpectedly can trigger a range of emotions. The company you have devoted thousands of hours of your life to, away from your family and friends, abruptly informs that you and your services are no longer needed. Betrayal, frustration, anger, sadness, anxiety, and embarrassment are just a few of those emotions. It doesn’t have to be that way though! If you are financially and emotionally prepared for a layoff, it can be an empowering experience.

1.    Your Employer is Just Not That Into You

Unless you’re in a union, have a written employment contract or live in Montana, employees of private companies are likely subject to at-will employment. Three-quarters of American workers are subject to at-will employment. Let’s understand what that means:
At-will means that an employer can terminate an employee at any time for any reason, except an illegal one, or for no reason without incurring legal liability.
Again, there is no such thing as job security! With a few protected exceptions, (e.g. based on race, sex, gender, national origin, age, disability), a company can terminate your employment at any time for any reason, or for no reason at all. Many of us don’t realize this simple fact and base our livelihoods around our employer. Where we live, what time we wake up, what time we sleep, when and where we vacation. Most of our lives are centered around our employer and that connection can be ripped away for any reason or no reason at all.
This is not to bash corporations, but rather simply to put into context that many of us are centering our lives around a relationship that has little to no contractual stability. In other words, you are not married to your employer, you’re just dating.
Corporations, especially publicly traded companies, have one primary goal – Increase shareholder profit. Regardless of what it says on your employers’ ‘About Us’ page, everything your company does centers upon that one primary goal. Corporations are like animals in the wild. That animal may look cute and cuddly, but the second it even perceives a threat to its survival, it is deadly. If company leadership decides that it needs to remove 10% of its workforce to be more competitive, it is their fiduciary duty to do so. It’s not even about you. They are just not that into you.

2. You are the CEO of [YOU], Inc.

Once you understand that you are not wed to your employer, the next step is to understand that you yourself are a corporation. The employment contract has changed dramatically from the days of our parents and grandparents, pensions have all but vanished, unions have diminished. You are solely responsible for your financial well-being, that includes preparing for layoffs and managing your own retirement. Once you begin to see yourself as a business, ask yourself a simple question: Can you think of any successful businesses that only have one client/product? Probably not, because if that one client leaves or the product stops selling, they would be out of business. Well, if you are an employee and your employer is your sole source of income, that’s exactly what you are doing.

3. Build an Emergency Fund

Once you get your head around the fact that you are not wed to your employer and you are actually a business, a world of opportunities can open up to you. By no means are we advocating quitting your job, but once you see your employer as one client and one revenue stream, you can start to focus on other things.
You have to build an emergency fund. No excuses, it’s vital. Three to six months of your essential monthly expenses (in cash in a separate bank account) is a great goal and gives you the peace of mind that you can pay your bills if your employer breaks up with you suddenly.

4. Evaluate Your Skills In the Marketplace

If your employer is your primary client, can you use that same skill set for other clients? If you do social media marketing for your employer, can you do social media marketing for other companies in other industries? You may also have skills that are completely outside of what you do from 9-5 that you can think about monetizing. One way to evaluate this is to ask yourself three questions:

  1. What do people come to me for advice for personally and professionally?
  2. What problems do I want to solve?
  3. What value do I bring to the marketplace that people are willing to pay for?

Since you are a business, you must think about solving problems for others and providing value to the most amount of people. Once you start thinking this way, the gears will start to turn and you can develop side hustles and other sources of income outside of your employer.

5. Let Your Employer Help You

Finally, utilize your employers’ resources. You may just be dating your employer, but there are advantages to dating wealthy. Here are a few suggestions on how to make sure you’re getting the most from your relationship with your employer.

  1. Maximize Your Employment Benefits – don’t leave money on the table because you haven’t looked at the HR Portal in a while
  2. Take Employee Development seriously – You must continuously learn and grow to make yourself (and your business) more marketable. If your employer (primary client) is willing to pay for you to develop new skills, that can be valuable in your current role, future roles and for other clients.
  3. Build Your Clientele – Now that you know that you’re just dating, give yourself permission to see other people. Network within your company, your company’s business partners, and competitors. There are people within all three of those groups that can be future employers and/or future clients.
  4. Check Your Value in the Marketplace – Employers have a financial incentive to pay you less than market value, especially over time. Remember, their #1 goal is to increase shareholder value and your salary may be in direct conflict with that goal. You are solely responsible for ensuring you are getting paid market value, no one else. Every 3-5 years, you should be testing that value in the marketplace by applying for jobs. Not only is applying for jobs good for networking and building clientele, but it also helps keep you from being severely underpaid, costing you tens of thousands of dollars in the long run.

Thirty-year employees are increasingly rare each day. You most likely will not work for the same employer for your entire career. Understanding the true nature of your relationship with your employer and your responsibility to your own financial well-being is vital. If you understand your value in the economic marketplace and maximize that value not just for your current employer, but also for [YOU], Inc., getting laid off can be an opportunity, not a catastrophe.

What You Can Do To Protect Your Identity

Despite our best efforts, our private information is housed with hundreds if not thousands of private companies and government agencies. We’re also personally barraged with direct attempts at our private data through phishing emails, IRS scam phone calls, and hacking public Wi-FI. These days thieves are more likely to want your Wi-Fi password than your wallet. According to a recent study, $16 billion was stolen from 15.4 million U.S. consumers in 2016. In the past six years, identity thieves have stolen over $107 billion.
This week, a massive security breach was announced at Equifax, one of the three major credit bureaus. The impact was estimated at about 143 Million people or basically half of the country in one of the largest cyber security breaches ever. Whether or not you have chosen to do business with this firm, they likely have a great deal of your personal information including your address, birth date, social security number, driver’s license info, credit card numbers, and financial records.
Equifax has set up a program to help people protect themselves and their data from potential identity theft, but it’s not without its challenges:

  1. The online tool Equifax set up to notify people whether or not they have been impacted has been beset with errors. Many people have received conflicting information about whether they were impacted after putting in the same information multiple times. It’s best to assume you have been impacted whether the tool says so or not. The tool requires 6 digits of your social security and your last name to find this information out, which is highly irregular and doesn’t inspire confidence from the firm that just got hacked.
  2. Equifax offers a complimentary credit monitoring protection program but gives you a date (which can be a week away) for when you can enroll. Your private information has been stolen since May, but give us one more week before we can help you.
  3. The identity protection program is by TrustedID, Equifax’s own program which offers credit monitoring for a year.
    This is kind of like a restaurant that had an E. Coli outbreak offering you a free meal coupon afterward.
    To enroll in TrustedID, it requires additional personal information and your credit card, which may auto charge you once the trial ends next year. Surprise! It feels like a bit of self-dealing and an attempt to profit from their own crisis.
  4. In the terms of conditions of the TrustedID program, there is a forced arbitration clause which potentially limits your rights to be part of any class action lawsuit going forward. After intense backlash, Equifax recently commented that clause won’t apply to this breach, but yet they did not waive the clause.
  5. Top executives at Equifax sold hundreds of thousands of dollars of stock after the breach was known internally but before making it public. This could be a complete coincidence but again looks like self-dealing.

Those are some serious challenges which don’t inspire a great deal of confidence. So let’s talk about what you can do to protect yourself now and in the future.

1. Check Your Credit Report

Regardless of whether you decide not to enroll in the TrustedID program, you should check your credit reports. You can access your credit reports for free at annualcreditreport.com. You can get one free report from each of the three main bureaus (Equifax, TransUnion, Experian) annually, so most people spread them out quarterly. You want to look for any accounts you don’t recognize. If you see accounts you don’t recognize, contact the company and speak to their fraud department immediately. The Federal Trade Commission also has additional information and resources.

2. Set Fraud Alerts or Freeze Your Credit

Freezing your credit will stop anyone (including yourself) from opening any credit accounts in your name until the account freeze is lifted. In order to lift the freeze, you will have to call the bureaus and provide the PIN that was given at the time the credit freeze was issued. This is the strongest protection measure, but not recommended if you are planning to open new credit in the near future (purchase a car, home, etc). There is a charge to enact the freeze (typically $5-$10 per person for each bureau) and a charge to temporarily or permanently lift the freeze (varies by state).
A fraud alert, on the other hand, is free and basically like two-factor authentication for your credit. The credit issuing company will have to verify your identity before opening an account. Fraud alerts last for 90 days but can be renewed. You can set fraud alerts by calling or going online at the three major bureaus.

3. Consider purchasing ID Theft Insurance

Identity theft is broader than someone accessing your credit card number and purchasing stuff. It can also mean using your social security number to access loans, medical services, government benefits, and tax refunds. With most crimes, if you are a victim, you call the police and outsource capturing and punishing the criminal. When your identity is stolen, you are both the victim and a potential perpetrator, so you’re guilty until proven innocent. You have to prove you are who you say you are and that you are the victim. That’s a different ball game altogether.
ID Theft Insurance doesn’t pay for the money stolen from you or in your name, but it reimburses you for the expenses involved in recovering your identity, such as legal fees. More importantly, if there is an identity theft incident, having a contact to help you resolve the issue quickly and efficiently is key. I’ve personally purchased ID Theft Insurance for the past 10 years from Zander Insurance at the recommendation of Dave Ramsey, and with each new data breach I see, I’m grateful for it. They’ve offered a fantastic inexpensive service which not only monitors your credit, but can also monitor your social security number, change of address, and other personal information (i.e. driver’s license, medical insurance, credit/debit card) should you choose.

4. Check Your Accounts Consistently

You cannot completely prevent ID theft, but you can limit the damage by checking your financial accounts consistently. Free services like Mint.com can aggregate your financial accounts and you can check daily for new transactions. You can also set alerts to receive notifications for purchases over a certain amount. Also, services like Credit Karma or Credit Sesame will allow you to check your credit more frequently. Keep in mind these free services only access one or two credit bureaus.  

5. File Your Taxes Early

Imagine going to file your taxes and expecting a refund to receive a message that your taxes have already been filed. The IRS has a huge issue with tax fraud through identity theft. Identity thieves are using stolen social security numbers to steal millions of dollars of tax refunds from unsuspecting individuals. Filing early is a way to defend against that possibility. The IRS has additional information on safeguards for ID theft

The #1 Killer of Wealth in America

It’s not a surprise to hear stories these days about the middle-class shrinking. A big part of that trend has to do with the lack of sustained wage growth for decades. Families were essentially standing still financially while the tide of inflation continued to rise. The tide came in and many families are underwater. However, stagnant wages and inflation are not the full story and may not even be the most important part.
During this time of relatively flat wage growth, one would think that personal spending would go down. Typically people spend less when prices go up. For example, when gas prices go up, people tend to drive less. However, over the years, the complete opposite happened, while wage growth has been flat for the past 30 years, consumer spending has shot through the roof!
How do you explain that? One word. Credit.

Misuse of Credit Kills Wealth

We’re not looking to bore you with the history of credit, but as consumers, the only way to spend what you don’t have is to borrow. Over the past 40 years, banks have made credit such a regular part of everyday life, that today, you likely may not know an adult that doesn’t own at least 1 credit card. Imagine before credit cards, where you had to walk into a bank and fill out all kinds of paperwork to get a personal loan. We must acknowledge, access to credit is actually a good thing when used properly. The problem comes when credit is misused or financial products are designed in such a lopsided fashion that debt problems are inevitable.
The way most people build wealth is to consistently save over an extended period of time. They use those savings to invest in the stock market, real estate, or to build/invest in businesses. Unfortunately, as credit availability grew and became mainstream, personal saving rates did the exact opposite.
Above is a chart showing the outstanding credit since 1970. Keep note that credit cards really didn’t start becoming mainstream until the 80’s. You’ll notice that credit begins to skyrocket in the 80’s and hasn’t stopped since. Compare that to the chart below showing personal savings rates. People used to regularly save 12-15% of their income in the 70’s, but now it’s down to 5%. One guess on where that 10% difference went. According to a NerdWallet study in 2016, the average family with credit card debt pays $1,292 in credit card interest per year. That does not include interest paid on student loans, auto loans and mortgages.
This is not all about reckless consumer spending, there’s plenty of blame to go around. Inflation, lack of government regulation and complex, misleading terrible financial products are a large part of the problem. For example, recently auto dealers started extending 8-year auto loans. Depending on the interest rate, a borrower could pay as much in interest on that loan as the car itself. Imagine paying $50K for a $25K car and at the end of those 8 years, the car is worth less than $5K. The point is paying interest to banks is the exact opposite of building wealth. The money spent on interest payments for credit cards, auto loans, student loans, mortgages is money not saved and not invested.
It’s not about whether credit/debt is good or bad. Consumers need to be much more savvy about the cost of borrowing money. It’s not simply the monthly payment, but the amount of interest over time and what one is losing out on by paying that interest. It’s about making an active decision about which side of compound interest you want to live on. You’re either paying interest and growing the profit of banks or receiving interest by investing and growing your own wealth. Choose wisely.